As the pandemic has affected various economic sectors, including commercial real estate market, Aliant webinar held in December 14th, 2021 provided for an excellent opportunity to discover the different perspectives of the industry from 5 countries and 6 Aliant attorneys.
In Finland, the commercial real estate market is still stable and predictable and still favors real estate owners and investors, as Tuomo Kauttu from Aliant Finland practice, explains. There has been no Covid-specific regulations or laws passed or revised by the government that would affect or change either the rights or obligations of the parties in commercial real estate.
Alliance model – contract concept with several participating parties constituting a structure of an organization that has common objectives, document administration and joint target value – is increasing in real estate projects in Finland. Alliance model works well in complex projects and many problems can be avoided, including splitting of supply chains. This kind of legal structure or business concept is especially a reliable model in terms of contract period and costs. For example, such model was used in the construction project of the Helsinki Airport new main terminal that was completed and opened two weeks ago on December 1st, 2021 within the scheduled time and budget. It showed that Alliance model’s implementation in the management enables to complete the project successfully.
Concerning investment trends, Tuomo Kauttu recognize the increasing investment in data centres, energy field and clean tech areas such as battery plants. Additionally, Aviapolis – an international airport city – has all the potential for durable investment. It is not only one of the fastest growing business centres in the Helsinki region and Finland, but also the second largest employment centre in the Country.
Jacob Stein from Aliant USA practice provided and insight of US real estate market. For example, in residential real estate market the nationwide prices have increased by 30% for the past 12 months and they have raised even more in luxury and ultra luxury real estate. Not only there are a lot of foreign investors, but also many millennials has come into the market. Also, multi-tenant properties, such as apartment buildings, industrial and logistics properties are providing possibilities for good investment and great growth. Commercial properties, on the other hand, have not been doing so well and even if the prices have remained steady, there is no changes in the level of development either. Additionally, needs of tenants have altered therefore affecting the real estate market. The most problematic sector though, that has decreased and is continuing to decrease in the US, is retail segment. Many businesses have moved online and there is uncertainty about the future closures.
From legal perspective, a lot of both federal and each state government interventions materialized due to Covid. The eviction moratorium for residential real estate, even though in different forms, is available in every US state. For example, some states have prohibited to publish a notice of eviction, some have prohibited filing of eviction paperwork with the court, while others have suspended eviction hearings. Additionally, mortgage forbearance federal law for one to four unit rental properties was passed. Some local US governments are providing assistance to small landlords. Such practice, for example, is available to landlords with less than 4 rental units in Los Angles if lack of payment from tenants can be showed. In other states, eviction moratoriums for commercial properties have been extended and even such giants as Walmart and McDonalds were not paying rent as they had such right.
Jacob Stein concludes that Covid brought a lot of legal work in real estate matters, especially in personal guarantees aspects, in interpretation of provisions in the existing legal agreements, for example, the application of force majeure clause and whether the doctrine should be applied because of pandemic itself or government orders, and remedies that are available to tenants if the rented property cannot be used, but the overall conclusion of the issues depended on the relative bargaining strength of the parties. The pandemic showed that clients want long term solutions and increased the amount of negotiations between the parties.
Claudia Bortolani from Aliant Italy practice explained the situation in Italy. Besides pointing out that there are still many opportunities for buyers all over the country, the pandemic acted like a catalyst agent and led to changes that had already been started in the real estate market. Even if retail in Italy is suffering, the e-commerce is flourishing. Also logistics and residential real estate sector is doing good. Despite the pandemic, a lot of foreign investments have been made in hotels, hotel chains and luxury hotels. There are also beneficial opportunities for investors in study housing sector and residential market.
Even though the balance of powers between landlords and tenants has changed, the government intervention has not been that evident in Italy. Moratorium for defaulting tenants not allowing eviction was in force until 31.12.2021, but otherwise the Italian government just noted that ’’compliance with the containment measures by tenants is something that has to be regarded and considered in evaluating possible breaches also in terms of damages reimbursements.’’
Socrates Parparinos from Aliant Cyprus practice, informed that the most evidence of Covid impact was seen in sales contracts of newly established residential housed or commercial buildings, lease agreements and construction contracts, but still, in the beginning of 2020 everyone was lenient towards non-payment of leases or for delay in delivery dates of new buildings. To avoid rise of disputes, the government did intervention and helped employers with the furlough schemes, financial aid and provided for tax incentives to landlords if they accepted 30% discount of rents. The clients, on the other hand, tried to focus on cons of the clauses of the contracts and to look for opportunities to terminate the agreements, for example, force majeure clauses were also tried in Cyprus as exit strategy, but nonetheless there has been no contractual disputes in court yet. Socrates Parparinos also brief that real estate market was saved by local market and local investments therefore the recovery is happening quite positively.
Insight in French real estate market was presented by Fanny Hurreau and Jonathan Pierre-Louis from Aliant France practice. They discovered that due to Covid retailers and shopping centres leasers are beginning to change their business mode – not only there is development of online retail, but also innovation of shopping mall spaces. Additionally, there has been expansion of click and collect as well as telecommuting services impacting real commercial premises. In 2020 there was 40% decrease of investments in commercial markets compared to 2019, but the post-covid situation is showing also positive trend in commercial real estate – there has been 15% increase activity for physical shopping between June 2020 and June 2021. Also, there has been extremely low number of insolvency proceedings – less than 20 000 between march 2020 and June 2021 compared to previous year – because of the financial support from the state.
The government intervention in French real estate market was also present. Different measures were taken to avoid and economic disaster, such as financial support, possibility to suspend the payment as well as protection of lessees during the legally protected periods – from March 2020 to September 2020 and from October 2020 to July 2021. In these periods lessors were deprived of the right to take action for recovery of late payments, but such measure were applicable only under certain condition of turnover and number of employees.
Government was of impression that balance between conflicting interest and rights of both parties has been found, but in practice such impression did not materialize. To receive the payments due, lessors tried to evoke all the legal arguments such as the theory of unforeseeablity and the theory of exception of non-performance. Litigation cases has increased as a result, but there is no clear case law available yet. Aliant France lawyers suggest that balance of conflicting rights can be found through negotiation!
Watch the webinar here: https://www.youtube.com/watch?v=spPsHmvYZjg