In England, tenants rent property from landlords and the document they sign is a lease. If we think any deeper about it – and few of us do – we might draw a distinction between a tenancy agreement which may imply the renting of residential premises and a lease which may imply the renting of commercial premises. We might even draw a distinction between such a lease and a long leasehold interest – typically 99 years – in land on which we may develop buildings of some sort. But generally, we are not too troubled by any of this - as long as the document does what we expect, everybody is happy.
Companies entering the Polish market will, however, be interested to learn that there is a difference between leases and tenancies under Polish law. Both provide the tenant with a contractual right to occupy premises in exchange for rent but each has different characteristics which affect the relationship between the landlord and tenant so it is as well to know what these are.
Under the Polish civil code which governs most civil arrangements in Poland, a lease is a contract whereby the landlord grants to the tenant the right to occupy premises for a certain time in return for the payment of rent. A tenancy is also a right to occupy premises or land for a certain time in return for the payment of rent, but in addition allows the tenant the right to collect ‘fruits’ from the premises rented. Clearly, this might make sense in the case of agricultural land where there is an interest in harvesting crops but what about normal commercial premises? Typically, office space or a unit in a shopping centre would be rented under a lease agreement whereas a free standing warehouse or factory unit might be rented under a tenancy agreement, especially if the occupier of the factory was gathering the fruits of his machinery. But surely this was not really the reason for using a tenancy agreement in the non-agricultural sphere? Yes, there was a better one.
And the better reason was that under the civil code a contract of tenancy is valid for up to 30 years whereas a lease agreement was, before the changes to the civil code this year, valid for up to 10 years. What this meant in practice was that if a lease agreement was signed for a term longer than 10 years, the agreement was deemed to be an agreement signed for an indefinite period and thus terminable on a maximum of three months notice. This was particularly unhelpful to developers who needed longer leases to be able to finance development projects. The tenancy agreement with a fixed period of up to 30 years was much more useful, although it could not be used in every case. Now a lease agreement may also extend to up to 30 years before it is deemed to be an agreement for an indefinite period.
Of course there are some other differences as well. Generally speaking the repairing and maintenance obligations under a tenancy agreement are more extensive than those under a lease agreement. Under the former the tenant has to maintain the premises in a non deteriorated condition whereas under the latter the tenant is typically responsible for minor repairs only with landlord remaining responsible for major structural repairs and maintenance. However, much turns on the negotiations between the landlord and tenant and it is certainly possible in Poland to have a lease which is close in effect to a full repairing and insurance lease under English law.
It is normal under a tenancy agreement for the landlord specifically to require the tenant to pay those costs normally associated with ownership of the property such as property taxes and usufruct fees. In the case of a lease agreement, these costs do not normally appear as a separate item but are included in the rent or as a component part of any service change so the tenant does not avoid them whatever the arrangement.
When it comes to terminating the agreement, there are some minor variations depending on whether the agreement is a lease or a tenancy. If a lease agreement is for a fixed term, the landlord may terminate it on one month’s written notice if the tenant fails to pay the rent for two consecutive payment periods. A tenancy for a fixed term may be terminated on three months’ written notice after the tenant has failed to pay the rent for two consecutive payment periods. The subtlety here is that if a tenant pays rent quarterly, for example, then the notice may be served after six months and not two months. Where either form of contract is concluded for an indefinite term, that is no termination date is specified in the agreement, either party may terminate the agreement as provide in the agreement or, if nothing is provided, on up to a maximum of three months’ written notice. There are certain exceptions, for example in the case of agricultural land, where the periods differ, but the general principle remains.
Of interest to all parties is what happens if the premises are sold by the landlord to a third party during the term of the agreement. Put simply, the new owner may terminate the lease agreement or tenancy agreement subject to complying with the statutory notice periods which are typically three months. The new owner may not terminate the existing agreement if it has been concluded for a definite period and the date of the agreement was certified by notary (yes, they crop up everywhere) and if the premises have been delivered to the tenant. If this certification is missing, the new owner may terminate the agreement.
Inevitably given the differences there are similarities too. The landlord, subject to one or two exceptions, has a statutory right of pledge on any movable property brought onto the premises by the tenant to secure the payment of rent. Once the property is removed from the premises the pledge drops away unless the landlord has opposed the removal.
So, in a nutshell, we have the main differences between leases and tenancies under Polish law. In practical terms in most cases the differences will not be significant but is as well to be aware of them for those cases when it does make a difference.
Nicholas Richardson
Richardson & Partners
For further information about Richardson & Partners, please call +48 (0) 22 653 6900
Alternatively e-mail nicholas.richardson@rrolegal.com or visit www.rrolegal.com
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