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New Proposed Legislation Regarding Rental Payments

5 May 2020

The Romanian Chamber of Deputies approved on 29 April 2020 another bill of law regulating payment obligations under lease agreements during the emergency status period (the “Project”). This is not enacted legislation, as it still has to be endorsed by the President and published in the Official Gazette.

In brief, the Project no longer links the postponement of rental payments to the issuance of the emergency status certificate, and makes the measures provided therein available to a broader range of entities, not just small and medium enterprises.

Who can request postponement of rent under the Project?

As per the Project, postponement of rental payments is available to (among other beneficiaries) all tenants legal entities whose activity has been interrupted or whose March income has dropped by at least 15% by reference to the average income of the preceding calendar year.

How long does the postponement apply?

Postponement for the tenant applies throughout the emergency status period plus one month thereafter. The measure only applies to rental payments, so any other payment obligations of the tenant under the lease agreement (such as utilities, or operational costs would remain due and payable).

How does it work?

Although the Project refers to postponement of rent payments, it also provides that the local fiscal authorities will make the rental payments towards the landlord instead of the tenant. The tenant will then be obliged to reimburse such amounts to the fiscal authorities in equal instalments starting with the expiry of the postponement period until end of December 2020, or otherwise risk being subject to enforcement proceedings.

Although it is not very clear from the text of the Project, it seems the application with the fiscal authorities may be filed by either tenant or landlord, but if filed by the landlord, payments are capped to RON 10,000 (approx. EUR 2,000) per location per month. It is not yet clear if the cap applies to requests filed by the tenant as well.

In any case, access to this measure is subject to (i) documents justifying the fact that the tenant cannot make rental payments and (ii) an addendum to the lease agreement regulating the understanding between the landlord and the tenant with respect to the length of the postponement period and the amount which is due for the respective period. Any rent postponed (and requested to be paid by the fiscal authorities) cannot be higher than the rent for the month of February 2020.

Is the postponement mandatory for the landlords?

In order to benefit from the provisions of the Project, the tenant must convince the landlord to conclude an addendum to the lease agreement and specifically accept receiving rental payments from the Romanian State. Depending on the solvability of the tenant, this scenario could be more or less attractive to the landlord, who could be eventually put in the position at a later stage to compete for future rents against the State in enforcement proceedings against the tenant.

Notwithstanding the above, in our interpretation of the proposed legal provisions, the landlord cannot be forced to sign an addendum to the lease and will therefore retain the right to demand specific performance from the tenant. Should the landlord choose this course of action (i.e. enforce the lease agreement against the tenant for the period of the state of emergency plus one month), we cannot rule out that certain tenants may challenge such conduct and try to oblige the landlord to take the necessary steps and accept payment from the fiscal authorities.

Many provisions of the Project are unclear and uncorrelated. Hopefully, the norms for enacting the Project (to be implemented after the Project is published with the Official Journal and becomes law) will bring more clarity to these topics.

Fiscal facilities for the landlords

The Project also includes some fiscal facilities for the benefit of landlords who agree to decrease rental payments for 2020 – for instance, a decrease of at least 20% by reference to the rent afferent to February 2020 means that the income from such discounted rents is only 80% taxable, throughout the period of the rent reduction, but not longer than 31 December 2020.