What is meant by suspension of a contract?

About force majeure

The basic definition of the term is contained in Art. 401 Civil Code of the Russian Federation. This refers to extraordinary circumstances of force majeure. Their occurrence is not related to the behavior of the counterparty. Force majeure does not terminate the contract, but exempts from sanctions for its violation.

In Russia, the compelling circumstance is not the epidemic itself, but government restrictive measures. The conclusion of the Chamber of Commerce and Industry will help make it easier to prove the fact in court. In the spring of 2021, regional associations received the right to issue documents on internal transactions. Now the service is provided free of charge (letter No. PR/0315). Previously, conclusions were issued only for foreign economic contracts on a paid basis.

The Bank of Russia (message dated March 17, 2020) and the Federal Antimonopoly Service of the Russian Federation (letter No. IA/21684/20) have already announced the non-application of sanctions under agreements in connection with the pandemic. Officially, the threat of coronavirus infection is recognized as force majeure only in some regions. Officials spoke unequivocally on this issue:

• capital and Moscow region;
• Perm and Primorsky territories;
• Karachay-Cherkessia;
• Sevastopol;
• Karelia;
• Crimea;
• Republic of Mari El.

The list includes Arkhangelsk, Bryansk, Vologda, Ivanovo, Kurgan, Novosibirsk, Nizhny Novgorod, Orenburg, Tver and Tula regions. The list is updated daily.

However, the announcement of classifying the coronavirus as force majeure is not enough. There is no automatic release from liability. Prohibitions and restrictions imposed by the authorities should actually prevent the execution of the transaction. Here's an example:

When declaring force majeure, it is important to remember the time limits. Parties to the agreement are exempt from sanctions for non-compliance only for the period of force majeure. This means that rent arrears will have to be paid immediately after government restrictions are lifted. Otherwise, the counterparty will charge a penalty.

What is meant by suspension of a contract?

The concept of “suspension of a contract” is absent in the legislation. You can suspend the fulfillment of obligations under the contract. For example, performing work, providing services. There must be a reason for this.

We believe that the execution of the contract can be suspended by agreement of the parties.

What is meant by suspension of a contract?

The legislation does not contain the concepts of “suspension of a contract” or “suspension of a contract”. Such a mechanism is not provided for contracts.

In this case, the fulfillment of obligations under the contract can be suspended. For example, suspend the supply of goods or performance of work. As a general rule, the fulfillment of obligations can be suspended when <*>:

- the other party did not fulfill its obligations;

- it is obvious that the other party will not fulfill its obligations on time. Certain circumstances must indicate this.

Example LLC “A” entered into a supply agreement with LLC “B”. According to the agreement, LLC “A” must make an advance payment no later than 03/05/2020. LLC "B", in turn, must deliver the goods no later than 03/13/2020. As of March 12, 2020, LLC “A” has not made payment. In this regard, LLC “B” may suspend the fulfillment of its obligation to supply goods <*>.

It happens that the counterparty does not fulfill its obligations partially. Then the fulfillment of your obligations can be suspended in the relevant part <*>.

Note: In the situations described above, a party can not only suspend the fulfillment of its obligations, but also refuse to fulfill them and demand compensation for losses <*>.

Is it possible to suspend the execution of a contract by agreement of the parties?

It happens that both parties agree to suspend the fulfillment of obligations under the contract for some time. For example, in a lease agreement, the parties want to stipulate a period when the tenant will not use the premises. After this period, the rental will continue.

The legislation does not provide for a separate mechanism for such cases. We believe that, based on the principle of freedom of contract, the parties can agree on such a condition in the contract <*>.

An example of the wording of a condition in an agreement: “Non-residential premises are provided for rent for the period: from 01/10/2020 to 08/31/2020 and from 11/01/2020 to 01/09/2021. During the period from 09/01/2020 to 10/31/2020, the tenant does not use the premises. The tenant does not pay rent, utility and operating payments for this period.”

However, the following must be taken into account in relation to lease agreements. The tenant is obliged to pay rent until the premises are returned to the landlord <*>. The return of the premises is carried out according to the transfer deed or other transfer document <*>.

In this regard, during the period of a break in the lease, we recommend that you draw up a certificate of return of the premises to the lessor. If the lease continues - accordingly, an act of transfer of the premises to the tenant. The act will confirm that the premises were not really used by the tenant. It will also avoid a dispute about the need to pay for such periods.

In order to ensure timely acceptance and transfer of premises, we also recommend that the parties be held liable for avoiding these actions.

An example of the wording of a condition in an agreement: “The tenant undertakes to return the non-residential premises to the lessor on August 31, 2020 according to the acceptance certificate of the premises, and the lessor undertakes to accept it. For evading acceptance of the premises, the landlord pays a penalty in the amount of 0.5% of the monthly rent for each day of evasion. The landlord undertakes to transfer the non-residential premises to the tenant for temporary possession and use on November 1, 2020 under the acceptance certificate, and the tenant undertakes to accept it. For evading acceptance of the premises, the tenant shall pay a penalty in the amount of 0.5% of the monthly rent for each day of evasion.”

When can work under a contract be suspended?

You can pause work when <*>:

- the customer violates his obligations under the contract and this prevents the contractor from fulfilling the contract.

Example of a customer violation The customer did not provide the contractor with materials, equipment, technical documentation or an item that needs to be processed (processed);

- it is obvious that the customer will not fulfill his obligations on time. Certain circumstances must indicate this.

Example A contract has been concluded between LLC “A” (customer) and LLC “B” (contractor). The contractor began work on February 10, 2020. The customer must transfer material that is unique to the contractor no later than March 30, 2020. It will be used at the final stage of work. In the country where LLC “A” is located, from 03/01/2020 to 05/01/2020, the export of the specified material outside the country was prohibited. Until March 1, 2020, LLC “A” did not send the material to the contractor. LLC “A” will not deliver the material on time. The circumstances clearly demonstrate this. Accordingly, LLC “B” may suspend the work.

In a number of situations, the contractor is obliged to suspend work until it receives instructions from the customer. This must be done when the contractor discovers that <*>:

1) materials, equipment, documentation, things transferred by the customer are unsuitable or of poor quality.

Note! This rule is specific for design work. Thus, the contractor is obliged, before receiving instructions from the customer, to suspend design work if the following are poorly prepared: - design assignment; - a set of initial data necessary for the execution of the contract <*>;

2) the instructions given by the customer regarding the method of performing the work may lead to adverse consequences.

Note: The consequences may be unfavorable for both the customer and the contractor <*>;

3) there are other circumstances that pose a threat to the suitability or durability of the work result or in which the work cannot be completed on time. Such circumstances must be beyond the control of the contractor;

4) additional work is needed. They are not taken into account in the design and estimate documentation and entail an increase in the estimated cost of construction. In this case, the contractor is obliged to inform the customer about this. Work is suspended if a response from the customer is not received within 10 days. A different period may be established by law or agreement.

Note! As a general rule, the customer must compensate the contractor for losses caused by such downtime <*>.

Suspension of construction

For construction work, in addition to the above cases, an additional mechanism for suspending construction is provided. It differs in that:

1) suspends the normative period of construction <*>;

2) is not associated with technological interruptions in construction <*>.

Note: Technological breaks are periods when construction work is not carried out due to the impact of natural and climatic factors on working conditions and production technology <*>;

3) has independent grounds for suspending work. So, construction can be suspended <*>.

a) the contractor, if he has not been able to perform work for more than one month due to the lack of materials, equipment that the customer must provide, or due to the customer’s failure to pay for the work on time;

b) the customer, if he:

— plans to mothball the facility;

- wants to stop further construction;

— identified deficiencies in the contractor’s work that may threaten the safety and reliability of the construction site;

c) state supervision bodies, other government agencies in cases established by law;

d) other persons on the grounds provided for by law and (or) agreement;

4) requires special design. Thus, the suspension of construction is formalized by an act of establishing a date for the suspension of construction, and the resumption of construction is formalized by an act of establishing a date for the resumption of construction. The forms of acts are established in Appendix G to TCH 45-1.03-122-2015.

Note! Suspension of construction should be distinguished from mothballing a construction site. Conservation involves the suspension of construction for a period of more than 3 months. In this case, construction work is stopped, and the construction contract is terminated <*>.

When can you suspend the provision of services under a contract?

The provision of services can be suspended on general grounds when <*>:

- the customer does not fulfill his obligations under the contract. For example, the customer did not make an advance payment;

- it is obvious that the customer will not fulfill his obligations on time. Certain circumstances must indicate this.

Additional grounds for suspension may be provided for certain types of services. Thus, a telecommunications operator may suspend the provision of services to a subscriber, for example, when he has identified <*>:

— violations of the procedure for transmitting traffic related to the use of a subscriber number;

— signs of suspicious behavior of the subscriber.

In addition, the parties may provide the grounds for suspension of services in the contract.

An example of the wording of a condition in a contract: “The Contractor has the right to suspend the provision of educational services to the customer if the number of customer employees attending the seminar is less than 5 people for 3 classes in a row.”

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To pay or not to pay

Recognizing the pandemic as force majeure will not solve the main problem. Lease arrears will accumulate. Even in the absence of fines, the parties to the transaction will be faced with the need to pay for it. With zero revenue, this threatens serious financial difficulties and even bankruptcy.

You cannot simply refuse to pay bills under the agreement. The tenant will have to notify the counterparty of force majeure or enter into negotiations in order to find a joint solution. The actual non-use of real estate does not stop accruals under the transaction.

Law No. 98-FZ dated April 1, 2020 will help you find a way out of the situation. The regulatory act gives the Russian Government the authority to introduce high alert or emergency regimes. The same document defines the features of regulation of rental relations.

Cost reduction

The April law gives participants the right to demand a reduction in the cost of using real estate. Insisting on a price revision is allowed when a state of emergency or high alert is introduced in the region. Changes to the contract can be made throughout 2021. Counterparties must document their decision. To do this, you will have to draw up an additional agreement.

The norm caused a heated debate among lawyers. Human rights activists argue about the advisability of limiting freedom of pricing and fear abuse. The period for rent reduction remains unclear. Article 19 provides only general language. They can be interpreted in different ways. Business representatives insist on reducing rent for the entire 2021. Property owners agree to a discount for the period of actual downtime.

Lawyers recommend developing fee reduction schemes taking into account its structure.

In all cases, it will be possible to reduce the cost of rent only with mutual agreement of the parties. The owner is obligated to make a discount only if he provides evidence of the impossibility of using the property (Part 3, Article 19 of Law 98-FZ). Alas, the method of confirming such a fact is not described in the normative act.

How to draw up an additional agreement on suspension of the contract

Make the additional agreement in writing. The number of copies must correspond to the number of persons participating in the agreement.

Include in the agreement:

• title of the document: “Additional Agreement on Suspension of the Agreement”;
• its details (number, date and place of signing);
• the name, number and date of the contract whose operation you are suspending;
• names of the parties (for example, customer and contractor);
• names of organizations that act as parties to the agreement;
• position and full name persons who sign the agreement on behalf of the parties, the name and details of documents certifying their authority;
• the period for which you suspend the contract;
• signatures of the parties.

Sample additional agreement on suspension of the contract

Additional Agreement No. 1

on suspension of the contract for the provision of services

dated August 3, 2021 N 11

Limited Liability Company "Sigma", hereinafter referred to as the "Customer", represented by General Director Ivan Ivanovich Petrov, acting on the basis of the decision of the general meeting of the company's participants (minutes dated February 2, 2015 No. 1) and in accordance with the Charter, on the one hand and Limited Liability Company "Andromeda", hereinafter referred to as the "Executor", represented by First Deputy General Director Sergei Ilyich Popov, acting on the basis of power of attorney dated August 2, 2021 No. 134, on the other hand, agreed on the following:

1. The parties agreed that from September 13, 2021, the validity of the service agreement dated August 3, 2021 No. 11 (hereinafter referred to as the Agreement) is suspended until October 3, 2021 inclusive.
2. During the period of suspension of the Agreement, the parties shall cease to fulfill all obligations under the Agreement. During this period, the Customer has no right to demand that the Contractor provide services, and the Contractor has no right to demand payment. Suspension of the Agreement does not relieve the Customer from the obligation to pay for previously provided services.
3. This Additional Agreement is drawn up in two copies, one for each of the Parties, and is an integral part of the Agreement.

We invite you to read: Copy of Sberbank payment order

Termination of contract due to coronavirus

Organizations and entrepreneurs affected by the pandemic may cancel their lease early. The corresponding right arises for them by virtue of Art. 451 Civil Code of the Russian Federation. The threat of mass infection with coronavirus, government bans and restrictions - all this falls under the definition of a significant change in circumstances. This situation cannot be foreseen even with due diligence.

The mechanism is universal, but judicial practice in this area is developing slowly. The norm allows not only to terminate, but also to change the agreement. This procedure is suitable for agreement on an individual basis:

• rental holidays;
• partial debt write-off;
• temporary reduction of tariffs;
• inclusion or removal of rental-related services;
• correction of the intended use of premises, etc.

Practicing lawyers report attempts by landlords to classify the pandemic as a business risk. The opponents' interest boils down to collecting compensation for unilateral termination of the contract. In such situations, businessmen are advised to rely on analytical reports of in-house economists and accountants. If during the disputed period the losses reach extreme levels or clearly go beyond the usual limits, the changes will be considered significant. The landlord will not be able to demand payment of the fine.

The counterparty must be notified in writing of the termination of the relationship. The introduction of a high alert or emergency situation does not exempt from the acceptance and transfer procedure. The tenant must return the property to the rightful owner with the drawing up of a deed. If the other party refuses acceptance, the fact should be recorded. Invitations-notices with a mark of delivery, as well as a notarized protocol, are suitable as evidence of good faith. Otherwise, there will be a risk of debt formation and its collection in court.

Upon termination of the transaction with reference to Art. 451 of the Civil Code of the Russian Federation, losses are distributed evenly between the parties. If the participants fail to agree, the issue is resolved by the court.

Suspension of the agreement

Article 19 of Law 98-FZ dated April 1, 2020 obliges the lessor to provide the partner with a deferment. The mechanism applies to contracts the subject of which is real estate. The condition is to submit a written application. 30 days are allotted for its consideration.

The procedure for granting a deferment was approved by government decree No. 439. The key conditions are:

1. Agreement date . The rules apply if the agreement was signed before the introduction of a high alert regime or emergency situation in the territory.
2. Limited time . Rent payments for 2021 can be deferred. The deferment does not apply to debt from previous years. The grace period will be valid until October 1.
3. Inclusion in the list . The tenant must be engaged in activities specified in the government list.
4. Property status . Participants in agreements the subject of which is non-residential real estate have the right to apply for a deferment. The form of ownership has no legal significance.

The parties establish the settlement procedure independently. However, the scheme must comply with the main goals of the resolution - ensuring the financial stability of the business. Collection of remuneration for deferment is not permitted.

Possible consequences

After termination of the contract, legal consequences arise for both parties. According to the procedure, the tenant no longer has the right to use the land. In this case, no rent will be paid to the landlord.

Parties must be mindful of the consequences. If there are claims, for example regarding payment, the situation is resolved by filing an additional claim in court. Before this, attempts at a peaceful settlement must be made.

Another important point is the possibility of compensation for moral and material damage. To do this, the injured party must set out its demands in a statement of claim.

Terminating a lease agreement by mutual consent is not difficult. If there are obstacles, the issue will need to be resolved with the help of the court. The deed of transfer to the land donation agreement must also be drawn up and certified by a notary.

What is a simplified procedure for registering land plots as a property? Read this article.

We will also tell you whether it is possible to combine land plots with different permitted uses.

If there is no money to pay...

The most effective solution is negotiations. The settlement process is as follows:

Various arguments will help convince the landlord to make concessions. So, entrepreneurs can bet on the following points:

1. Room area . In an economic downturn, finding a partner willing to take over a large property is not easy. The owner is interested in maintaining relationships with key partners.
2. Long-term cooperation . The landlord can be guaranteed a long-term partnership. To do this, the term of the transaction should be increased by several years. This will allow the counterparty to plan its income for the future. Particular attention should be paid to reliability (for example, the absence of late rent payments before the pandemic).
3. Investments . The tenant will be interested in the partner if he agrees to undertake major repairs or inseparable improvements. You can do this during a period of forced downtime. Bartering services, works or goods would also be an interesting solution.
4. Social significance . During negotiations, it is worth emphasizing the essence of business, its role in supporting the population, and also appealing to the general civil position.
5. Causes and consequences . Indicating the direct impact of the pandemic on the tenant’s financial condition will also help convince the partner of the need for concessions.
6. Joining forces . If we are talking about shopping complexes occupied by several organizations, you can conduct a dialogue with the landlord together. The threat of losing a significant number of partners makes opponents more accommodating.

If the owner of the building refuses to give in, and there is no money to pay the debt, he will have to defend his interests in court. With a complete lack of funds, the business is left with the last tool. Loss of solvency forces you to file bankruptcy. The temporary moratorium applies to creditors. However, according to the rules of Law 127-FZ of October 26, 2020, the head of the company, as well as the entrepreneur, are obliged to personally apply to arbitration if obvious signs of insolvency are identified.

Let's go to court

When preparing for the proceedings, the tenant needs to take into account a number of nuances. Thus, it will not be possible to avoid penalties for late payment if:

• the procedure for notifying the counterparty of force majeure was not followed;
• restrictive measures do not have a direct impact on activities and do not interfere with the proper execution of the transaction;
• the participant refers to sharp fluctuations in exchange rates or the general economic crisis;
• suspension of the tenant's work is a preventive measure (on its own initiative).

When preparing for a trial, it is important to correctly assess the legal nature of the relationship. Thus, lawyers do not always consider references to Art. 417 of the Civil Code of the Russian Federation. A government ban on business does not automatically result in exemption from rent. Regulatory acts will be an obstacle to the provision of services, sale of goods or performance of work. The restrictions will not directly exclude the possibility of using the leased property. In areas, for example, it is still possible to store equipment. This is especially true for outlets that have switched to online trading. If the arguments are not supported by something else, the court will reject them.

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Consecutive proof of a number of circumstances will allow you to terminate the lease agreement and avoid losses. In the trial, it will be necessary to confirm the unforeseenness and insurmountability of the established coronavirus prohibitions, and point out the high unprofitability of activities during the disputed period. Particular emphasis should be placed on the inadmissibility of shifting risks to only one party to the contract.

The proceedings will be based on the rules of arbitration or civil procedural legislation. Jurisdiction depends on the status of the participants. The disadvantage of the solution is the need to pay a state fee and the duration. In conditions of overload, you should not expect a prompt solution. However, the cessation of the work of reception offices does not prevent the filing of claims. Documents may be sent by mail or electronically. In this case, the parties will be able to avoid disputes regarding the statute of limitations.

Brief conclusions

In the spring of 2021, the overwhelming number of Russian businessmen found themselves in a difficult financial situation. Following three rules will help you get out of the crisis:

1. Focus on individual legal protection. It is possible to rely on the basic norms of the Civil Code of the Russian Federation only if there is reliable documentary support. Merchants need to record the reasons for refusal to cooperate and return advances, draw up conclusions about force majeure, and monitor their financial condition. Active collection of materials confirming the negative impact of the pandemic will help to free yourself from contractual penalties and achieve a reduction in rent.
2. Negotiation. Almost for the first time during the existence of the domestic legal system, the pre-trial procedure is more effective than a full-scale trial. Everyone suffers losses, and therefore a compromise is in the interests of both parties to the transaction.
3. Formation of judicial practice. The situation is exceptional. It is impossible to find a ready-made solution in legal reference books. However, human rights activists have a chance to create a modern base of precedents. If the landlord refuses to make concessions, you need to defend your position in arbitration. The development of a strategy should be approached creatively, relying not only on the norms of the Civil Code of the Russian Federation, but also on basic economic laws, cause-and-effect relationships and logic.

Highlights in 2021

In order for a contract to be terminated, grounds are required. They are prescribed at the legislative level, so the parties can familiarize themselves with them in advance. It is important to remember that the initiator of the breakup must notify the other party of his decision.

The main points regarding termination of the contract are contained in the Civil Code of the Russian Federation. It specifies the procedure and rules for working with documents.

In cases where the lease of a land plot is terminated, it is necessary to refer to the Land Code of the Russian Federation. Article 46 of the regulatory legal act fully contains all the rules.

Article 46. Grounds for termination of land lease

The contract can be terminated early by a court decision. These situations are provided for in the presence of a relationship between an individual and a municipality. If one of the parties does not agree to make concessions, it is necessary to contact the Arbitration Court.

The decision is made on the basis of the norms of the Civil Code of the Russian Federation. Article 2 of the Land Code of the Russian Federation notes the need to refer to this legal act when resolving issues. Difficult points are described in Article 46 of the Land Code. Registration of ownership of a land plot at the MFC is a convenient way to resolve all issues and submit documents.

Read how to find out the permitted use of a land plot online.

When going to court, it is important to have sufficient grounds for terminating the land lease agreement. In this case, the authorities will be more focused on terminating the agreement.

The reasons for which a contract can be terminated are noted in Articles 619 and 620 of the Civil Code of the Russian Federation. If the norms of the Land Code and civil legislation are not enough, you can turn to environmental and natural resource documents.

Article 619. Early termination of the contract at the request of the lessor

Article 620. Early termination of the contract at the request of the tenant

It is possible to terminate the lease if the general terms of the contract are not met, when it is considered that the tenant has not made payments for two consecutive reporting periods. This norm refers to civil law.

The landlord can make an offer.

This measure is taken when:

• using the land plot for purposes other than those specified in the agreement;
• decrease in soil fertility;
• negative impact on the environment of work carried out on the site;
• harm to fertility, poisoning of agricultural land with various chemicals;
• non-use of a plot of land for three years if it was allocated for agriculture or construction;
• seizure of an allotment in which the administration of a locality or government authorities participate.

We invite you to familiarize yourself with: Certificate of suspension of work under a contract

Sometimes an agreement cannot be terminated. This is provided for during agricultural work at the moment. Also, individual cases are specified in federal legislation.

The tenant can also make a proposal to sever the relationship. This is provided if he was not notified of the poor condition of the land.

Also, early termination may be due to the identification of hidden defects in the allotment. Termination is permitted if the landlord interferes with the tenant regarding the use of the premises.

The initiator of termination of the lease agreement must notify the other party of his decision. For this purpose, a special notice is drawn up within the period prescribed by law. The written document reflects the reasons why further relations are impossible. It is necessary to refer to the clauses of the contract.

It is important to give notice within a certain time frame. The terms are specified in the contract itself. For example, it may be specified that notice is given a week or month before the proposed termination.

You must wait for a response from the other party within a month.