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As part of our periodic updates, here is an overview of recent developments of relevance to participants in the real estate finance market across certain key jurisdictions in Europe.




First and foremost, we hope all our readers and their families and friends are keeping well during these unprecedented times. As we heed the advice of our respective governments, we have adapted to remote working and continue to support our respective client and business needs. For our borrower and lender clients, we acknowledge concerns that COVID-19 may have on their new and existing loans. In our alert (available here), we considered the general themes that borrowers, lenders and financial sponsors must consider in their relevant finance documents, which include discussions on MAC clauses, force majeure provisions and frustration events (also considered here and here). Similar considerations are also of application for those clients that were involved in construction and engineering projections (see here for further information on this).

The governments across Europe have introduced fiscal stimulus measures and liquidity measures to help companies (details of the government support measures, are available here) through these difficult times. These measures can also have a drastic impact on the real estate finance markets, especially with measures such as mortgage payment holidays; a hiatus on the serving of eviction notices for rental properties and an inability for landlords to forfeit business leases due to non-payment of rent for a period of time. Greater emphasis will be placed on the terms of those rental contracts (similar to the analysis above) and whether performance can be suspended; as well as reliance on insurance policies to cover any losses. It is conceivable that construction of projects backed by real estate finance are delayed or impacted by supply-chain issues. Lenders may also need to reassess their loan portfolios if property prices drop and if the value of their secured assets are affected.

However, as we weather the storm of this pandemic, the wider impact on the economy and employment levels are becoming apparent. The impact of COVID-19 is widespread and we must all work together to overcome the difficulties.

LIBOR discontinuation

As readers will know (and mentioned in our previous alerts), LIBOR is expected to be discontinued from the end of 2021. Great progress has been made to date, with widespread use of the rates – especially in the hedging and bond space. In the loan market, the SONIA rate has been used in a number of bilateral loans, including in the real estate finance market; and certain syndicated loans are now including a conversion mechanism for a transfer over to risk-free rates in due course. Further information on the status of the move over to risk-free rates can be found in our video series, available here.

To facilitate the transition, the Bank of England has indicated that from July of this year, it will publish a SONIA Compounded Index (with a similar index being published, since March, by The Federal Reserve Bank of New York in respect of SOFR). This is a huge step forward, as one of the lagging items for a transition away from LIBOR in the loan market, has been the lack of a screen rate and the need for a simplified method of calculating the compounded rate for different periods. This index makes this possible and it is expected that the LMA will publish revised exposure drafts of its facilities agreement incorporating its use.

However, the Bank of England has asked for more to be done. In January, it had set some interim targets to be met by the loan market to ensure that a smooth transition could be made. Whilst these are all positive steps forward, the COVID-19 pandemic has caused an unexpected disruption to these plans. In a statement released on 25 March 2020, the FCA expressed that, whilst the overall goal of a complete transition from LIBOR to SONIA by the end of 2021 remains, COVID-19 was “likely to affect some of the interim transition milestones” which followed in April with new target dates as follows: (i) by the end of Q3 2020, lenders should be in a position to offer non-LIBOR linked products to their customers; (ii) after the end of Q3 2020 lenders, working with their borrowers, should include clear contractual arrangements in all new and re-financed LIBOR-referencing loan products to facilitate conversion ahead of end-2021, through pre-agreed conversion terms or an agreed process for renegotiation, to SONIA or other alternatives; and (iii) all new issuance of sterling LIBOR-referencing loan products that expire after the end of 2021 should cease by the end of Q1 2021.


The UK ceased to be a member state of the EU at 23:00 GMT on 31 January 2020, entering a transition period until 31 December 2020. As readers will know, during this transition period, the UK will continue to operate as it did before – meaning that it will be required to continue to adhere to EU rules and the trading arrangements will stay the same. The transition period is however aimed at allowing both sides time to negotiate a free trade agreement. However, given both sides are dealing with COVID-19, questions have been asked as to whether this deadline is achievable. Whilst the UK government continues to reassure the country that meetings are progressing (now held virtually), only time will tell whether progress has been hampered.

For the real estate finance market, one of the main issues readers will want a quick and efficient resolution on is ‘passporting’. The EU passporting system in place for banks and financial services companies enables firms that are authorised in any EU or EEA state to trade freely in any other with minimal additional authorisation. Certain EU legislation provides for third country‘ regimes which allow non-EU based firms (such as the UK) to offer a limited number of services into the EU if their home country regulatory regime is accepted by the EU as being ‘equivalent’ to EU standards. It should be noted however, that their application is more limited in scope. Accordingly, as part of the trade negotiations, a resolution on this point will be welcomed. Nonetheless, it may be advisable for banks and other financial institutions to keep their no-deal plans within close proximity.


Czech Republic 

Landlords prohibited from unilaterally terminating commercial leases until 30 June 2020

The Czech Parliament passed a bill prohibiting landlords from unilaterally terminating commercial leases solely on grounds of payment default with respect to lease and service charges, when such non-payment occurs between 12 March and 30 June 2020 (the “Reference Period”) and is mainly caused by restrictions on business imposed by public authorities in connection with the COVID-19 pandemic that have prevented or substantially hampered the tenant’s business activities (the “Protection Act”). The Protection Act came into force on 27 April 2020.

The Protection Act does not constitute a waiver of rent or a discount thereon, but a limitation on the consequences of late rent payment. Such protection does not apply to other payments under leases, such as payments for services related to the leased premises or common areas, marketing fees and any other agreed payments. The landlord will thus continue to issue invoices to the tenant in accordance with the lease agreement. The tenant is obliged to repay all rent debt by 31 December 2020 (the “Protection Period”). In the event they fail to do so, the landlord is entitled by law to terminate the lease, with a notice period of five days applying. This provision applies strictly, such that even if only a small portion of the total debt remains due, the landlord has the right to terminate the lease almost immediately, in principle regardless of the terms of the lease agreement. Notwithstanding the protection afforded to tenants, landlords would still be entitled to terminate a lease (i) if the tenant declares that it will not make payment within the Protection Period, or (ii) for any payment default that occurred before or after the Reference Period, or (iii) on other agreed or statutory termination grounds.

Facets of the Protection Act that may be deemed problematic include:

  • Definition of extraordinary epidemic measures: The protection only applies to extraordinary epidemic measures specifically listed in the Protection Act, and hence each case must be assessed on a case-by-case basis.
  • Prohibition to deviate by agreement: The Protection Act stipulates that arrangements that deviate from the provisions of the Protection Act to the detriment of the tenant are not taken into account. This limits the possibilities of negotiating any agreement between the tenant and the landlord that would better suit their specific situation.
  • VAT: The Protection Act does not
    address VAT payments charged
    together with the rent, if the
    rent is subject to VAT (which is
    the case for the vast majority of
    commercial leases). This results in
    a situation in which landlords are
    still obliged to pay VAT on invoices
    issued (regardless of whether
    the tenant pays such invoices),
    and the tenants may claim the
    invoiced (but not necessarily
    paid) VAT from the state.

State subsidy on commercial rent

The Czech Government approved the plan of the Ministry of Industry and Trade to contribute, in the form of a subsidy programme, to entrepreneurs who have been affected by restrictive, preventative governmental measures towards the payment of rent for business facilities (the “COVID – Rent Subsidy”).

Entrepreneurs whose business activities have been affected by the COVID-19 pandemic can receive a contribution from the Government towards rent due between 1 April and 30 June. The approved plan takes into account that the state will contribute to such affected entrepreneurs a sum amounting to 50% of the originally agreed monthly rent under the condition that the landlord will provide a discount of 30% from the total rent. The tenant will thus pay the remaining 20%. The amount of support per beneficiary would be limited to a maximum of CZK 10 million.

An amendment to the lease agreement, in which the landlord has agreed to a discount amounting to 30% of the monthly rent, has to be part of the application for the subsidy. The applicant will also have to prove the amount of rent which had been paid prior to the COVID-19 pandemic.

The European Commission is required to be notified of the COVID-Rent Subsidy program before its launch.

Abolishment of real estate acquisition tax

The Czech Government has approved the abolishment of real estate acquisition tax in the amount of 4% of the total purchase price for the real estate property. The bill is currently being discussed by the Czech Parliament.

The bill is proposed to have retroactive effect, meaning that the tax would not apply on transfers occurring since 1 December 2019.Those who had already paid the tax would be entitled to claim a refund.



Berlin rent cap

We informed you in our previous alert (available here), that in September of last year, a draft bill was published by the Berlin Senate applying a rent price cap to residential apartments in Berlin. In January, the draft bill (as amended) was passed in the form of the Act for Redrafting Statutory Requirements on Rent Limits (the “Rent Act”) but retroactively effective since 18 June 2019, for a period of five years. Exemptions will apply for social housing, newly constructed buildings which were ready for occupancy on or after 1 January 2014 and certain other categories. In case of a breach, the authorities may impose fines of up to €500,000.

The rent freeze will apply to all existing leases at the rate applicable at 18 June 2019. This also means that rent increases that were due to occur are also prohibited (notwithstanding that they were agreed before 18 June 2019). From 1 January 2022, the rent caps are subject to an annual increase to reflect inflation – the exact rate to be determined by the Federal Statistics Office, but cannot exceed 1.3%.

In respect of new lettings, the Rent Act specifies the correct rent levels – the caps are based on the 2013 rent index, adjusted to reflect real wage developments since then. A rent table was published to that effect (setting out different rates, depending on the type of rental accommodation and property location). As a result, if rent exceeds the relevant rent levels specified in the table by more than 20%, the landlord is obliged to reduce the rent to the permitted level from November 2020.

One interesting point to note is that the Rent Act has been referred for review by the Federal Constitutional Court on 6 May 2020 to decide whether or not the state of Berlin has breached federal law by passing the Rent Act. A determination may take some time and therefore in the interim, there is a period of uncertainty for landlords and tenants.



Suspension of the leasing rents in the sports sector

As part of the measures adopted by the Italian Government in response to COVID-19, article 95, paragraph 1, of so called Cura Italia Decree (as amended by Article 216, paragraph 1, of Law Decree 19 May 2020, No. 34 (the “Recovery Decree”), grants a suspension of the leasing rents due for public sports structures to companies in the sports sector until 30 June 2020. These rents must be paid either: (i) by 31 July 2020; or (ii) in five monthly instalments of the equal amount starting in July 2020.

In addition, Article 216, paragraph 2, of the Recovery Decree provides that, by reason of the suspension of the sports activities imposed by the Italian Government, the parties to the concession agreements of public sports structures may agree among themselves, upon request of the relevant licensee, a revision of the concession relationships expiring by 31 July 2023, through the amendment of the economic and financial terms originally agreed or the extension of the duration of the concession agreement, for the purpose of facilitating the gradual recovery by the licensee of the proceeds which have not being collected by it and the amortisation of the investments made or to be made by the licensee. If no agreement is reached in this respect, each party will be entitled to withdraw from the relevant concession agreement.

Article 216, paragraph 3, of the Recovery Decree provides that the suspension of the sports activities imposed by the Italian Government shall be treated as an event causing a “supervening unbalance” of the parties’ obligations in respect of lease agreements regarding gyms, pools, and sports centers of all kinds. Therefore, tenants are entitled to a reduction of the rent due or already paid in respect of March 2020 to July 2020 (inclusive) by, either: (i) 50% of the amount of such rents as originally agreed; or (ii) a different percentage, determined on the basis of the evidence provided by either the landlord or the tenant, which reflects the actual “supervening unbalance” in the particular circumstances.

Other than in relation to the sports sector as described above, there are no specific provisions under the decrees issued by the Italian Government and public authorities in relation to rent abatement.

Business and property leases

In February, the Supreme Court re- characterised a business lease into a property lease. In this particular case (i.e., a retail unit located in a shopping center), in accordance with market practice, a business lease had been granted to a lessee. This is a common practice in Italy, as business leases allow a temporary transfer of the benefit of the trading licence to the individual lessee, which allows them to operate their business. This would not be possible with a property lease.

In re-characterising the lease as a property lease, the court stressed the circumstance that the assets granted to the lessee (i.e., the use of the premises, a cash register and other minor movable assets) were lacking the pre-existing organisation as a going concern.

Although this decision is not necessarily a binding precedent for other courts, it will be interesting to see the impact on the contractual relationships between the shopping centre owners and their lessees.


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