COVID-19 in Latvia: Lease payments for the property of public persons and capital companies controlled by public persons

On 2 April 2020 the Cabinet of Ministers has adopted the Cabinet Regulations No.180 “Regulations on Application of Exemption from or Reduction of the Lease Payments for the Use of the Property of a Public Person and a Capital Company Controlled by a Public Person in relation to the spread of Covid-19” (hereinafter – Regulations). The Regulations provide for support measures related to lease of publicly owned assets (hereinafter – Support Measures).

Contracts to which the Support Measures extend

The Support Measures shall be available to lessees under the lease agreements of immovables and movables owned by:

• public persons (the State and municipal institutions, as well as other public persons set up on the basis of law),
• capital companies controlled by a public person,
• freeports,
• special economic zones.

The Support Measures shall not be available to the lessees under the lease agreements for subsoil exploration.

Scope of the Support Measures

The following Support Measures are available:

• Full exemption from the lease payments, if use of the lease object is discontinued entirely due to restrictions specified by the government during the time of the emergency situation;
• Reduction of the lease payments in proportion to the percentage reduction of the income of the lessee from its economic activity, however, not exceeding 90% of the lease payments specified in the lease agreement. Municipalities might determine another grading of the lease payment reduction  applicable to the lease agreements of the property owned by municipalities or capital companies controlled by them;
• Full exemption from the late payment of interest and contractual penalties for delays of rent and other related payments.

The lessee shall continue payments for the utilities necessary for maintenance of the lease object (electricity, heat, water supply, etc.) and compensate the real estate tax for the lease object.

Period of application of the Support Measures

The Support Measures shall be valid for a period requested by the lessee, starting from 12 March 2020, the earliest, and not to last longer than by the date when the emergency situation will be abolished.

Criteria for application for the Support Measures

The Support Measures are available if the lessee simultaneously meets all of the following criteria:

1. lessee’s income from its economic activity during March 2020, April 2020 or May 2020, compared to the 12 months average income of 2019 or the average income of the months in which the lessee has actually operated during the period from 1 January 2019 to 1 March 2020, has decreased by at least 30%;
2. at the moment of the request the lessee does not have a tax debt administered by the State Revenue Service (SRS) in excess of EUR 1,000, or, if the debt is higher, the lessee has been granted an extension of the period of payment, or a voluntary tax agreement or a settlement agreement has been concluded with SRS;
3. at the moment of the request there is no insolvency proceedings commenced against the lessee;
4. during the last year the lessee has not had more than two arrears of rent or other related payments, or any other material defaults under the agreement. If on the date of an application the lessee has settled the debt with the lessor accrued as of 29 February 2020, or performs in line with the agreed debt repayment schedule, it shall be considered compliant with this criterion.

If the lessee leases property for its economic activities, the Support Measures shall qualify as the State aid (de minimis or certain categories of the State aid block exemptions). Therefore,  the maximum limits of the State aid shall be applicable and other State aid rules shall be observed.

Procedure to apply for the Support Measures

The Support Measures shall be granted following few simple steps:

• the lessee shall submit an application to the lessor containing the supporting information;
• the lessor shall make a decision in regards to the application within five working days;
• the Support Measures shall be applied on the basis of unilateral decision of the lessor, without the necessity to amend the lease agreement.

The Support Measures requested or granted without merit are subject to repayment.

Regarding real estate issues please contact COBALT Latvia Managing Partner Dace Silava-Tomsone and Associate Juta Guļkeviča.