By abandoning the principle of solidarity, we straightforwardly share the risk of bankruptcy

A procedure for reimbursing rental payments for businesses that have lost income during quarantine, which is currently under discussion by a working group set up by the Seimas Committee on Economics to address the issues of interest and rental payments, is facing criticism. Solidarity during quarantine should not be the target of disputes.

As a result of the global pandemic, most businesses have lost a significant share of their incomes or ceased entirely, although the burden of liabilities has not (yet) changed, or has changed insignificantly, mainly due to Government support.

Most European countries use different business support mechanisms to find a way out to help the stopping economy. Northern European countries compensate companies for the rent they have lost due to quarantine depending on the amount of lost income: Denmark offers companies that have closed their business completely a compensation of up to 80% of their rental payments and Sweden compensates for 50%.

Lithuania has been discussing, so far, a more moderate path, i.e. the State would compensate 50% for rental service business that has experienced difficulties as a result of quarantine restrictions announced by the Government and the remaining 50% would be shared by business jointly and severally – landlords would grant at least a 30% discount and the remaining obligations of up to 20% would be covered by tenants.

This idea is also supported by the Association of Lithuanian Trade Companies and the Lithuanian Real Estate Development Association (LNTPA), which represents real estate developers and managers, for some of whom rental of premises is the main source of income – all businesses should adapt together to the existing situation to avoid economic collapse.

However, individual members of the Seimas who are critical of such a proposal circumvent the principle of joint and several liability, which should not become a target at the moment – by abandoning the idea of solidarity, we mechanically transfer the risk of bankruptcy in the business chain from one sector to another. This is not what politicians should do when businesses voluntarily agree to cut their incomes and take efforts to retain jobs.

Obligations and expenditures of real estate landlords, including tax expenditures, remain unchanged – value added and other taxes must be paid on rent and service bills not paid by tenants and accounts must be settled with financial intermediaries for the loans granted, although there still is a likelihood of not recovering such payments from tenants.

A “rental holiday” currently discussed by some economists and politicians whereby tenants would be exempt from rent during quarantine and for two months thereafter does not constitute the application of the principle of joint and several liability. It is the suspension of landlords’ cash flows with a duty to fulfil obligations and with an expectation that jobs will be maintained. In other words, it constitutes a complete stopping of business income with remaining obligations and the risk of bankruptcy. Understanding this, both the Government and the Ministry of the Economy and Innovation offer a mechanism to compensate for rental income for a temporary period, which is so criticised by the members of the Seimas.

To get out of this situation together, we should stop stigmatising any business, especially those proactively looking for solutions and offering help. Landlords are reducing their income by 30% and a survey of members conducted by the LNTPA two weeks ago showed that the vast majority of companies would try to retain all employees. However, they would not be able to do so if solidarity as a solution was eliminated.

Commented by Mindaugas Statulevičius, director at the LNTPA.