Impact of Serbian state of emergency: lease agreements for office space likely to survive COVID-19

In the wake of the state of emergency introduced in Serbia on 15 March 2020, which entitles state authorities to promptly impose a broad spectrum of restrictions, and the night curfew that came into effect yesterday, no measures resulting in direct prohibition of the use of leased office space exist as of 18 March 2020, but this can easily change.

However, the Decree on organisation of employer’s work during emergency, applicable as of 16 March 2020, stipulates that during a state of emergency, the employer is obliged to enable employees to perform work outside the premises of the employer (i.e. remote work and work from home), at all workplaces where such work can be organised in accordance with a general act and a contract of employment. In light of this, it appears that signed office lease agreements for most tenants will be – for all practical purposes – lost for the time being.

There is a general debate whether the coronavirus falls under a “force majeure event”, “changed circumstances” or some other legal regime?

Regarding force majeure, various external circumstances may be considered as a force majeure event, and one of them is a legal act by authorities.

In this specific coronavirus situation, an act could be adopted in accordance with the Law on Protection of Population from Infectious Diseases by the Ministry of Health, by a sanitary inspector or other authorised body. The authorities could impose a set of different measures to fight against infectious diseases, such as restrictions of movement of population, compulsory isolation, compulsory quarantine, etc.

If an authority enacts a legal act that prevents a tenant from using leased premises (or prevents a landlord to allow undisturbed access and use of leased premises), this legal act may constitute force majeure. In general, force majeure releases parties from the fulfilment of their obligations, such as payment of rent and allowing access to leased premises.

A legal act by an authority that is a force majeure event is not likely to constitute a permanent impossibility of performance. We assume that such an act and measures or restrictions imposed against the spread of the coronavirus infection will only last a limited period of time. Hence, an office lease agreement, in our view, is likely to survive such a force majeure event.

As for changed circumstances, if certain measures by authorities make the lease agreement purposeless or difficult to perform, this could fall under the “changed circumstances” classification. Those circumstances could potentially entitle a tenant to ask for amendments to commercial terms of a lease agreement (e.g. rent-free periods, rent reduction, change of lease term, etc.), depending on specific measures.

Regardless of whether a certain act or measure is considered “force majeure” or “changed circumstances”, employing good business practices can help the parties find a commercially acceptable solution while having the above mentioned legal considerations in mind.

This article is intended to provide general information only. For specific advice on your particular situation, contact your regular CMS advisor or local CMS experts.