The current epidemiological situation around the world, including in our country, raises many questions about the possibility of modifying or even terminating ongoing legal relations between entities from many sectors of our economy. One of the topics that has been particularly emphasized recently is the possibility of terminating the lease agreement - regardless of its purpose. We have written about the solutions our law firm offers regarding lease agreements for commercial premises in shopping malls here, and in the scope of other commercial premises, e.g. catering hereThe issue of terminating residential leases therefore remains to be considered.
Many people currently renting flats in large cities vacated them some time ago, as many workplaces, schools and universities suspended their stationary operations, leading them to return to their family homes. However, some of them are still bound by concluded lease agreements, which are usually calculated to last throughout the school or academic year. Even as this article is being written, the author received an SMS message informing them that an acquaintance of an acquaintance is looking for someone who could move into the flat in their place. The situation is very common, and legal assistance in this regard is almost essential – most often, using it works out cheaper than the costs and risks associated with not obtaining it.
Rent reduction
For a landlord, a rent reduction is a less onerous consequence, making them more amenable to such a proposal. Therefore, it is worth making an attempt to negotiate a rent reduction, for example, to the level of the property's maintenance costs, with the proviso that the agreement can be terminated by mutual consent if a willing tenant is found to replace the current one.
However, if a dispute arises, Article 664 § 1 of the Civil Code of 23 April 1964 comes to our aid (hereinafter: "K.C")
"If the leased item has defects that limit its suitability for the agreed use, the tenant may demand an appropriate reduction in rent for the duration of the defects."
The concept of a defect itself is not regulated in the lease regulations, therefore it is necessary to refer to the warranty regulations in this respect. The institution of warranty for defects in sold goods distinguishes two forms of defects - physical defects and legal defects. In the case of the coronavirus pandemic, restrictions on the use of premises are a consequence of restrictions on the activities of workplaces or universities - so these are restrictions of a legal nature.
"Legal defects should include such encumbrances on real estate that, due to legal restrictions, make it difficult to use the thing, contrary to the contract, i.e. contrary to the justified expectations of the buyer."
However, a controversy arises as to whether the restrictions contained in the Regulation can be classified as a legal defect – for a broader discussion, please refer to the articles cited above. However, if we assume that such an interpretation is possible, we must consider whether we are dealing with a defect in the premises. Here, unfortunately, we have a clear answer – the restrictions introduced by the authorities in no way prevent or limit the possibility of using the premises for residential purposes. Often, however, lease agreements are concluded, for example, due to the need for quick access to work or university. In such a situation, the current restrictions make the premises at least less useful for the tenants, and therefore do not correspond to the purpose for which the contract was concluded. In this situation, it will often also be important how the lease agreement is structured and whether the Lessor is a private individual or an entrepreneur.
If we are decided on terminating the lease agreement, the basic issue to consider concerns the period for which the agreement itself was concluded. If the agreement was concluded for an indefinite period, it is possible to terminate it.
673 § 1 of the Civil Code "If the duration of the lease is not specified, both the landlord and the tenant may terminate the lease subject to the contractual deadlines and, failing that, the statutory deadlines.
In accordance with the provision set out in Article 688 of the Civil Code, if rent is payable monthly – which is the standard arrangement – the notice period is three months’ notice, effective at the end of the calendar month. The parties are free to modify the length of the notice period. In this regard, there is a dispute in both legal doctrine and case law as to the nature of this provision – namely, whether the parties’ freedom is unrestricted in this respect and the period may be determined at their discretion, or, given the need to protect the tenant’s interests, should this provision be regarded as semi-mandatory, meaning that only an extension of the notice period would be permissible, whilst a reduction would be inadmissible. The Supreme Court has, in certain judgments, supported the view that this period may be freely determined, and in the author’s opinion, this position should be regarded as correct in practice, as there are insufficient grounds to derogate in this respect from one of the fundamental principles of private law – the principle of freedom of contract. It should be borne in mind, however, that views are very often expressed in this regard arguing that modifications to the tenant’s disadvantage, or ‘downwards’, are inadmissible. Each such contract should be interpreted autonomously and may be interpreted differently depending on the specific factual circumstances, and there are many lawyers (including judges) who oppose the application of the principle of freedom of contract in this case.
Conversely, in the case of a fixed-term contract, it follows from its very nature that it should continue until its expiry in accordance with the term agreed between the parties. This is an obligation whereby the landlord undertakes to make the premises available to the tenant for a specified period, whilst relinquishing control over the property, and the tenant undertakes to pay the agreed rent for a specified period and to look after the premises entrusted to them. Any deviations from the rule of the duration of this relationship should therefore be treated as exceptions.
One such exception is the possibility of providing for termination in the contract, as it is up to the mutual consent of the parties to determine the nature of their future legal relationship. Therefore, if the parties have provided for the possibility of terminating the contract subject to valid grounds, this does not constitute a breach of the principle pacta sunt servanda, because de facto termination of the contract in accordance with its provisions is tantamount to its compliance. In such a situation, however, both the provision on the possibility of terminating the contract and the manner in which the notice period was determined should be carefully examined. It is common practice to construct this clause based on specific conditions that must exist for termination of the contract to be possible. Due to the very wide scope of possible interpretation of such provisions and the different jurisprudence of courts in such an analysis, we encourage you to use our services or other experienced professionals in the field of real estate law to be sure of the adopted interpretation of the lease agreement and its provisions.
Important reasons
Lease agreements often include a very general provision that a residential lease agreement concluded for a fixed period may be terminated only for important reasons. The use of terms that are not specified in contracts, on the one hand, makes them more flexible, but on the other hand, it leads to many conflicts about the exact meaning of such a phrase. The concept of important reasons in fixed-term lease agreements is a good example of this, because each situation of terminating a fixed-term relationship before the expiry of that period must be treated in a restrictive manner. The essence of this problem is reflected, for example, in the jurisprudence of the Supreme Court:
“Making the possibility of terminating the Agreement dependent on important reasons makes it more important to assess whether the reason is of a qualified nature - whether it is a serious cause. This narrows the range of situations in which it is possible to terminate an Agreement concluded for a fixed period, and the final assessment of the "validity" of the reason rests with the Court. The court makes such an assessment objectively, and not solely through the prism of the subjective interest of the party terminating the contract; therefore, there is no way to speak of a free right to terminate the Agreement.
In order to clearly determine whether the current epidemiological situation in the country can be classified as an important cause, it is necessary to examine the content of the contract each time and balance the interests of both parties, referring to the individual facts. However, a general thesis can be put forward that in the current factual situation, the requirement of important reasons is being updated, e.g. if a residential premises has lost its real importance for a given person because there is no need to live there. Therefore, you cannot use the current situation to break the lease and rent another premises at a lower price (because prices have actually dropped significantly). If the court were to analyze such a situation, it would come to the conclusion, for example, that the tenant did not cease his professional activity due to the epidemic and, as a result, the valid reasons requirement was not updated. However, this is a very strong basis for exiting an ongoing legal relationship and as long as the contractual provisions elsewhere do not introduce additional restrictions, the chance of effectively terminating the contract is high - you just need to skillfully analyze the circumstances.
What to do if there are no provisions regarding termination of the lease agreement?A defect that threatens health and life
In the case of an indefinite-term contract, it is not possible to exclude the right to terminate the contract, which results from the general principle that one cannot undertake perpetual obligations.
In connection with the coronavirus pandemic, it is worth referring to Article 682 of the Civil Code when renting residential premises:
"If the defects of the rented premises are such that they pose a threat to the health of the tenant or his household members or persons employed by him, the tenant may terminate the lease without notice, even if he was aware of the defects at the time of concluding the contract."
The question arises whether it is possible to apply this provision in a situation where one of the roommates is infected with coronavirus or is subject to quarantine. The application of this regulation allows for termination of the lease agreement with immediate effect, which results from the legislator's weighing of two values - the principle that contracts should be kept and the principle of protection of human health and life - where he gave primacy to the latter. However, the question arises whether in such a situation we are actually dealing with a defect, and if so, what kind. The answer to this question is not obvious. Assuming that we are dealing with a defect, I would advocate considering it a physical defect, which was the purpose of introducing this provision. If there is a potentially infected person and a sick person in the premises at the same time, it becomes impossible to use the common areas of the premises, e.g. the kitchen, without being exposed to infection. At the same time, it is impossible to require a healthy person to leave the premises for 14 days while paying the rent. However, if there is an obligation to quarantine other household members, such a person will remain locked up for 14 days, possibly without the opportunity to work, which will lead to the loss of part of the salary. Therefore, it seems that such a justification for immediate termination of the lease agreement is not excluded, although perhaps a more appropriate claim would be to reduce the rent, with the proviso that when reducing the rent, the requirement is to limit the suitability of the item for use, while the above case concerns the complete impossibility of using it. from the premises.
The defect does not pose a threat to health or life
art. 644 § 2 of the Civil Code "If, at the time of handing over to the tenant, the item had defects that prevent the use of the item as provided for in the contract, or if such defects arose later and the lessor, despite receiving notice, did not remove them in due time, or if the defects cannot be removed, the tenant may terminate the lease without notice. notice periods."
While a defect in the property can be spoken of in cases of danger to health and life, in the current situation, it seems difficult to implement this regulation. The property itself does not have defects that can be classified as legal or physical defects, as it is still possible to live in the property. It may not meet the purpose for which the contract was concluded, i.e., I live there because I go to work or university. However, under no circumstances can this circumstance be considered a defect justifying the possibility of terminating the contract with immediate effect, unless the contract explicitly specifies the specific purpose of the contract. This, however, requires a thorough examination of the provisions concerning the subject matter of the contract.
An extraordinary change in relations
Another possible solution is provided for in Art. 3571 CC in the form of the so-called clause rebus sic stantibus:
“If for a reason extraordinary change in relations performance would be associated with excessive difficulties or would threaten one of the parties with a significant loss, which the parties did not anticipate when concluding the contract, the court may, after considering the interests of the parties, in accordance with the principles of social coexistence, specify the manner of fulfilling the obligation, the amount of the benefit or even order the termination of the contract. When terminating the contract, the court may, if necessary, decide on the parties' settlements, guided by the principles set out in the preceding sentence.
The basic inconvenience resulting from this institution is that it is the court that decides on the manner of fulfilling the obligation and must also take into account the interests of both parties. The question also arises whether the current situation can be considered a situation of extraordinary change in relations. You can read more about this in the articles mentioned at the beginning. However, the doctrine indicates that:
"the introduction of new, unpredictable and not applicable in properly functioning societies legal prohibitions related to a specific situation (e.g. natural disaster, epidemic, armed conflict, serious economic crisis) should be considered, in my opinion, an extraordinary change in relations."
Although the introduced restrictions do not apply to residential property rentals, they indirectly affect the purpose of the lease agreement. This extraordinary situation, in turn, arises from the occurrence of an unprecedented state of natural disaster – it is irrelevant here that the government decided to ignore this fact, as this circumstance is assessed objectively, not subjectively. It is therefore a natural disaster, the consequences of which were and are difficult to predict.
From our experience, this is one of the more promising methods of getting out of an unwanted legal relationship, but it requires professional support at every stage of its implementation. However, since court proceedings usually take a relatively long time, we first examine the contract clauses for the possibility of using other solutions.
Consequential impossibility of performance
While in the case of commercial premises one may be tempted to argue that in the current situation there is indeed a subsequent impossibility of providing services, in the case of residential premises such an argument would be very difficult to maintain. The landlord still provides the living space to the tenant. The service is therefore possible to provide – both objectively and subjectively. However, as indicated above, it may be fulfilled incompletely, i.e. the current situation will lead to the premises being considered defective. You can read more about the subsequent impossibility of providing services in the cited articles.
Summary
As a result of the above analysis, the legal situation of tenants, in both the case of fixed-term agreements and those concluded for an indefinite period, is relatively good, although the possibility of their earlier termination is much more favourable in the case of the latter type of agreements. Nevertheless, in the case of fixed-term agreements, there may be loopholes within the contract itself, which, after a thorough analysis, will allow for the termination of the agreement. Even if these are lacking, skillful use of statutory solutions also allows for hope that it will be possible to bring about the early termination of the lease agreement or, at the very least, a reduction in rent.
If necessary, we encourage you to contact our law firm to assess the provisions contained in your lease agreement; a brief analysis will allow us to offer legal solutions appropriate to your situation.
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