Generally used name
Czech law distinguishes between leases of land and buildings (governed by general provisions of the Civil Code), leases of residential premises (governed by special provisions of the Civil Code) and leases of non-residential premises which are primarily governed by the Act on Lease and Sub-Lease of Non-Residential Premises (Act 116/1990) which sets out specific rights and obligations of the landlord and tenant, as well as the termination reasons; the general provisions of the Civil Code and the Commercial Code also apply.
Forms of lease
Leases of non-residential premises must be in writing and must detail the leased property, the purpose of the lease, rental amount, method and terms of payment and the period for which the contract is concluded. If the lease is for the business purposes, the agreement must also include information about object of business carried out in the leased premises. Stamp duty is not payable, but the rent may be subject to VAT.
Properties commonly leased by institutional leases
The institutional market is a relatively new concept but mainly offices, retail, leisure, light industrial and warehousing.
Landlords
Landlords are most commonly developers, many with foreign capital. As more high quality projects are completed and let, it is hoped that the investment institutions will become more active in the market.
Tenants
Individuals, companies, institutions or other legal entities. Landlords commonly require the obligations of tenants to be guaranteed by a legal entity of good financial standing, or by bank guarantees for the whole term of the lease, or by rental deposits.
Period of the lease
A lease may be concluded for a definite or indefinite period. Leases are commonly for 5 to 10 years, although landlords of new high class developments are seeking 15 years. Those leases concluded for an indefinite period commonly contain a mutual option to terminate the lease by the service of a notice at the end of the 5th to 10th years and then each subsequent year.
Obligations of guarantor
Any guarantor will be expected to pay the rent and in some cases observe the tenant's obligations if the tenant defaults. It is uncommon for a guarantor to have to take a new lease if the tenant defaults. If the guarantor is a company incorporated in a West European or North American country, the guarantee agreement will generally be governed by the laws of that country. Landlords commonly also require bank guarantees and deposits of between 3 and 12 months' rent and service charge.
Rental payments and value added tax
Annual rent is usually the open market rent, though turnover rent has also become common in leases of retail properties. Due to funding requirements, rent is usually quoted in Euros. Rent may be payable in a foreign currency. Rent is generally payable monthly or quarterly in advance. Where the landlord, as opposed to the tenant, insures the property and provides services, the tenant will in addition be required to pay for these in full by means of service charge. Value added tax will be generally payable in addition to the rent and service charges.
Rent reviews
Reviews normally occur on each anniversary of the lease in line with either Euro or Czech inflation, depending on the currency in which the rent is calculated, but only if a higher rent will be achieved. Landlords now frequently seek a further review every three to five years increasing the rent in line with market rents, again if a higher rent will be achieved. Review to pure open market rent is rare.
Other payments
In addition to a service charge, the tenant will be responsible for its direct utility charges. The tenants usually pay the insurance premiums and the real estate tax through the service charges.
Service charge
Where the landlord, as opposed to the tenant, manages the property (which is generally the case with a multi-let building) the service charges will include insurance, security, heating, lighting, management and the full decoration and repair (and often replacement) costs relating to the common areas and the common equipment, including costs, such as air conditioning and elevators. The landlord recovers the full cost from the tenants by means of the service charge. The percentage each tenant bears is in proportion to the area it occupies.
Insurance
The landlord will invariably insure a multi-let building and often a single let building against all normally insurable risks and loss of rent caused by insured damage for up to three years. The full cost of insurance will be passed back to the tenant or tenants through the service charge.
Damage or destruction by fire or other accident
The law provides that the lease will terminate where destruction occurs, but landlords often seek to provide that the lease continues. The person who effected insurance (whether landlord or tenant) will be responsible for repair and reinstatement and, if the damage is being repaired, the rent will be suspended until the building is reinstated. Some leases contain either a mutual option or Landlord's option to terminate the lease if the building is damaged or is not reinstated in the agreed period of time.
Security for the tenant
A tenant does not have a right to remain in occupation or renew at the expiry of a lease, if not agreed between the landlord and the tenant. However, if the tenant remains in the premises after the termination of the lease and the landlord will not fail the claim with the court to remove the tenant within 30 days, the lease will be renewed, for a maximum of one year.
Controls on transfer by the landlord
There are generally none. However, in some cases it is not clear what is the moment when the purchaser of the leased property becomes the landlord. According to the recent case law, the purchaser does not become the landlord until its ownership title to the property is registered by the Cadastre Register. In some regions it may take up to a number of months from closing of the purchase agreement to obtain the Cadastre Register registration. Therefore, transfer of shares in SPVs remains the common way of purchasing of investment properties.
Controls on transfer by the tenant
Generally, and subject to the landlord's consent which usually may not be unreasonably withheld or delayed, a sideways transfer of the tenant's interest is permitted by the lease. The tenant's contractual obligation to the landlord ceases on transfer. In some cases, a change in the control of the tenant will either require the landlord's consent or allow the landlord to bring the lease to an end. It should be noted that authorities disagree on whether or not it is possible for a tenant legally to assign a lease. The prevailing view is that an assignment is not permitted by law and that instead the lease should be terminated whereupon the "assignee" enters into a new lease or novation with the landlord on identical terms.
Controls on subletting by the tenant
Subletting is generally permitted subject to the landlord approving the subtenant; usually such approval may not be unreasonably withheld or delayed. Leases do not generally provide on the form of sublease to be used, because on the termination of a lease any sublease also terminates.
Repair and redecoration
The fall back position under Czech law is that the tenant is obliged to cover the cost of "ordinary" maintenance and that the landlord is obliged to maintain the building at its own expense in the condition appropriate to its agreed or usual use. However, the parties may agree to alter this.
With a multi-let building, the landlord will repair the structure and redecorate the exterior and common areas, passing on the cost to the tenants through the service charge. Individual tenants will be responsible for the units they occupy. With a single let property, the tenant will generally be responsible for the repair and redecoration of the whole building. Tenants may be able to have fair wear and tear excluded from their repairing obligation.
Alterations by the tenant
Generally, the tenant must obtain the landlord's consent to any alteration. In practice, leases provide that any alterations will require the landlord's consent, which may not be unreasonably withheld.
Use
The use permitted and restrictions on changing use will be a balance between the need for flexibility for the tenant and controls for the landlord to protect its investment without damaging rent on review. Use of the premises by the tenant in breach of the purposes for which they are let entitles the landlord to terminate, if the lease is granted for a fixed period.
Obligations generally
There are certain obligations imposed by law, but these are usually expressly contained in the lease.
Rights granted to the tenant
A tenant may terminate the lease in circumstances specified in the agreement; if the agreement contains no termination provisions, statutory provisions apply. A tenant is entitled to use the premises to the extent agreed in the lease.
Rights reserved to the landlord
These will commonly include a right of entry for purposes of inspection and carrying out works for which the landlord is responsible and rights to redevelop nearby premises, notwithstanding nuisance or inconvenience to the tenant.
The landlord's right to terminate where the tenant is in breach
The Landlord may terminate the lease for reasons set forth in the lease agreement; if the termination provisions are not specified, statutory provisions apply.
The Landlord's rights where tenant is in breach, other than termination or possession
- Legal action through the courts, or arbitration if provided for in the lease, to enforce the tenant's obligations.
- Legal action against any guarantor.
- Recourse to any bank guarantee or deposit.
- Lien over the tenant's movables located on the premises in order to secure payment of rent.
Other rights to terminate
Leases concluded for an indefinite period will usually have, in addition to a Tenant's default termination reasons, mutual options to terminate the lease by serving of a notice first at the end of the agreed period and then each subsequent year.
Other common provisions
At the end of the term the tenant must hand the property back to the landlord having complied with all obligations in the lease. This often means that it is necessary for the tenant to repair and redecorate fully before handing back the property, although in most cases this is subject to fair wear and tear.
Tenant's rights against landlord's mortgagee
In most cases, the lease is binding on the landlord's mortgagee, whether the lease predates or is subsequent to the mortgage. However, if the landlord or the tenant become insolvent the lease may be disclaimed by the liquidator.
