Provisions of the Law
Pursuant to provisions of Article 133 of the Law, if after conclusion of a contract circumstances which hinder performance of one party’s obligation emerge, or if because of them a purpose of contract cannot be achieved, to the extent it becomes obvious that such contract no longer meets expectations of parties thereto, and that, in general opinion, it would be unjust to maintain its validity as it stands, a party having difficulties in performing its contractual obligation, i.e., being unable to achieve a purpose of contract because of the aforesaid circumstances, may request such contract to be terminated.
Termination of a contract in accordance with previously stated provisions of the Law cannot be requested in case a party referring to the hardship was obliged to consider the respective circumstances at the time of entering into the contract, or if it could have avoided or surpassed them. Additionally, such party cannot refer to the hardship upon expiry of a deadline for attainment of its contractual obligations.
Contract shall not be terminated provided that the other party offers or accepts a fair change of contractual terms. However, in case a contract is terminated by the court, upon such request of the other party, the party demanding termination shall be obliged to reimburse a fair share of damage caused thereby. Court shall decide on termination, i.e., amendment of a contract pursuant to principles of fair trade, particularly considering a purpose of contract, normal risk related to such type of contracts, general interest and interests of both parties thereto.
The Law also stipulates that parties to a contract are allowed to waive from referring to the hardship in advance unless it is contrary to the principle of conscientiousness and honesty. Also, it is prescribed that a party authorised to request a contract to be terminated for the subject circumstances is obliged to notify the other party on its intention to claim termination as soon as it learns of such event. Otherwise, it shall be held accountable to damage caused to the other party because the aforesaid request was not timely provided.
Disposition and Rationale of the Judgment
According to the Judgement, which was passed under the abovesaid provisions of the Law, disruption in business operations of the plaintiff’s retail store, due to market disorders caused by COVID-19 epidemic, represents grounds for termination of the agreement on lease of business premises because of the hardship.
Namely, the respective judgment provides that the work of shopping centres, including the one where the business premises subject to the lease agreement, i.e., plaintiff’s retail store is located, was prohibited by decision of Serbian Government passed on 21 March 2020 in accordance with the previously imposed state of emergency. In other words, the state of emergency imposed due to COVID-19 pandemic resulted in severe market disruptions, which further caused a significant reduction of the plaintiff’s turnover.
Therefore, those new circumstances prevented the attainment of purpose of the subject lease agreement to such extent that it no longer met expectations of the parties thereto, thus it would be unfair for it to remain in force as it is, particularly given that the payment of rent as envisaged by the respective agreement would question the plaintiff’s capacity to further perform its business activity.
As provided by the Judgment, as well as according to the Law, termination of a contract due to the hardship cannot be achieved by a sole expression of one’s will, i.e., statement delivered to the other party, but only by a court’s decision thereof. Namely, the respective claim (for termination of a contract for the hardship) is of a constitutive nature, so the contract is terminated by the court’s decision, as it introduces changes to a certain legal relationship.
Lara Maksimović
Senior Associate
Email: lara.maksimovic@prlegal.rs or office@prlegal.rs