Withdrawal from shopping centre contracts in the face of partial inability to perform.

4 March 2022       # Real Estate

The COVID-19 pandemic has brought dramatic changes to all industries. One of the most high-profile legal issues became rents for the use of space in shopping centres.

Successive iterations of lockdowns included bans on trading in shopping centres. Even after lifting the total ban thereof, business conditions were far from normal. The question arose as to what options an entity running a shop in a shopping centre had in this situation.

The Law Firm's ground-breaking legal concept, which was implemented in relation to a wide part of the market, was the recognition that in the situation of the new pandemic reality, we are dealing with a partial (and at the same time not culpable) inability to perform services on the part of shopping centres.

The key to developing a legal concept in this case was a correct reading of the basic concepts of civil law – the answer to the question, what is a performance?

Performance is defined as the debtor's behaviour that is consistent with the content of the obligation and satisfies the creditor's interest (Article 354 § 1 in conjunction with Article 353 § 1 and 2 in conjunction with Article 495 § 2 of the Civil Code).

Thus, if the reason for concluding the agreement on the use of space in a shopping centre is running a commercial activity there, the lack of possibility to run such activity (or fundamentally changed conditions of its running) means that the service on the part of the shopping centre owner is (at least partly) impossible to be performed.

In the case of the partial inability to perform of one of the parties (here: the shopping centre), the other party may withdraw from the agreement if the partial performance would not be important for it due to the characteristics of the obligation or due to the intended purpose of the agreement (Article 495 § 2 of the Polish Civil Code).

The possibility to terminate the agreement by withdrawing from it allowed for a "legal reset" of the situation between the parties and resulted in establishing it anew, according to new circumstances. This solution was applied by a number of entities and had a significant impact on the establishment of new contractual relations between shopping centre owners and operators.

4 March 2022       Real Estate

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