What is new

The new regime applies as of 1 January 2014 to all lease agreements for non-residential premises. Objections against the termination of a lease must be raised within one month. New owners of let premises are not bound by the lease agreement in case they were not aware of the fact that the premises were let.

Regime for non-residential leases

The NCC lays down a new legislative framework for lease of non-residential (newly business) premises. Generally, contracts are governed by the legislation effective at the moment of their formation. However, as of 1 January 2014, the NCC applies also to already existing lease contracts, hence lease agreements entered into before 1 January 2014. This brings a broad practical impact for both tenants and landlords.

The NCC includes provisions on lease in general and also specific provisions on lease of business premises. Crucial for assessment whether specific lease agreement falls within definition of business premises is the purpose for which the lease has been concluded. Premises are deemed to be used for business if the purpose is predominantly to operate business in a relevant area. 

Termination of leases

The NCC keeps the duality of statutory grounds for termination of lease contracts concluded either for a definite or an indefinite period of time.

Landlord and tenant have a right to terminate. In case of lease for indefinite period of time, the statutory notice period is prolonged from 3 months to 6 months. The notice period is still 3 months if the terminating party has a serious reason for terminating the agreement. In case of lease for a definite period of time, statutory grounds for termination on the side of the tenant are (i) loss of tenant's qualification to carry out the activity for which the business premises were leased; (ii) the leased premises become unfit for the agreed purpose without fault of the tenant; or (iii) the landlord grossly breaches his duties. The notice period is 3 months.

The landlord is entitled to terminate the lease (i) if the building where the leased premises are located shall be (a) removed or (b) rebuilt in such a manner that it prevents further usage of the premises; or (ii) if the tenant grossly breaches his duties. The NCC states inter alia default in payment of the rent or service charge of more than one month as an example of gross breach of tenant's duties. 

The possibility to challenge the termination of a lease is considerably limited. The NCC seeks to strengthen legal certainty and to eliminate possible unfair termination lawsuits. The terminated party can raise its objections against the notice of termination within one month, otherwise it is deemed that the terminated party accepted the notice of termination and cannot seek court declaration of invalidity of the notice of termination.

Change in ownership 

Change in ownership has no effect on the duration of the lease of business premises unless stipulated otherwise. However, if the new owner has no reasonable cause to doubt that he is buying not-let premises, this rule does not apply. In this case the buyer is entitled to terminate the lease within 3 months after he knew or ought to have known that the premises are leased.

Further, the buyer of leased property is not bound by contractual obligations which are not stipulated by law. The exception is the situation where the new owner knew about such obligations. This provision thus brings a certain risk that the landlord that has entered into a disadvantageous contract will try to get rid of his obligations by transfering the leased property.

Author

Kateřina Kulhánková

Associate
Czech Republic