With regard to the current market situation, it is obvious that the solvency of entrepreneurs and private individuals may be soon significantly affected. Therefore, the government has decided to take several new measures to ensure protection against the inability to repay loans and mortgages, as well as protection of apartment tenants.
TEMPORARY SUSPENSION OF INSTALMENTS
According to the proposal of the Ministry of Finance, recently approved by the government, instalments of interest and principal will be temporarily suspended with the exception for corporate loans (where only principal instalments will be suspended, instalments of interest shall remain intact). Banks will not charge fees for such suspension.
According to the proposal, it will be possible to postpone instalments of both consumer and business loans (including mortgages) that were concluded and drawn before March 26, 2020. Mortgage instalments may also be postponed in case that the contract was concluded before March 26, 2020, but the funds were drawn after. Clients will be able to choose between the postponement of instalments for three or six months.
If the client decides to postpone the instalments, the repayment period of the loan will be prolonged by the suspended period. However, according to information given by the banks, interest will not cease to accrue during the suspended period. Accrued interests shall not be payable until the principal has been fully repaid.
The suspension of instalments will not leave a negative entry in the bank register for the client.
In the case of consumer loans provided by banks (and also by non-banking institutions), the Ministry of Finance proposed to cap the interest rate. According to the proposal, the maximum interest rate should be equal to the maximum amount of the statutory interest on late payments (Czech National Bank’s basic interest rate increased by eight (8) percentage points), therefore the maximum interest rate should be nine (9) percent.
The government also approved a draft of the amendment to the Consumer Loan Act. It expands the range of loans for which maximum penalties for late repayment are set. So far, the maximum level of sanctions has been limited only for consumer loans. This protection will newly also apply to loans provided to self-employed persons.
In the event of default in payment for more than 90 days, it will not be possible for the contractual penalty to be higher than 0.1 percent per day of the amount due. The sum of all contractual penalties together will not be able to reach more than half of the total principal. The interest on late payment shall not exceed the amount of statutory late payment interest after 90 days.
NEW MEASURES DO NOT APPLY TO EVERY LOAN
The proposal does not apply to credit cards, overdrafts, revolving loans, operating leases or loans related to capital market transactions. Also, instalments cannot be postponed for loans where the debtor has been late in repayment for more than 30 days as of March 26, 2020.
Another important proposal is being prepared by the Ministry of Regional Development, which intends to limit the possibility of termination of the apartment lease in a situation where the Tenant does not pay rent due to lack of finance caused by the coronavirus pandemic.
The proposed act shall include 3 different regimes:
- The Landlord shall be entitled to terminate the lease immediately for non-payment only after March 31, 2021, provided that the rental debt incurred between March 12, 2020, and the end of the state of emergency. In case that the Tenant will not pay the rent after the state of emergency is recalled, the lease can be then terminated by notice.
- In the event that it becomes unquestionable that the Tenant will not be able to pay the rent from March 12, 2020, until the end of the protection period specified by this Act (May 31, 2020), the Landlord may terminate the lease with immediate effect.
- If the Landlord is in financial distress after the end of the state of emergency that would endanger its life situation (or life situation of a person to whom is the Landlord legally obliged to look after), then the Landlord shall be entitled to terminate the lease immediately. If the Tenant does not agree with the termination, the case will be decided by the court.
The Tenant will have to report and prove its unfavourable financial situation without undue delay to the Landlord. The rent will be subsequently suspended (not waived) and the rental debt will need to be settled until the end of May 2021.
According to the proposed Act, the rent will be able to be suspended for the period starting from March 12, 2020, until the day following the end of the emergency measures against the pandemic, but not later than 30 September 2020.
All these proposals will be discussed by the Czech Parliament in a state of legislative emergency.