Taking Counsel: Rent reduction requests

  • 2008-12-10
  • By Martins Mezinskis [Kronbergs & Cukste]
In good economic times tenants tend not to request rent reductions unless there is something specific to their business causing them problems in meeting payments. But in challenging economic times,  it is not uncommon  to find tenants approaching landlords asking for rent reduction. The argument is something like, "Rent was negotiated in a different economic climate when the economy was growing and business was up, and  it should now be accordingly lowered to reflect current economic realities." Does the landlord have to accommodate such requests?

While from a practical perspective under certain conditions it may be sensible for a landlord to consider some rent adjustment, unless the lease provides otherwise, it is the landlord's business decision, and from a legal perspective, there is no reason why a landlord must accommodate a rent reduction request.
An economic downturn or a change in market levels for rent is not a basis for unilateral termination of lease agreements.

There is one exception to the foregoing general rule. It is where the tenant can prove 'unreasonable losses' a term of art in  section 2170 of the Latvian Civil Law.  But what is an unreasonable loss and isn't it a subjective question?

The applicable jurisprudence sets out two key preconditions for there to be  'unreasonable loss:"
1) Firstly, and rather cryptically, the 'benefit' which the tenant receives from leasing the premises has to have not reached at least half of the rent amount. What this likely means is that the tenant's revenue is not even half of the rent amount.  A tenant asserting 'unreasonable loss' has an onus to prove such condition.
Theoretically, a tenant wanting out of the lease could try to sit on his hands and do nothing, essentially creating the loss, thereafter asserting 'unreasonable losses."

But that would not satisfy the second requirement:
2) The tenant has to also prove that the landlord acted in bad faith ('rikojas 'launticigi') in leasing out the premises to the tenant.
This second condition poses far more difficulty for tenants wanting out of the lease or a lowering of rents and under ordinary circumstances would prove an insurmountable challenge to any assertion of 'unreasonable loss.'

Volatility in market rent levels is not legal justification for unilateral termination by a tenant, unless the lease itself provides otherwise.
In conclusion, tenants seeking to unilaterally escape a lease or seeking unilaterally imposed rent reduction, whatever the economic climate is, are on shaky legal grounds and should expect stiff legal resistance from landlords.

Martins Mezinskis of Kronbergs  & Cukste.  Kronbergs & Cukste is a founding member of the pan Baltic network called Baltic Legal Solutions, which includes Jurevicius, Balciunas & Bartkus in Lithuania and Glikman & Partnerid in Estonia.