It is no secret that in an overwhelming majority of cases, rent and other payments made by tenants of commercial real estate are set in foreign currency. 

In the current economic conditions, rent rates in foreign currency significantly complicate the financial situation for tenants and frequently cause their business to suffer losses. At the same time, it is almost impossible to predict how much the rent will increase if it is set in foreign currency and not restricted by certain thresholds of the exchange rate. 

The situation is an acute one both for landlords and tenants, and forces the parties to initiate negotiations in search of a compromise. At the same time, the parties are not always ready to make mutual concessions and establish terms and conditions of the lease that would balance the interests of both sides. The landlords are generally unwilling to revise the terms and conditions of the lease. This is connected, first of all, with the loans for real estate construction being provided in foreign currency and, secondly, with the landlords having no desire to bear currency risks and in effect shifting them over to the tenants.

Resolution of this sore point with currency rates undoubtedly requires a comprehensive approach. 

That provided, the Russian Ministry of Industry and Trade, with the support of the National Retail Association, has prepared a draft law prohibiting rent and other payments made by the tenant for possession and use of real estate in foreign currency. 

The respective amendments are proposed to be entered into the Civil Code of the Russian Federation. If the draft law is adopted, not only the rent rates would be prohibited in foreign currency, but other payments made by the tenants, in particular, operational costs, marketing payments, etc. 

The core community actively supported the Ministry’s proposal. At the same time, it is expected that foreign investors may oppose this legislative initiative as it will impede planning their investments and can affect further development of the Russian market of commercial real estate. 

We will monitor further work on the draft law of the Russian Minpromtorg and will inform you in the event it is approved and adopted.

Elena Stepanova  Partner                                Moscow   estepanova@cls.ru  Tel.: +7 (495) 970 10 90

Denis Osipchuk      Associate                Moscow      Tel.: +7 (495) 970 10 90

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Elena Stepanova or Denis Osipchuk, Moscow Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.