The laws of Ukraine define force majeure as an extraordinary and unpreventable event, man-made or act of God, which objectively makes impossible the performance of contractual obligation(s) by one or both parties to a contract. Force majeure exempts a non-performing party from liability (penalties) for breach of contractual duty if caused by force majeure rather than from the performance of contractual obligations.
This means that a party is usually required to resume performance of its contractual duties once force majeure is over, unless a contract provides otherwise (i.e., a contract may provide that a certain protracted duration of force majeure allows one or both parties to unilaterally terminate a contract).
Russian Invasion as Force Majeure Under Lease Contract
A party’s ability to raise a force majeure excuse based on the Russian invasion depends on particular circumstances and cannot be automatically justified only by Russia’s invasion into Ukraine.
From a landlord’s perspective, its principal obligations are to make premises available to, accessible, and suitable for intended use by a tenant. The landlord’s failure to do so is a basis for enforcement of contractual penalties and claims for damages by the tenant. However, if such failure is caused by destruction or damage done to premises or its utilities supply communications due to the Russian invasion, which constitutes an objective impossibility for a landlord to properly provide premises to the tenant, the force majeure remedy can be raised. Those scenarios are almost the only ones when a landlord may want to resort to force majeure. In other cases, when the landlord’s premises are not damaged or destroyed, a landlord is formally deemed to have made the premises available to a tenant, even if the premises are in an unsafe environment. As a landlord has no control over external events (military actions, shelling or its threat, etc.), their occurrence will not be considered as the landlord’s breach of the lease agreement and, thus, there is no point in invoking force majeure.
From the tenant’s perspective, it must be carefully assessed if raising a force majeure remedy is feasible and even necessary. In practice, many tenants wish to stop using premises and suspend making rent payments (or even terminate their leases) due to safety concerns caused by shelling or threats thereof, premises being in territories where active military actions are taking place, etc. However, raising force majeure concerning the obligation to pay rent would require tenants to demonstrate that the Russian invasion caused an objective impossibility for the tenant to make a rent payment.
Siding with proponents of the conservative approach, we believe that cases when it would be possible for a tenant to claim force majeure due to the Russian invasion will likely be limited to instances (if any) when the banking system was not operational, and payments could not be processed. Raising force majeure is helpful for escaping liability for breaches but not the performance of obligations. Even if tenants’ failures to pay rent were justified by the Russian invasion as a force majeure event, tenants would face multiple claims from landlords for payment of rent once the Russian invasion is over.
Hence, tenants may want to consider other legal options to be released from rent or at least obtain a rent decrease. For instance, Ukrainian law releases tenants from the obligation to pay if it was not possible to use premises due to circumstances beyond tenants’ control and provides for tenants’ right to claim a rent decrease if the possibility to use premises was significantly reduced. Other strategies may involve claims of a material change of circumstances that accompanied the execution of the original lease, etc.
Proving a Force Majeure Event
If a party decides to pursue a force majeure option, it may want to apply to the Ukrainian Chamber of Commerce and Industry (UCCI) for certification of force majeure. Certificates are issued individually, following consideration by the UCCI of the relevant lease contract, the circumstances of the breach, and its nexus to the Russian invasion. Although UCCI’s certificates are not automatically binding for courts, they are often obtained either due to a contractual requirement to do so or to make the legal position in the court more persuasive. Additionally, before commencing court action, UCCI’s certificate of force majeure may be used in negotiations with a counterparty.
Please note that the well-known UCCI letter No. 2024/02.0-7.1 dated February 28, 2022, confirming that the Russian invasion and subsequent imposition of martial law are extraordinary and unavoidable events, is not a substitute for individually obtaining the UCCI’s certificate of force majeure in each particular case.
By Serhiy Piontkovsky, Partner, Baker McKenzie Kyiv
This article was originally published in Issue 10.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
