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COVID-19 in Ukraine: amendments to Commercial and Civil Codes

On 30 March 2020 Verkhovna Rada of Ukraine adopted the Law of Ukraine "On Amendments to Certain Legislative Acts Aimed at Providing Additional Social and Economic Guarantees Due to Spreading of Coronavirus disease (COVID-2019)" (Bill No. 3275).

 

Amendments to the Civil Code

Time limits and statute of limitations

The law has introduced changes relating to a number of articles of the Civil Code of Ukraine regulating terms (including limitation periods) in different legal relations. Such terms shall be extended for the duration of the quarantine established by the Cabinet of Ministers of Ukraine to prevent spreading of coronavirus disease (COVID-19). This applies to the following provisions:

-       Article 257 "General limitation period"

-       Article 258 "Special limitation period"

-       Article 362 "Pre-emptive right to purchase a share in a right of joint shared ownership"

  • regarding the period from the moment of notification of other co-owners of the intention to dispose of the share after which the co-owner has the right to sell his share to another person (not the co-owner)
  • regarding the one-year limitation period to the claims for transfer of the rights and obligations of the buyer of a share in a joint shared ownership

-       Article 559 "Termination of bail":

  • regarding the termination of the bail if the creditor does not bring a claim against the guarantor within 3 years after the principal obligation became due (or from the moment of the conclusion of the bail contract – if performance term under principal obligation is not set or set at the time of claim)

-       Article 681 "The statute of limitations applicable to claims in connection with the deficiencies of the goods sold"

-       Article 728 "The limitation period applicable to claims for termination of a gift contract"

-       Article 786 "Statute of limitations applicable to claims arising from a lease contract"

-       Article 1293 "Right to appeal the actions of the will executor":

  • regarding the one-year limitation period applicable to the claims for challenging actions of the will executor

 

Ban on raising the interest rate under the credit agreement

In addition, during the period of implementation in Ukraine of measures to prevent the emergence, spread and circulation of epidemics, pandemics, in particular coronavirus disease (COVID-19), it is prohibited to raise the interest rate under the credit agreement.

 

Rent relief

The Law provides that, for the duration of the quarantine, tenants can be relieved from rent payments in accordance with p. 6 of art. 762 of the Civil Code of Ukraine (the "CCU"). The mentioned article of the Civil Code stipulates that tenants are exempt from the obligation to pay rent over the period when property could not be used due to circumstances for which it is not liable.

Currently, it is not clear whether the legal novelty will be construed as:

1) an added emphasis on the applicability of p. 6 of art. 762 of the CCU and the possibility of rent exemption for the tenants that cannot fully use and do not use premises due to the quarantine (e.g. cinemas, museums, shops, etc.); or

2) an extension of the conservative interpretation of art. 762 of the CCU and the possibility of exemption of all the tenants exposed to the quarantine from rent irrespective of its level of impact on their activity (e.g., restaurants that continue working in the takeaway mode).

The risk of the latter interpretation was also addressed by the Chief Scientific and Expert Department in the Conclusion to the voted draft Law as of 30 March 2020, stating the following: "Please note that it is proposed in paragraph 14 to exempt from rent all tenants, including those that are using the property, which does not meet the requirements of p. 6 of Art. 762 of the CCU and violates the rights of landlords because it allows an unjustified free of charge use of the property".

Also remaining undetermined is the status of the so-called "service payments", such as security fees, cleaning costs, etc. In practice, such fees are usually not included in rent payments and charged separately according to lease agreements. 

 

Amendments to the Commercial Code

The Law prescribes, that for the period of quarantine, established by the Cabinet of Ministers of Ukraine for prevention of spreading COVID-19 the terms specified by the Articles 232, 269, 322, 324 of the Commercial Code of Ukraine shall be extended for the duration of such quarantine, which applies for the following provisions:

 

Applying penalties (Article 232)

Accrual of penalties for late performance of the obligation, unless otherwise provided by law or contract, shall be suspended six months after the date on which the obligation became due.

 

Guarantees of quality of goods and claims related to the deficiencies of delivered goods (Article 269)

The warranty periods of the goods specified in the article will be subject to the extension for the duration of quarantine period.

Claims arising from the delivery of goods of improper quality may be brought within six months from the date the buyer revealed in due course the deficiencies of delivered goods.

 

Liability for breach of contract for capital construction (Article 322)

The limitation period for claims arising from improper quality of works under the contract for capital construction shall be determined from the date of acceptance of the work by the customer and shall be:

one year – for deficiencies in non-capital structures, and if deficiencies could not be detected in the usual way of accepting work, – two years;

three years – for deficiencies in capital structures, and if deficiencies could not be detected in the usual way of accepting work – ten years;

thirty years – to recover damages caused to the customer by unlawful actions of the contractor that led to the destruction or accidents.

If a contract or legislation provides for a guarantee of quality of work and deficiencies are detected within the warranty period, the limitation period begins from the day of detecting the deficiencies.

 

Contract for design and research works (Article 324)

In the case of a claim under a contract for design and research work, a claim for recovery to the customer of damages caused by the deficiencies of the project may be brought within ten years, and if the damage caused to the contractor by unlawful actions that led to the destruction, accident, collapse – within thirty years from the date of acceptance of the constructed object.

Therefore, in the above cases, the terms will be subject to the extension for the duration of quarantine period, but certainly in the future there may be problems with enforcement, so in any case, in controversial situations, the court will have the last word.

 

To get more information or discuss business and legal implications for your company caused by novel coronavirus outbreak please get in touch with Asters COVID-19 task force at covid19-response@asterslaw.com 

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