What are the risks of a non-residential lease agreement?

Few landlords are aware of how strict the statutory regulation of the lease of non-residential premises is. Even old contracts are obligatorily governed by the so-called new Civil Code. And this, especially in the case of premises intended for business purposes, brings a number of catches.

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Chapters of the article

Specifics of renting non-residential premises

First of all, let’s take a closer look at what we are specifically talking about when we mention non-residential premises. Is it just that no one currently lives in them?

According to the law, a non-residential premises is a room or a set of rooms that are designated for purposes other than housing by a decision of the building authority. Non-residential premises are not an accessory of the flat or common parts of the house, but are a separate subject of legal relations. The key is therefore not the actual use of the premises, but how they were designated by the building authority.

From law practice: Tenant of non-residential premises claimed compensation for taking over client base

Mr Vladimir rented out space in his house that had been converted for a grocery and general merchandise store. What was his surprise when the former tenant approached him demanding compensation for taking over the client base. They had parted ways some time ago and Mr. Vladimir made an agreement with the new operator to take over the premises. Dinner for a night out, he praised himself.

However, the law does indeed stipulate an obligation to compensate the previous tenant for his efforts in building up the market – i.e. the client base – at the location. That would cost Vladimir a lot of money. Fortunately, he turned to us for help and we found a good argument. Compensation for taking over the client base does not arise if the lease has been terminated due to a gross breach of duty by the tenant. Which is what happened in this case.

Are you dealing with the lease of non-residential premises?

We will draft or review a lease agreement tailored to your case. Thanks to our services, even after the end of the lease, no disputes will arise between landlord and tenant regarding unclear rights or obligations.

Tip: The rent should be specified in the lease agreement. It is also recommended to specify how the rent will be increased, for example, by linking it to the inflation rate. However, it is most advantageous for the landlord not to deal with rent increases in a complicated way in the contract, but to negotiate a contract for relatively short periods for a fixed term.

Rent and business

If the tenant operates a business, the tenancy relationship will be governed by the rules of the new Civil Code on the “lease of premises used for business”. The decisive factor for the application of these rules is the purpose of the lease. It will apply where the main purpose of the lease is to carry on a business activity at the location. This rule applies to the contractual relationship regardless of whether that purpose is explicitly stated in the contract. However, for commercial tenants in the not-for-profit sector, only the general lease rules will generally be relevant.

The rules of a business lease differ in many ways from a general lease. In what specific ways? This relates, for example, to a different notice period or different rules for negotiating a lease. As a landlord, you should also be aware of the obligation to pay the tenant compensation for taking over the customer base at the end of the lease.

These rules also cover the difficulty of changing the business carried on in the premises. Specifically, the law says that the tenant does not have the right to carry on a different activity or to change the manner or conditions of its performance other than as implied by the purpose of the lease or other agreement of the parties or as could reasonably be expected at the time the agreement was entered into. It adds, however, that this condition does not apply to rather ‘cosmetic changes’ to the activity.

Termination of the lease of non-residential premises

Both the tenant and the landlord may terminate a fixed-term lease before the expiry of the agreed period, but only for specified reasons:

The tenant may terminate the lease:

  • if the tenant loses the ability to perform the activity for which the business premises are intended,
  • if, for objective reasons, the leased premises cease to be fit for the activity for which they were intended and the lessor fails to provide the lessee with an adequate replacement premises, or
  • if the landlord grossly breaches his obligations towards the tenant.

The lessor may terminate the lease:

  • if the immovable property in which the business premises are located is to be removed or rebuilt in such a way as to prevent the continued use of the premises,
  • if the tenant grossly breaches his obligations towards the landlord.

The notice must contain a specific reason and the notice period is three months.

The lease of non-residential premises differs from a normal lease in the case of a notice of termination for a contract of indefinite duration. In such a case, both parties have the right to terminate the lease by giving six months’ notice. However, if one of the parties has a serious reason to give notice, the notice period is three months. This exception does not apply if the lease has lasted for more than five years.

Tip: The primary purpose of renting is to live in the apartment. However, work and business cannot be ruled out, which has recently become a very topical and desirable option. Therefore, the tenant can not only locate his/her residence at the address of the house or apartment, but also do the actual work from home. Other rights and obligations of the tenant and landlord are discussed in our separate article.

Rent and lease: What is it?

A lease of non-residential premises does not have to be a lease at all. It is enough that it fits into the box of a lease, i.e. a special relationship in which the tenant actually manages the leased property and benefits from its “fruits”. In such a case, everything will be governed by the terms of the lease agreement and not the lease. However, it is important to note that it does not really matter what the header of the agreement is called.

The danger of such a construction is that leases have relatively long notice periods (the contract can be terminated, for example, only once a year), so that the lessor cannot deprive the lessee of the proceeds of its long-term activity. A lease does not have to be a classic agricultural lease, i.e. a lease of a field for the purpose of growing various crops, but also a lease of a restaurant or a gym.

Tip: Do you know the difference between rent and lease? And for what cases is it suitable to conclude a so-called lease? And do you know what the possible risks are? And did you know that a lease is not only a classic agricultural lease, i.e. a lease of a field for the purpose of growing various crops, but also a lease of a restaurant or a gym.

Do you need a lease for your business? Or are you leasing non-residential premises and want to make sure your contract is really good? Contact us!

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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