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Country - Czech Republic
Commercial Leases
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A. SOURCES OF LEASE LAW
Applicable legislation
The Czech Civil Code, Act No. 40/1964 Coll., as amended (the "Civil Code") includes general provisions on leases.
Leases of non-residential premises are governed by Act No. 116/1990 Coll. on Leases and Sub-leases of Non-residential Premises, as amended ("Act").
The parties to the agreement are allowed to freely negotiate most (but not all) of the conditions of the lease. Statutory regulations will only normally apply to those areas that have not been covered in the contract.
Do any specific rules apply to commercial leases?
No.
Do different regimes apply to leases of commercial premises depending on the use of the premises by the lessee (offices, warehousing, industrial, retail)?
No.
B. DURATION AND TERMINATION OF LEASES
Is there a minimum or maximum obligatory term?
No. The parties are free to agree on the term of the lease or conclude an agreement for an indefinite period of time.
Does the lessee have a right to renew the lease upon expiry of the initial contractual period?
Not unless the parties agree otherwise. Leases agreed for a fixed term may be renewed automatically provided that after the fixed term expires the lessee continues to use the premises and the lessor does not apply to the court for vacant possession.
In these circumstances the lease will be extended by a period of one year, if the original fixed term exceeded a year, or by the original term of the lease if this was less than one year.
Do lessees enjoy security of tenure (i.e. the right to remain in occupation after their lease expires)?
Only as mentioned in the answer to the preceding question.
Do leases involve a lengthy procedure for the effective recovery of possession?
If the lease is terminated for any reason and the lessee fails to vacate, the lessor may seek a court order to enable it to recover its possession.
It can take from several months to several years to get such an order.
Can government/local authorities require the compulsory termination of a lease?
Compulsory termination can occur where the leased property is expropriated.
Is there a preferential right of acquisition?
No, although the parties are free to make their own arrangements for pre-emption rights.
Pre-emption rights can be agreed as a personal right (an unregistered right binding only the lessor that granted the right) or an assignable right (registered with the Land Registry and binding not only with the lessor but also any future owners of the leased property).
C. RENT AND COSTS
Are variable rental agreements common?
Yes.
Most common indexation
It is standard for rent to be linked to the rate of inflation through, for example, the consumer prices index published by the Czech Statistics Bureau.
In the case of retail leases, sometimes the rent can also be linked to the turnover of the business.
Who usually pays the common expenses?
Each lessee is normally required to pay a proportion of the utility costs, calculated according to the size of the unit held.
Only expenses strictly connected to the operation of the leased building can be classified as "common expenses".
Czech law clearly distinguishes between rent and common expenses and it is not possible to incorporate common expenses into rental charges.
Are there any other expenses connected with the lease?
No charges are payable to either the state or the local authority in relation to the lease itself.
Charges for electricity, water, heating, gas, etc. are paid by the lessee direct to the supplier if the premises are separately metered. If this is not the case, utility charges are calculated pro rata and divided between all relevant lessees. All utility charges must be kept separate from rental charges, according to Czech law.
Which indirect taxes apply?
VAT is payable at 19% on the rent.
D. OBLIGATIONS OF LESSOR AND LESSEE
Who is responsible for the different works on the premises?
The lessor is obliged to fund the maintenance of the property to enable normal or agreed usage.
The lessee is obliged to pay costs relating to normal maintenance.
The lessee is obliged to notify the lessor without unreasonable delay of any necessary repairs which need to be carried out, otherwise the lessee may be liable for any resulting damage.
Since statutory regulations are lacking in sufficient detail, it is recommended that a proper definition of the obligations of both parties is set out clearly in the lease agreement.
Can the lessee alter or improve the premises?
Not unless the parties have agreed otherwise. Any alterations to the premises are subject to the prior consent of the lessor.
Where alterations are made by the lessee, one of the following arrangements will normally apply:
- the lessee is entitled to deduct the costs (either in part or in full) of the alteration/improvement from the rent;
- the lessee pays the costs in full, but is not obliged to restore the premises to their original condition when the lease expires;
- the lessee pays the costs in full and is also obliged to restore the premises to their original condition when the lease expires.
What restrictions are there on the lessee's right to use the premises?
The lessee is entitled to use the premises as agreed in the lease. In the case of leases under the Act, the parties must always clearly define the permitted use. Failure to do so invalidates the lease.
In the case of leases under the Civil Code, if no use is specified, then the premises can be used appropriately according to the nature of the building.
The lessee must always comply with all the relevant legal regulations on usage.
Is there a right to transfer the lease?
The lessee may transfer the lease provided the lessor consents.
Is there a right to sublet the premises?
For leases under the Civil Code the lessee has a right to sublet unless the lease contract specifies otherwise.
For leases under the Act the lessee only has a right to sublet if this is explicitly stated in the lease agreement.
A lessee's failure to comply with these requirements is one of the statutory grounds for termination of the lease by the lessor.
What are the usual guarantees?
The parties may agree on any guarantee which is permissible under Czech law.
A deposit of three to six months is standard.
Under the Civil Code certain guarantees are automatically provided in favour of the lessor. Where the lessee has defaulted on the rent, the lessor may be entitled to seize certain of the lessee's assets which are located on the leased property as security for payment.
E. PARTICULAR TYPES OF LEASE
Do office leases have any particular characteristics?
No.
Do retail leases have any particular characteristics?
No.
Do hotel leases have any particular characteristics?
No.
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