REALWorld Law

Commercial leases

Termination by a third party

Can a lease be terminated by any third party, eg the government or a municipal authority? If so, how long does this process take? Is compensation payable and, if so, who pays it?

Angola

Angola

Leases may be terminated by public entities in exceptional cases, such as when there is public interest justification, in which case the parties are entitled to compensation.

On the other hand, administrative authorities may carry out works in leased buildings when the lessors do not execute such works, and the lease has to be suspended for as long as the works are being carried out. In these situations, the lessee is entitled to be relocated and when the works are completed, lessees are allowed to reoccupy the premises on specific terms established by the law. If the lessor does not pay for the works to the administrative authorities, the administrative authorities are entitled to recover the costs under a compulsory collection procedure against lessor by means of judicial procedure.

Australia

Australia

There are situations where a lease can be terminated by some statutory body or other authority and not by a party to the lease eg by resumption, which is a compulsory purchase. State authorities have certain rights to acquire property on a compulsory basis, including leased property. The tenant is generally entitled to remain in occupation of the leased premises until compensation is paid by the State authority to the dispossessed owner. A tenant may also be entitled to compensation in certain circumstances if the tenant can establish a legal or equitable estate or interest in the land.

Belgium

Belgium

Government bodies and local authorities have certain rights to acquire property on a compulsory basis, including property held under leases.

When this occurs, the tenant can claim damages from the landlord (unless this is excluded in the lease agreement) and from the relevant government body/local authority.

Bosnia-Herzegovina

Bosnia-Herzegovina

Lease agreements in Bosnia and Herzegovina cannot be terminated by third parties except in the case of a government body. If the relevant municipality expropriates the premises, the lease will be automatically terminated.

Canada

Canada

The federal and Provincial governments’ inherent power to take land for public purposes so long as compensation is paid to the land owner is commonly known as the power of ‘expropriation’ in Canada. Upon complete expropriation, any leases affecting the land will automatically terminate and, subject to the provisions of the lease, the affected tenant will have a claim for a portion of the compensation award to cover the value of the unexpired lease and the tenant’s fixtures. Whether a condemnation of only part of the land will result in terminating a lease will depend upon the materiality of the land taken and the provisions of the lease governing this circumstance.

China

China

The lease may be terminated if the premises are expropriated or subject to demolition. If the expropriator is the government or if the demolition is a result of zoning or city planning, the government will usually pay compensation. The lease should provide for such situations. If the lease is silent, these circumstances are likely to fall under the force majeure clause.

Croatia

Croatia

The county authority for expropriation can order the expropriation of a real estate if it has been established that this is in the interests of the Republic of Croatia. In this case, all rights over the real estate, including ownership and leases, are terminated. Compensation is only paid for property rights, not for contractual rights such as leases.

Czech Republic

Czech Republic

Termination by a third party is fairly unusual. The lease will be terminated in some circumstances if the property is expropriated. Expropriation is generally subject to compensation, payable by the expropriator. The lease may also be terminated by an insolvency administrator.

Denmark

Denmark

Generally, there are no third parties with the ability to terminate the lease, but in some cases the lease can be terminated in connection with an expropriation.

France

France

Where a compulsory purchase order takes effect, the lease is automatically terminated and the tenant is paid compensation by the purchaser.

Germany

Germany

No, neither the government nor any other authority may directly terminate a lease. The property itself may, however, be subject to compulsory purchase. In this case the authority must state whether the lease is to continue or is to be terminated. If the latter, the lessee will be entitled to compensation in accordance with statutory law. However, compulsory purchase does not happen frequently and is governed by strict conditions (a relevant power under statutory law is required and the process can be carried out only in the public interest).

Hong Kong, SAR

Hong Kong, SAR

Local authorities have certain statutory rights under legislation, such as the Lands Resumption Ordinance (Cap. 124 of the Laws of Hong Kong) and the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance (Cap. 276 of the Laws of Hong Kong), to acquire property on a compulsory basis, including leased property. The lessee will receive the market value of their interest in the property and perhaps further compensation in addition.

For the purposes of the redevelopment a right of compulsory purchase can be exercised by a party who owns a specified majority of the undivided shares in a lot and the majority owner can make an application to the Lands Tribunal for an order for the sale of remaining of the undivided shares in the lot. The lessee will be awarded compensation by the Lands Tribunal if the order for sale is made.

Hungary

Hungary

In certain circumstances strictly regulated by law, the state or local authorities are entitled to expropriate real estate, including properties held under leases. Expropriation proceedings conducted by the administrative authority usually take around 5 to 6 months and the decision of the authority may be challenged in a civil court. In such cases the state or the local authority is obliged to provide the tenant with either appropriate replacement premises or monetary compensation.

Ireland

Ireland

In certain circumstances, liquidators and examiners (officers appointed by the court to seek to implement proposals to save businesses in financial difficulty) can seek to disclaim leases held by companies over which they are appointed. In such circumstances, the loss suffered by the landlord as a result of such disclaimer will be calculated and treated as an unsecured claim in the insolvency.

Italy

Italy

Local authorities have certain rights to acquire property on a compulsory basis and this includes property held under leases. These powers can only be exercised on certain grounds, such as to enable new developments. The tenant receives the market value of its interest in the property and may also be entitled to further compensation.

Japan

Japan

The national and local governments in Japan possess the right to acquire property (including, without limitation, properties under leasehold) for certain public projects on a compulsory basis pursuant to the Land Expropriation Act and/or other relevant acts.  The lessor and the lessee are entitled to receive certain compensation for the expropriation.  The process normally takes one to three years. 

Netherlands

Netherlands

Yes, the authorities (under restricted conditions) have certain rights to compulsorily acquire property and this includes property held under lease. These powers may only be exercised for the benefit of the public. The affected lessee(s) will receive compensation, which varies depending on the content of lease.

Nigeria

Nigeria

There are specific instances in which the government, federal or state can terminate the leasehold interests in real property. Section 28 of the Land Use Act 1978 empowers the government through the governor of the state where the land is located, to acquire land compulsorily from land owners and the acquisition must be for ‘public purpose’ or for ‘overriding public interest’.

The term ‘overriding public interest’ is wide and may include instance where the property is required by the government for public purposes of government, or for mining purposes or oil pipelines, or for the extraction of building materials, or breach of any of the provisions or any term contained in the certificate of occupancy or in any special contract between the government and the occupier or alienation of the occupier’s proprietary interests (by whatever form) without the consent of the Governor as required by the Land Use Act.

The procedure requires that for compulsory acquisition of land, the government must ensure that adequate notice is issued and served on the owner of the land and compensation is paid by the government. By Section 28(6) of the Land Use Act the revocation shall be signified under the hand of a public officer authorized by the Governor and notice thereof given to the holder and upon receipt of the notice, the rights and interests in the property is extinguished.

The failure to serve the revocation notice on the land owner has been consistently held by the courts as capable of rendering the revocation as invalid. Also, the courts have held that the acquisition of an individual’s interests in property by government must be for public purpose otherwise the revocation is invalid.

There are no specific timelines provided in law for the procedure for the acquisition or revocation of a leaseholder’s interests.

Norway

Norway

The government/local authorities or other third parties cannot enforce the termination of a lease. If a leased property is subject to compulsory purchase then the landlord has to negotiate with the tenant for vacant possession.

Poland

Poland

Local authorities have certain rights to acquire real estate on a compulsory basis for public purposes and this includes property held under leases.

Leases of property subject to compulsory purchase expire after three months from the date the compulsory acquisition order becomes final. Compensation is payable by the authority to the owner of the expropriated real estate and the authority is obliged to ensure the tenant is provided with alternative accommodation.

In the case of a transfer of ownership of leased property, the buyer automatically enters into the lease as landlord and may terminate the lease within a statutory time period. Where the lease agreement is for a fixed term and was concluded with a certified date (ie a date confirmed by an official authority, such as a tax office or notary), the tenant has a degree of legal protection against termination by subsequent owners. In such cases, the agreement may not be terminated early if the tenant was given possession of the leased property before the transfer of title.

However, based on the regulations for civil proceedings which took effect from 3 May 2012, the above mentioned protection for tenants does not apply if the property was sold as part of enforcement or bankruptcy proceedings initiated after 3 May 2012. A purchaser who acquires real property which is subject to a lease or tenancy agreement concluded for a period of more than 2 years as part of enforcement or bankruptcy proceedings initiated after 3 May 2012 may terminate the lease or tenancy agreement on one year's notice (unless the lease or tenancy agreement provides for a shorter termination period) even though the lease or tenancy agreement was concluded for a definite period with a certified date (or the rights arising out of the lease or tenancy agreement were registered in the relevant land and mortgage register) and the tenant was given possession of the leased property.

Portugal

Portugal

Leases may be terminated by public entities in exceptional cases, such as the public interest justification, in which case the parties are entitled to compensation.

Municipal authorities and other entities to whom the law grants that right (such as urban rehabilitation companies, real estate investment funds and pension funds) may carry out works in leased buildings when the landlords do not do such works, giving notice of termination of those contracts under certain circumstances. In these situations, the tenant is entitled to be relocated and, if that is not possible, to receive compensation amounting to the value corresponding to one year's rent. The tenant should be notified of the procedures at least 30 days beforehand.

The municipal authorities and other entities that carry out the works are entitled to lease the property after the works are complete, on specific terms established by the law, in order to recover the compensation paid to the former tenants.

Romania

Romania

In specific circumstances, public authorities can terminate lease agreements in the course of expropriation procedures for reasons of overriding public interest. The process can be rather drawn out, the exact length depending on the scope of the works. Compensation is paid in advance by the public authority doing the expropriation.

In addition, a lease agreement which is not registered in the Land Book, but which relates to a property which is registered, is not enforceable against any subsequent owner of the leased property and, therefore, can be terminated at the latter’s request. If the lease agreement concerns property not registered in the Land Book, it is enforceable against subsequent owners only if it has a certified date prior to that of the transfer.

Slovak Republic

Slovak Republic

A lease may be subject to compulsory termination if the property is expropriated. The time this can take is unpredictable. Compensation is paid by the party which receives the ownership right. However, such compensation is paid only to the owner and not to the tenant, unless agreed otherwise in the lease.

The lease may also be terminated in bankruptcy proceedings by a bankruptcy administrator.

Spain

Spain

No, neither the government nor any other authority may directly intervene to terminate a lease. Leased property can be subject to compulsory purchase but this is fairly infrequent and is subject to strict conditions.

However, the purchaser of a leased property may try to terminate the agreement on the grounds of the change of ownership. To avoid these situations, it would be advisable to register the lease at the relevant Land Registry. The cost and expenses involved in the registration are the main disadvantages in this regard.

To avoid the change of ownership of the leased premises entailing the termination of the lease agreement, it is common for the parties to agree a clause for which the new owner will be subrogated in the rights and obligations of the landlord. For this purpose, it is common that the landlord undertakes to inform the prospective new owner of the existence of the lease.

Sweden

Sweden

Yes, the lease can be terminated by a municipal authority if the premises cannot be used in accordance with the designated use set out in the lease agreement and this is the result of the condition of the premises. If the poor condition is the fault of the landlord, the tenant can make a claim against the landlord.

Thailand

Thailand

Yes, in certain cases, such as eminent domain, where the leased property may be expropriated by the relevant government authority. If the property is taken, the lease may be terminated as the landlord no longer has any property to be leased. If a property is expropriated, the compensation will be paid to the owner of the leased property (eg if the leased property is land, compensation will be paid to the landowner; if the leased property is a building, compensation will be paid to the owner of the building).

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

The Executive Council can pass a law dealing with any property that it needs to acquire for the purpose of ‘public benefit’. The property should only then be expropriated in return for ‘just compensation’ and in accordance with the provisions of the applicable law passed by the Executive Council. This would also deal with any third party interests over the property in question and the termination of any leases. Whether compensation would be due to lessees would be dealt with in the applicable law.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

Under the Civil Code of the United Arab Emirates, property can be appropriated by the Government for the public benefit. In such circumstances, 'just compensation' must be paid. Whether, and to what extent, the compensation would cover any tenant's interests in the property is dealt with on a case-by-case basis.

UK - England and Wales UK - England and Wales

UK - England and Wales

Local authorities have certain rights to acquire property on a compulsory basis, including leased property. Rights of compulsory purchase can only be exercised in certain circumstances, such as to enable a new development, and the tenant will receive the market value of their interest in the property. In addition, they may also be entitled to further compensation.

UK - Scotland

UK - Scotland

A local authority has the right to require the compulsory termination of a lease as a result of compulsory purchase of the premises.

Compulsory purchase powers are subject to rigorous controls and are usually exercised only where the local authority is constructing a new road or other public services.

The landlord and tenant would both be entitled to compensation for losses suffered as a result of compulsory purchase. Levels of compensation are calculated in accordance with the relevant statute.

Ukraine

Ukraine

Ukrainian law provides for termination as a result of court proceedings where the interests and rights of a third party are affected (eg if the letting of the real estate and/or the lessee's activity causes serious damage or significant disturbance to neighbouring areas, lessees and/or lessors; or if the lease agreement was entered into by someone who was not the real lessor of the real estate).

The length of this process depends on the length of the court proceedings and length of the enforcement procedure (if applicable).

Under Ukrainian law a lessee can make a claim for compensation relating to such termination. The parties may provide in the lease agreement for additional compensation to be paid by the lessor in the event of early termination at the lessor's instigation.

United States

United States

The federal and state governments’ inherent power to take land for public purposes so long as compensation is paid to the land owner is commonly known as the power of ‘eminent domain’ or ‘condemnation’ in the United States. Upon complete condemnation, any leases affecting the land will automatically terminate and, subject to the provisions of the lease, the affected tenant may have a claim for a portion of the compensation award to cover the value of the unexpired lease, the tenant’s fixtures and relocation expenses. Whether a condemnation of only part of the land will result in terminating a lease will depend upon the materiality of the land taken and the provisions of the lease governing this circumstance.

Zimbabwe

Zimbabwe

In terms of the Land Acquisition Act [Chapter 20:10], the President of Zimbabwe or any Minister duly authorized by the President, may compulsorily acquire: any land, where the acquisition is reasonably necessary in the interests of defence, public safety, public order, public morality, public health, town and country planning or the utilization of that or any other property for a purpose beneficial to the public generally or to any section of the public; any rural land, where the acquisition is reasonably necessary for the utilization of that or any other land for settlement for agricultural or other purposes, for purposes of land reorganization, forestry, environmental conservation or the utilization of wild life or other natural resources or for the relocation of persons dispossessed in consequence of the utilization of land for these purposes. The acquiring authority and the party affected may enter into an agreement for the acquisition or the formal process in terms of the Land Acquisition Act may be followed.

Where the land is acquired, the Land Acquisition Act allows for the eviction of the owner or the occupier of such land once the relevant procedure has been followed in terms of the Act and an order obtained. The formal process in terms of the Act must be followed and an order obtained. Once the order is obtained, it is then served upon the occupier or owner of the land, and he or she is then given three months written notice to vacate. If the land is agricultural land, notice in writing is given to the owner or occupier to cease to occupy, hold or use that land 45 days after the date of service of the order upon the owner or occupier. If he fails to do so, he shall be guilty of an offence and liable to a fine or to imprisonment for a period not exceeding two years.

The Act states that fair compensation shall be paid within a reasonable time by the acquiring authority.