Terminating a Rental Agreement Due to the Corona Epidemic

What legal solutions exist for apartment and business tenants during the Corona epidemic? When and how can one terminate a lease or rental agreement? And why is it so important to exercise good judgment and avoid reckless steps? This article will explain the matter of terminating a rental agreement under unexpected circumstances in Israeli law.

our law office is located in Jerusalem and Tel Aviv, specializes in Commercial Law and Contractual Law. The matter of terminating a lease due to the Corona crisis has been troubling many of our clients.

Our firm provides legal answers and guidance for private and commercial tenants. Our office deals with property rental, private and commercial contracts, and sales agreements, amongst other things.

The Effect of Coronavirus on Property Rental

Much has already been said about the Coronavirus epidemic these days. Emergency restrictions that were put in place because of this came about because many workers found themselves unemployed overnight. For those of them who are renting apartments, unexpected difficulties in paying rent may arise. In addition, many businesses are now prevented from using the properties they rent (offices, stores, etc.). The question is: What to do when the tenant cannot pay rent or use their properties in light of these unique circumstances?

What Does Israeli Law say about Terminating a Rental Agreement?

The situations mentioned above, although taking place the same time, are separate issues from a legal point of view. One situation is when rent cannot be paid, which is a matter relevant for tenants of both apartments and businesses. Another situation is when it is impossible to travel to the property or make us e of it. This is primarily relevant for businesses, but may apply to private tenants as well. For example, if the tenants have yet to enter the apartment, and there is no possibility to leave the apartment or to show it to a new potential tenant. Below, we will deal with each situation separately:

A. Inability to Pay Rent

When a private individual or a business are unable to pay the current rent for the property rented (for instance, due to being suddenly unemployed), they can make a legal claim called “force majeure.” This claim originates from the commercial law regarding damages related to breach of contract, which is called the “Remedies Law.” This refers to a situation where one party to a contract is released from the obligations because of unforeseen circumstances. The courts deal with this claim very cautiously, having refused to accept it in the past. However, in recent years there has been a gradual willingness to embrace such claims.

Note that the courts have not dealt yet with the force majeure claim for reasons connected with the Coronavirus epidemic. Therefore, there is no definitive legal response to termination of a lease due to the Coronavirus. This claim is expected to come up in the future, but there is no way of knowing how the court will rule. Naturally, each case will be examined in accordance with its own circumstances.

In any case, before appealing to the court it is better to first exhaust all possibilities of discussion and compromise between the landlord and tenants. Options such as splitting up payments, discounts and/or a waiver for a portion of the payment may be more appealing than legal arguments.

By way of comparison, we can see that businesses such as event halls have suggested alternative options for events that were set for during the crisis (such as changing the date or canceling the event). The goodwill of the landlords must also play a role, and they are also expected to show consideration. Otherwise, this could harm them in the event of future claims to the court.

B. Inability to Travel to the Property or to Use it

Section 15 of the Rent and Lending Law may help clarify matters. This clause deals with cases in which the tenants are prevented from using the property for the purposes for which it was rented, in circumstances related to the rental property or to ways in accessing it. This clause establishes two alternative solutions for the tenant — suspension of rental payment as long as use of the property is prevented, or breaking the contract. On the part of the landlord, the contract may be terminated after a reasonable amount of time of payment being suspended.

It is important to stress that the exemption will only be possible in circumstances which could not be anticipated when the contract was made. In this instance as well, the courts have not yet rule regarding the exemption claim during the Coronavirus epidemic. There exists a court ruling from 2016 dealing with the rental of an office building in Nazareth which could not be used for a long time due to a gang war. The Supreme Court ruled that the exemption applies in situations in which the property is unable to be used, due to circumstances related to the rental property or to ways in accessing it. Such an interpretation may well be accepted in relation to circumstances surrounding Coronavirus.

Contact a Lawyer Specializing in Tenancy Law

The legal solutions that we put forward above require action with a thorough understanding of the circumstances of each case. It is important to avoid reckless and hasty steps that could have negative consequences for tenants. If you have questions concerning terminating a rental agreement due to Coronavirus, a lawyer specializing in Contractual Law and Commercial Law from our law office- located in Jerusalem and Tel Aviv—will be happy to be of service to you at all times.