Defaulting tenant of business premises in the Czech Republic - practical notes
Landlords often encounter tenants that do not pay rent or that otherwise breach their obligations vis-à-vis the landlord in a gross manner. If the parties fail to reach an amicable settlement, the situation may get complicated if, after the end of a lease term, the tenant fails to vacate the leased premises, above all if the lease does not deal with the steps to be taken following the expiration of the lease term and does not regulate the manner and time limit for vacating the premises. We will focus on the lease of business premises; for residential leases, certain other aspects would have to be taken into consideration, which benefit the weaker contracting party (i.e. the tenant).
In the Czech legal environment, there is no strict regulation of lease relationships, and the parties may set out their mutual rights and obligations almost discretionarily – the only restricting element is the adherence to good morals and public order. Issues that are not dealt with in a lease are subject to the provisions of the Civil Code.
As concerns the tenant's failure to pay rent, the Civil Code sets out that the landlord may terminate a lease entered into for a limited period of time, by giving three-month notice of termination (among other reasons) if the tenant is in delay in paying rent or services for more than one month, although the landlord has requested him to rectify the situation.
The Civil Code further sets out that upon the termination of the lease, meaning the last day of the lease term, the tenant shall return the vacated premises in the condition in which he had taken it over (at the beginning of the lease), usual wear and tear excepted. If the tenant fails to vacate the premises voluntarily (and there is no other contractual arrangement), the landlord is not allowed to take possession of the premises himself, but has to raise his claim in court – he has to file an action for eviction (which, according to the case law, is also to be filed if the premises do not have to be vacated physically, but only handed over to the landlord). Only after the court delivers a judgment that expressly obliges the tenant to vacate the premises within a stipulated time limit and the tenant does not comply does the judgment become enforceable and the landlord may instruct a bailiff to evict the tenant (at the tenant's costs).
This procedure is quite complicated and time consuming: in the best case, the period from filing the claim until the actual physical vacation will be several months, but if the tenant tries to obstruct and protract judicial or enforcement proceedings, it may last several years.
As concerns the termination of a lease due to a tenant's failure to pay rent, the parties may agree on conditions that differ from the statutory regulation: for instance, the lease may provide for the landlord's right to give immediate notice of termination for such tenant's default, which default may be defined in an optional manner (i.e. any arrears for any period of time may be a reason for terminating the lease), which notice may, but does not have to, be preceded by a payment reminder.
The parties to the lease may regulate the procedure following the termination of the lease in a discretionary and detailed manner. In order to expedite the process of vacating the premises, we recommend incorporating the following express arrangements in the lease:
• the tenant is obliged to deliver the vacated subject of the lease to the landlord by a specific date, and he may be sanctioned by a contractual penalty for any failure to do so; it is also advisable to agree on details regarding the condition in which the premises are to be returned (e.g. recently painted, etc.), and not to forget to set rules for any alterations made to the premises by the tenant (considering that expenses used on such alterations may be deemed to be technical improvement and, as such, may have certain tax consequences);
• after the period for vacation expires, the landlord may enter the premises and take possession at the tenant's costs (it is strongly recommended to do so only in the presence of witnesses, and to write down detailed minutes of the course of eviction);
• removed items/things may (but do not have to) be stored at the tenant's costs for a fee set out in advance; if they are not collected by the tenant within an agreed period (or without any time limit if the landlord decides not to store the things), the landlord may dispose of them at his sole discretion, i.e. destroy them or appropriate the title to them on the conditions agreed upon beforehand.
If the lease terminates and the leased premises are not handed over in a due manner (i.e. on the agreed date and in a stipulated condition), the landlord is also entitled to receive the tenant's unjust enrichment i.e. a customary rent amount, and naturally to receive compensation for damage, if any, caused to the premises.
Last but not least, the landlord has to bear in mind that if the tenant keeps using the premises for at least three months after the date he was supposed to vacate them and without being requested by the landlord to leave them (not without being sued for eviction, as was stipulated by the previous legislation), the lease is automatically extended under the same terms and conditions for the same period of time, however by two years as a maximum. Also this general rule may be modified or excluded by contractual arrangements.
If we look at this issue from the landlord's perspective, we believe it is very important for him not to rely on the general regulation, but to make sure that the rules for terminating the lease are thoroughly dealt with also in the cases specified above.