Prime Property Management has signed an Open Letter sent to the Government of the Russian Federation by representatives of the commercial real estate industry.

Big companies – owners and managers of commercial real estate – have warned of a possible collapse of the office market if bill No. 953580-7 is passed.

Companies owning and managing over 4 mln sq m of office, trade and other commercial premises, have written an Open Letter to the Government of the Russian Federation, expressing deep concern that the State Duma of the Russian Federation may pass bill No. 953580-7 allowing unilateral repudiation of valid lease agreements by tenants. The Government of the Russian Federation introduced that bill to the State Duma on 7 May 2020.

According to the bill, tenants are entitled to unilaterally repudiate a lease agreement without compensation for any losses by the landlord if the tenant’s monthly income is reduced by over 50% from the date of establishment of high alert or an emergency situation in the territory of a constituent entity of the Russian Federation.

The following 11 companies have signed the Joint Open Letter of representatives of the commercial real estate industry: O1 Properties, A.N.D. Corporation, PPF Real Estate Russia, KR Properties, Capital Group, Prime Property Management, PSN, Millhouse, Valartis International Limited, AFI Development and AB Development,

In the opinion of the authors of the letter, passing of the bill may have a dramatic impact not only on the commercial real estate market, but also on the banking sector as well as companies providing goods, works and services to the owners and tenants of commercial real estate properties. “Instead of ensuring sustainable development of the economy, that measure would lead to a collapse of the industry with the consequences that would be even more destructive than those of any of the economic crises successfully coped with by Russian economy during the recent history of Russia,” the letter states.

Provisions of the bill would result in a situation where commercial real estate enterprises face the risk of defaulting on their obligations to banks, caution the authors.

The authors of the letter note that the right to unilaterally repudiate agreements would entail in violation of a number of articles of the Constitution and the Civil Code, since the bill’s provision allows arbitrary interference with the existing lease relations without any constitutional justification of the same. The letter says that such interference would restrict the ownership rights and shake the fundamentals of civil legislation by depriving landlords of the right to a fair trial when assessing the impact of the consequences of the spread of the new coronavirus infection on the agreement. The authors of the letter also believe that passing of the bill is fraught with abuse on the part of tenants.