25 March 2020

The worldwide coronavirus epidemic is causing serious problems in the economy as well, businesses in sensitive sectors fear a total loss of income for months. For this reason, the Hungarian Government introduced a ban on termination and rent increase for commercial lease contract in case the lessee operates in specific, sensitive sectors. However, there are several legal uncertainties surrounding the measure, which will be discussed in our brief article.

1. What businesses are affected by protection?

The protection applies only to businesses active in the following sectors:

  • tourism
  • catering (HoReCa)
  • entertainment
  • gambling
  • film industry
  • performing arts
  • event organizing and sport services.

2. What does the protection cover?

  1. prohibition on termination: commercial leases (eg.: shop, warehouse) concluded with lessees doing business in the above sectors, may not be terminated by the lessor.
  2. prohibition on rent increase: In addition, the rent cannot be increased in the case of the above contracts, even if otherwise permitted by the contract.

3. The duration of the protection?

The prohibition on termination currently lasts until 30 June 2020, but it may be extended by the Government until the state of emergency persists. During the prohibition, the contract may not be terminated. Therefore, notice may be given during the prohibition if, considering the notice period, the contract terminates after the prohibition has expired.

The prohibition on price increases is currently in force for an indefinite period of time until the state of emergency persists.

4. Uncertainties surrounding the measures

From a legal point of view, the measure, like other emergency measures, carries a number of uncertainties. First, it is questionable how to determine the activities of the company, based on which it can be eligible for the protection. In this regard, the Companies Registry contains “authentic” data, however, it rarely reflects reality as the companies generally have far more activities listed than they actually carry out, so the company’s eligibility for the protection can be a source of dispute.

The prohibition on rent increase can cause a practical problem on the lessor’s side. Due to the economic downturn, many lessees have already requested the temporary reduction of the rent fee, which the lessors usually accept in order to keep the lessees. The problem may occur when the original fee is reinstated, because, although there is no increase compared to the fee applied before the discount, but if we compare to the discounted fee, restoring the original fee may be considered an increase, which is prohibited pursuant to the literal interpretation of the govt. decree.

5. Conclusion:

The Hungarian Government wants to prevent companies operating in the sectors most affected by the epidemic from being evicted from the leases used for their operations. At the same time, the interest of the lessor must also be taken into account, otherwise his operations can be endangered as well. In order to prevent future disputes, preserving legality should remain a priority even during the state of emergency.