1. TEMPORARY PROTECTION FOR TENANTS
Under an amendment to Act No. 62/2020 Coll. on Specific Response Measures to the Spread of the Dangerous Contagious Human Disease COVID-19 and in the Judiciary, which amends certain acts (“Temporary Protection Act”), tenants (entrepreneurs and non-entrepreneurs alike) are provided with temporary rent protection if they fall behind with their rent and other payments related to their rent as a result of circumstances originating from the spread of COVID-19.
Under §3b of Act No. 62/2020 Coll. on Temporary Protection, a landlord may not unilaterally terminate a real estate rental agreement until 31 December 2020 (including rentals of flats and non-residential premises) for tenant default in making rental and other standard payments related to their rent due in the period from 1 April 2020 to 30 June 2020 if the tenant’s default occurred as a result of circumstances originating from the spread of the dangerous contagious human disease COVID-19. Such reason for default must be sufficiently proven by the tenant. Other reasons for terminating a rental remain unaffected.
A tenant must fulfil the following conditions to be eligible for temporary protection:
- the rent in arrears must be due in the period from 1 April 2020 to 30 June 2020,
- such late payments must occur as a result of circumstances originating from the spread of COVID-19,
- the reason for default must be sufficiently proven.
A landlord is authorised to unilaterally terminate a rental agreement on the grounds of rent payment default for any period other than that specified under the law, meaning prior to 1 April 2020 and after 30 June 2020, regardless of the reason for default.
The Temporary Protection Act does not prohibit a landlord from unilaterally terminating a rental for any reason other than circumstances originating from the spread of COVID-19. Likewise, the Temporary Protection Act does not specify a landlord’s entitlements under tenant liability rent payment default, such as default interest, which is why we remain of the opinion that a landlord does not lose their entitlement to default interest or any contractual fines associated with default in rent payments over such period.
Protection extended to renters under the Temporary Protection Act ends after 31 December 2020. A landlord therefore is authorised to unilaterally terminate a rental agreement for rent payment default for the period from 1 April 2020 to 30 June 2020 after 31 December 2020.
2. RENT PAYMENT SUBSIDY
Adoption of an amendment to Act No. 71/2013 Coll. on Providing Subsidies and on amendment of Act No. 62/2020 Coll. on Specific Response Measures to the Spread of the Dangerous Contagious Human Disease COVID-19 and the Judiciary, which amends certain acts, as amended by Act No. 92/2020 Coll. approved a new state rent payment subsidy. The aim of the subsidy is primarily to mitigate the consequences of the measures taken to prevent the spread of COVID-19 for business entities.
2.1 Conditions for providing the rent payment subsidy
Eligibility for the rent payment subsidy is subject to concurrent fulfilment of the following conditions:
- the existence of a rental agreement or similar agreement,
- rent agreed in a cash form payment,
- a tenant’s right to use the rented property was established as of 1 February 2020 at the latest,
- use of the rented property was prohibited as a result of the government’s measures to limit the spread of COVID‑19 in any of the following ways (obstructed use):
- closure of the rented property,
- interruption of in-person instructions in schools and school facilities,
- significant restriction on members of the public accessing the rented property.
The rent payment subsidy may be paid to a tenant based on an application from the landlord, who may be a:
a) natural person – non-entrepreneur,
b) natural person – entrepreneur,
c) legal entity – non-entrepreneur,
d) legal entity – entrepreneur.
The law does not consider changes in rental agreements or similar agreements made after 12 March 2020 for the purposes of providing the subsidy.
2.2 Rented property
Rented property for the purposes of providing the subsidy includes:
- a room, part thereof or a set of rooms which are decided by the building authority for purposes other than housing and in which the tenant simultaneously sells goods or provides services to final consumers, including related service areas and storage areas,
- market stalls.
2.3 Subsidy amount for tenants
The subsidy is provided to tenants based on an application filed by the landlord on behalf of the tenant but on the landlord’s own account using an electronic form (see Part 2.4 Rent payment subsidy application for more). The tenant shall immediately provide all cooperation necessary in connection with the rent payment subsidy application as requested by the landlord.
The subsidy is set equal to the rent discount agreed upon by the landlord and the tenant, capped at 50% of the standard rent for the period of obstructed use. The conclusion of such agreement is a prerequisite for providing the subsidy and in practice the subsidy application signed by the landlord and the tenant serves this purpose.
Rent for such purpose does not include:
- ancillary charges associated with the use of the rental (e.g. utility payments)
- any sales-based component if rent is determined by sales.
If payment for services associated with the rental cannot be separated from the rent amount, the amount of such payment for standard charges associated with the rent is set at 5% of the rent. Therefore, the rent amount is reduced by 5%.
If the landlord is managing state property, the rent is reduced by half, i.e. the amount of the subsidy defined by law is set to 50% of the original amount of such rent, as rent under the law is reduced by half.
2.4 Rent payment subsidy application
The rent payment subsidy application is filed electronically using the form to be published on the Ministry of Economy website. No agreement on providing a rent discount is required with the application as the electronic form contains the signatures of the landlord and the tenant as authorised under §23 of Act No. 305/2013 Coll. on e‑Government and has the same effect as such agreement. The electronic application certifies that the discount has been provided.
The subsidy is provided based on a subsidy approval notice, which is sent by the Ministry of Economy to the landlord and to the tenant in electronic form.
For the purposes of assessing the rent subsidy application, the following conditions are considered met (§8a (4)(a), (c), (d) and (e) of Act No. 523/2004 Coll.):
- settlement of all financial obligations vis-a-vis the state budget,
- not being subject to an official enforcement order (e.g. Act No. 233/1995 Coll. on Court Executors and Execution Activities (Execution Code) and on amendment of certain acts, as amended, Act No. 511/1992 Coll. on Tax Administration and Fees and on Changes to the System of Territorial Financial Authorities, as amended,
- no violation over the past three years of the prohibition on illegal employment under a special regulation,
- no record of arrears with social insurance contributions and no health insurer records a past-due receivable against them under a special regulation.
Conditions to be substantiated for the purposes of assessing the application via declaration (§8a (4)(b), (f) and (g) of Act No. 523/2004 Coll.):
- not currently involved in a bankruptcy proceeding, declared bankrupt, entered into restructuring and not subject to a rejected petition to declare bankruptcy due to a lack of assets,
- not subject to the legally imposed penalty of a ban on receiving grants or subsidies,
- not subject to the legally imposed penalty of a ban on receiving aid and support from European Union funds.
A beneficial owner must be reported on the subsidy application if the amount of the requested subsidy exceeds EUR 100,000. If any such declaration concerning the fulfilment of eligibility conditions or the specified beneficial owner is proven to be untrue, the renter will be obliged to return the subsidy.
2.5 Discounts for payment for entire rent or part thereof and if no rent discount is provided
If a tenant has paid rent to their landlord for the entire period or a portion of the period of obstructed use, the rent subsidy may be provided for the same length of time of obstructed use in the amount of the provided discount from the rent based on the agreement between the landlord and the renter, capped at 50% of the rent.
If the landlord and tenant do not agree on a discount from the rent, the tenant may pay the landlord the total unpaid rent for the period of obstructed use in a maximum of 48 equal monthly instalments. The payment term is specified as the 15th day of the given calendar month, beginning on the 15th day of the calendar month following the calendar month in which the state of emergency regarding the spread of the dangerous contagious human disease COVID-19 ends. The landlord and tenant may agree on another payment term.
