Many businesses remain closed due to the coronavirus crisis. Subsidies are intended to address this problem, but the eligibility requirements can be discriminatory in many respects. In the following article, we have therefore decided to provide a comprehensive overview of the issue of setting conditions for obtaining rent subsidies and to explain to the general public the potential options for compensation and asserting their claims.
In March of last year, the first measures were introduced in our country to prevent the spread of COVID-19. The Public Health Authority of the Slovak Republic plays a significant role in implementing new measures; its duty under Act No. 355/2007 Coll. on the Protection, Promotion, and Development of Public Health and on Amendments to Certain Acts (hereinafter referred to as the “Public Health Protection Act”) is to order measures to prevent diseases and measures in the event of threats to public health, if they need to be implemented beyond the territorial jurisdiction of the regional public health office.
The Public Health Authority’s anti-pandemic measures affect each of us, some more, others less. Both the first and second waves of the pandemic led to the forced closure of many Slovak businesses, which subsequently faced significant financial difficulties. The loss of income, as a natural consequence of the measures implemented, leads, among other things, to the inability of business owners to pay rent for the period during which they cannot use their business premises. In June 2020, the National Council of the Slovak Republic approved an amendment to Act No. 71/2013 Coll. on the Provision of Subsidies within the Competence of the Ministry of Economy of the Slovak Republic, the aim of which was to provide tenants with a helping hand from the state. The amendment incorporated Section 13c into the Act, the subject of which is the legal regulation of the provision of rent subsidies.
One of the conditions for granting a rent subsidy is that the landlord provides the tenant with a rent discount. The amount of the subsidy then corresponds to the amount of the discount provided to the tenant by the landlord, but may not exceed50% of the rent amount. The rent is thus reduced by the discount provided and the amount of the subsidy, while the tenant must pay the remaining rent.
What if the landlord does not provide a rent discount?
However, not every landlord is willing to provide their tenant with a rent discount, or the amount of the discount provided is so low that, even when combined with the rent subsidy from the Ministry of Economy, it does not constitute real compensation for the business owner for the inability to use the premises. Tenants of businesses that must remain closed due to measures imposed by the Public Health Authority, and to whom the landlord provides no discount, are left completely without assistance or any compensation from the state in this case. This raises questions as to whether the aid proposed by the state is discriminatory and whether the state should “compensate” all affected tenants.
Am I entitled to compensation for the negative impacts of state measures adopted to prevent the spread of COVID-19?
In response to the Constitutional Court’s decision, file no. II ÚS 410/2020, in which it assessed a measure by the Public Health Authority of the Slovak Republic (ÚVZ SR) introducing mandatory state quarantine upon arrival from abroad and concluded that the Public Health Authority’s measures are hybrid administrative acts, the National Council of the Slovak Republic adopted Act No. 286/2020 Coll., amending the Act on the Protection of Public Health. As stated in the explanatory memorandum, the ongoing COVID-19 pandemic has revealed certain shortcomings in the formal provisions concerning the issuance of measures by public health authorities. The greatest ambiguity concerns the legal nature of measures issued by the Public Health Authority of the Slovak Republic, the manner of their preparation, and, in particular, their promulgation. The amendment to the Public Health Protection Act, aimed at eliminating these ambiguities, recognized the measures of the Public Health Authority as generally binding legal regulations, for which the term “decree” was designated.
In connection with the measures of the Public Health Authority, it is therefore necessary to distinguish between measures issued before November 15, 2020, and measures issued after November 15, 2020, which have the legal nature of generally binding legal regulations—decrees.
There is no doubt that the damage suffered by tenants due to the closure of their businesses could not have been prevented, which leads to the conclusion that the state is indeed liable for the damage. Pursuant to Article 46 of the Constitution of the Slovak Republic, everyone has the right to compensation for damage caused by an unlawful decision of a court, another state authority, or a public administration body, or by an incorrect official procedure. The right to compensation for damage may be asserted only within the limits of the laws implementing these provisions. The fundamental legal regulation governing liability for damages in the exercise of public authority is Act No. 514/2003 Coll. One of the prerequisites for claiming damages from the state is that the decision causing the damage was annulled on grounds of unlawfulness. The amendment to the Public Health Protection Act allows for decrees of the Public Health Authority of the Slovak Republic to be reviewed as normative administrative acts pursuant to Article 125(1)(d) of the Constitution of the Slovak Republic for inconsistency with the Constitution, constitutional laws, international treaties, and other superior legal regulations, upon a motion by the entities specified in Article 130 of the Constitution of the Slovak Republic. If the Constitutional Court of the Slovak Republic were to annul a decree on the grounds of illegality, the basic prerequisite for awarding damages would be met. The problem, however, is that so far no pandemic measure of the Public Health Authority has been annulled by a court. If the measures themselves have not been annulled on grounds of illegality, then it is not possible to seek damages from the state through the procedure under Act No. 514/2003 Coll.
Is it possible to claim damages in connection with measures adopted by the Public Health Authority of the Slovak Republic (ÚVZ SR) prior to October 15 that were apparently unlawful?
As we noted above, the fundamental prerequisite for claiming damages from the state is the annulment of an unlawful decision. Complainants who filed a constitutional complaint with the Constitutional Court of the Slovak Republic before November 15, 2020, alleging a violation of their rights in connection with the measures implemented, were unsuccessful in most cases. The Constitutional Court rejected their constitutional complaints on the grounds that they had not exhausted all effective remedies prior to filing. In its resolution ref. no. II. ÚS 410/2020, the Court concluded that:
“as regards the legal existence of a so-called hybrid administrative act—that is, an individual legal act containing elements of a normative legal act (the normative element consists primarily in the generally or abstractly defined scope of addressees of this act)—in the legal order of the Slovak Republic, such an act of applying the law need not be generally defined in legal terms as a procedural category. It is sufficient if the specific, normatively established powers of a particular public administration body in a generally binding legal regulation (within the scope of the relevant regulation, applied as “lex specialis”) imply precisely such a nature of the result of the exercise of its powers (a legal definition of competence, i.e., not a conceptual or status-based definition). The formulation of statutory powers to issue measures pursuant to Section 12(2)(b), (c), and (f) and Section 48(4)(l) of Act No. 355/2007 Coll. (on the basis of which the contested measure was issued) establishes, “ratione materiae,” the conclusion that the measure constitutes a hybrid administrative act.”
Hybrid administrative acts fall within the jurisdiction of administrative courts to review in proceedings on administrative actions pursuant to Part Three, Title I of the Administrative Court Procedure Code. If tenants seeking compensation for damages incurred as a result of measures issued by the Public Health Authority of the Slovak Republic prior to November 15, 2020, were to file a complaint directly with the Constitutional Court,
the Court would likely (citing the legal opinion stated above that the measures issued at that time were hybrid administrative acts) dismiss their constitutional complaint as inadmissible, since not all remedies had been exhausted, i.e., the measures, as hybrid administrative acts, were not subject to review by administrative courts.
However, the question arises as to whether compensation can be sought for damage caused by measures of the Public Health Authority of the Slovak Republic that are no longer in force. According to established case law, the subject of judicial review may only be a decision existing at the time of the court’s ruling (see Supreme Court of the Slovak Republic 3Sž o KS 90/2005). The administrative court would most likely dismiss the tenant’s administrative complaint, arguing that it is not authorized to award damages caused by a measure that has been repealed or replaced by a decision of the Public Health Authority itself.
If I cannot claim damages, can I claim other compensation? What kind?
Tenants who, as a result of the discriminatory subsidy scheme of the Ministry of Economy of the Slovak Republic, cannot obtain any rent subsidy, or to whom the state has provided a subsidy of such a low amount that it does not constitute real compensation for the entrepreneur for the inability to use the premises, may, as citizens of a contracting state to the European Convention on Human Rights, seek compensation before the European Court of Human Rights.
Discrimination is a situation where individuals (or groups of individuals) who are in the same factual and legal situation are treated differently without this unequal treatment being based on a legitimate or acceptable reason. The measures taken by the Public Health Authority apply to all tenants of establishments that must be closed due to the ongoing pandemic. Tenants, regardless of whether the landlord provides them with a discount or not, are in the same situation—they are forced to keep their businesses closed, and are thus equally restricted or harmed by this situation. However, the conditions for granting subsidies lead to a distinction between tenants who have received a rent discount from their landlord and those who have not agreed on a rent discount with their landlord. Tenants to whom the landlord has not provided a discount and who must pay the full amount of the agreed rent are thus disadvantaged compared to tenants to whom the state provides assistance in the form of subsidies, and therefore their restrictions and losses are not compensated in any way by the state. On the other hand, tenants to whom the landlord has provided only a minimal rent discount are also at a disadvantage compared to tenants to whom the landlord has provided the maximum rent discount (50%). It is important to emphasize that subsidies compensate for damages arising from criteria that the affected party does not know and cannot influence.
Protection against discrimination is provided by Article 14 of the Convention, which states: “The enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, skin color, language, religion, political or other opinion, national or social origin, membership in a national minority, property, birth, or other status.” However, a mere violation of the right to equal treatment is not sufficient for the ECHR to deem the tenant’s complaint admissible. According to the Court’s established case law, it is necessary to allege, in addition to discrimination, a violation of another accessory (secondary) right guaranteed by the Convention. In this case, it is possible to allege a violation of Article 1 of Protocol No. 1 to the Convention, which guarantees the right to peaceful enjoyment of property, since the measures taken by the Public Health Authority of the Slovak Republic restricted the right to use the leased premises.
As for the amount of compensation, tenants may demand that the state pay them the amount it contributed to tenants who agreed with the landlord on the maximum discount, i.e., 50% of their rent.
One of the conditions for filing a complaint with the ECHR is the exhaustion of all effective and available domestic remedies. However, under the Slovak judicial system, tenants have no means available to challenge the fact that Section 13c of the Act on the Provision of Subsidies under the jurisdiction of the Ministry of Economy of the Slovak Republic is discriminatory and violates a right guaranteed by the Convention.
The Union of Fitness Centers of Slovakia has also filed a complaint with the European Court, and the conciliation phase of the proceedings is currently underway. If the fitness centers were successful with their claims, it would open the way for many businesses that have suffered significant losses due to anti-pandemic measures.
Can I challenge the notification of denial of a rent subsidy on the grounds of illegality/unconstitutionality caused by the discriminatory nature of this subsidy system?
If a tenant who does not meet the conditions for receiving a subsidy submits an application for a rent subsidy, they will receive a rejection notice from the Ministry of Economy of the Slovak Republic. A notice of denial of a rent subsidy meets the definition of an administrative act by a public authority within the meaning of Section 3(1)(c) of the Administrative Court Procedure Act (Act No. 162/2015 Coll.). Through an administrative action, the tenant may seek protection of their subjective rights against a decision or measure of a public administration body. The tenant could use an administrative action to challenge a violation of Article 35(1) of the Constitution of the Slovak Republic, which guarantees the right to conduct business. However, none of the grounds established by law entitle the administrative court to annul the notice of denial of the rent subsidy on grounds of illegality and to award compensation to the tenant. For this reason, it is possible to challenge the notice directly before the Constitutional Court of the Slovak Republic.
Similar to the case before the European Court of Human Rights, in addition to discrimination under Article 12(2) of the Constitution of the Slovak Republic, it is necessary to allege a violation of another ancillary right. In addition to the aforementioned right to conduct business, Article 55(2) of the Constitution of the Slovak Republic also comes into play, under which the Slovak Republic protects and promotes economic competition, which has been violated by an unfair subsidy system. However, it is questionable whether the Constitutional Court would assess the subsidy system as manifestly discriminatory, rendering the notification of denial of a rent subsidy unlawful.
Could any form of compensation for the restriction of property rights under Article 20(4) of the Constitution of the Slovak Republic be considered?
If the provision of rent subsidies were discriminatory, and their primary function is to compensate entities negatively affected by the pandemic and measures taken by state authorities, a claim for compensation from the state could be considered under other provisions of the law.
Article 20(4) of the Constitution of the Slovak Republic guarantees the right to adequate compensation to those harmed in connection with the compulsory restriction of property rights. Unlike a claim for damages, the illegality of the measures/decrees of the Public Health Authority is not a prerequisite for the award of adequate compensation. The state aid system designed to mitigate the negative consequences of state measures adopted to prevent the spread of COVID-19, based on a discriminatory rent subsidy scheme, has created two categories of entities. Those to whom the state provided adequate compensation for business restrictions in the form of a subsidy, and tenants and property owners conducting business activities on their premises who did not agree on a discount with the landlord and thus did not meet the condition for receiving the subsidy. However, even within the first category of entities, there are many tenants to whom the landlord provided only a minimal rent discount; as a result, the amount of the discount, combined with the rent subsidy from the Ministry of Economy, does not constitute adequate compensation for them for the inability to use the premises. The state should also compensate the second category of entities—namely, tenants and property owners—to whom the Constitution likewise guarantees the right to adequate compensation, with the amount of compensation being at least equal to the subsidy provided to those who met the conditions of the subsidy scheme, i.e., 50% of the rent amount. The state, which was supposed to compensate all entities restricted by the measures introduced, illogically provided adequate compensation only to those who met the discriminatory conditions it had set, however, it must be emphasized that the minimum subsidy amount provided by the Ministry of Economy to tenants who agreed with the landlord only on a minimal rent reduction also does not constitute real compensation for the inability to use the premises.
Based on a legal analysis of the current situation, we have concluded that the system of “state aid” designed to mitigate the negative consequences of state measures adopted to prevent the spread of COVID-19 is insufficient and disproportionate given the extent of the state’s interference with the rights and freedoms of the affected businesses. The affected parties should be adequately compensated for the consequences caused by the state’s limitations and restrictions. We see an opportunity for affected tenants, as well as property owners, to effectively seek protection and monetary compensation. Our law firm is ready to assist them and provide expert legal services. We are closely monitoring the situation. If this situation applies to you, please do not hesitate to contact us at any time.
