Article

Leases

How to proceed at present?

The COVID-19 pandemic and related measures affected both lessors and lessees of apartments and commercial premises, giving rise to new rights and obligations for both parties. New laws have been enacted and subsidy programmes launched due to the pandemic but there have also been other changes and novelties in the real estate law which do not relate to the pandemic directly.

Regulations mitigating the impacts of the COVID-19 pandemic on lessees

Apartments

  • Until 31 December 2020, lessors must not terminate the lease due to the lessee being in arrears with the payment of rental which was due from 12 March to 30 July 2020.
  • The delay must be caused primarily by an emergency measure against the COVID-19 effects; the lessee has to demonstrate the reason for the delay to the lessor by a confirmation issued by the Labour Office. 
  • The lessee has to pay the outstanding rental by the end of 2020. 
  • The ban on terminating a lease does not involve other reasons for termination. After the emergency measures are no longer effective, the lessor may require lease termination if it is unfair to continue to require the statutory limitations from the lessor (the lessor would not have sufficient subsistence resources due to the delay).
  • Not only a lease but also a sublease of premises (incl. houses, their parts or other premises leased for housing purposes).

Business premises

  • Until 31 December 2020, lessors must not terminate the lease due to the lessee being in arrears with the payment of rental which was due from 12 March to 30 June 2020.
  • The delay must be caused primarily by an emergency measure against the COVID-19 effects; the lessee has to demonstrate the reason for the delay to the lessor, e.g. by way of accounting documents. 
  • The lessee has to pay the outstanding rental by the end of 2020.
  • The ban on terminating a lease does not involve other reasons for termination. After the emergency measures are no longer effective, the lessor may require lease termination if it is unfair to continue to require the statutory limitations from the lessor (the lessor needs the premises for own use).
  • Not only lease but also sublease and usufructuary lease of premises (incl. apartments and other premises leased for business purposes).
Analysing the Terms of a Lessor-Lessee Relationship and Recommendations for Possible Solutions

Programme of the Ministry of Industry and Trade Supporting Businesses: “COVID – Rental”

Programme objectives and conditions 

  • Individuals (entrepreneurs), legal entities
  • Based on emergency measures, the sale of goods and services in establishments was banned from 13 March to 30 June 2020 
  • Subsidies for a partial payment of rental for April, May and June 2020
  • Performing business activity under the Trade Licensing Act or another legal regulation
  • The establishment is not owned by the applicant (lessee)
  • The lease agreement was concluded before 12 March 2020 (this also includes sublease and usufructuary lease)
  • The applicant (lessee) is not related to the lessor
  • The applicant is not in arrears with their payments to selected institutions (Tax Office, Czech Social Security Administration, Ministry of Finance, health insurance companies, etc.)

Support

  • The lessor will provide the lessee with a 30% rental discount.
  • The Ministry of Industry and Trade will provide a subsidy amounting to 50% of the rental. 
  • In situations where the lessor is the Czech Republic, the subsidy amounts to 80%.
  • The amount of support is CZK 10 mil. at maximum
  • Subsidy is paid ex post
  • The support is conditioned by waiving the rental-related compensations to be provided by the Czech Republic. 
  • In the event of using this lessee support, it will not be possible to draw simultaneously some other support for lessees for the same period.

Other News in Real Estate Law

Amendment to the Civil Code – Act No. 163/2020 Coll.

On 1 July 2020, an amendment to the Civil Code took effect, which may impact the situation of selected apartment owners or lessees.

The major change includes the new wording of Sections 1124 and 1125 of the Civil Code,

i.e. narrowing the definition of the pre-emptive right to the wording effective in 2014. The amendment thereby reflects the current issues caused by an excessively wide group of co-owners that have to be approached with a purchase offer when an apartment is sold

(e.g. when a parking place or a part of basement premises defined by a co-ownership share in the entire non-residential unit also belong to the apartment). The statutory pre-emptive right will newly be granted primarily to those co-owners who were unable to affect their rights and obligations (i.e. mainly the origination of co-ownership) from the beginning.

Furthermore, the lessor will newly be able to impose a contractual penalty upon the lessee in the event that the lessee fails to meet their obligations and if the penalty is defined by the parties in the lease agreement. Pursuant to the current wording of Section 2239 of the Civil Code, arranging a contractual penalty is forbidden and apparent.

Regulation of shared accommodation services

In the first half of 2020, more changes were introduced, primarily aimed at shared accommodation services, such as Airbnb. Due to the above-specified amendment to the Civil Code, apartment owners will newly have to, in advance, inform the housekeeper of their business or other activities that may cause noise and disturbance in the house, not only for a temporary time period. The number of temporarily accommodated people will also newly be reflected in the amount of prepayments for housing-related services.

Other restrictions of short-term accommodation are also initiated by the Capital of Prague. An amendment to the Trade Licensing Act should restrict the length of stay or the number of accommodated guests.

Cancelling the real estate acquisition tax

A bill repealing Statutory Measure of the Senate No. 340/2013 Coll., on Real Estate Acquisition Tax, is currently in the legislative process.

This regulation would cancel the 4% tax on real estate acquisition, which is now paid by the purchaser upon acquiring real estate unless the transaction is exempt from tax. In this context, the deduction of interest on mortgage loans from the tax base of personal income tax will be cancelled.

For further information or a detailed assessment of your situation in relation to tax legislation, please do not hesitate to contact tax specialists from Deloitte with whom we closely cooperate in providing client services.

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