leasing agreements under Polish law
Associate, Domanski, Szubielska i Wspólnicy
In Polish law there are numerous agreements regarding the use of objects owned by another person. The most popular are tenancy, lease and leasing agreements. The distinguishing of these agreements may cause several problems, particularly for people who do not often deal with Polish law. Therefore, it is necessary to provide an outline of the above three types of agreement, with particular attention given to the similarities and differences between them.
Tenancy agreementsA tenancy agreement is the most popular legal form of the use of objects owned by another person. It belongs to the so-called nominate agreements, ie, agreements governed by applicable legal regulations. The basic regulation of the tenancy relationship is contained in the Civil Code of 23 April 1964 (Journal of Laws No.16, Item 93 as subsequently amended), the provisions of which constitute lex specialis in relation to the provisions of the Code.
Under a tenancy agreement, a landlord agrees to grant a tenant use of an object for a specified or unspecified time, upon payment by the tenant to the landlord of the agreed amount of rental.
The object of the tenancy may be all movables and real properties, as well as constituents of the objects (eg, a wall of a house for placing advertisements). The tenant obtains only the right to use the object, not the right to collect the fruits thereof, which distinguishes a tenancy from a lease.
A tenancy agreement may be entered into for a specified period of up to ten years, or for an unspecified period. An agreement entered into for more than ten years is deemed, upon the lapse of that period, as an agreement entered into for an unspecified time. This means that a tenancy agreement entered into, eg, for 20 years will, ten years from the date of its execution, be regarded as if it were entered into for an unspecified period. Alternatively, such an agreement for 20 years may be terminated ten years after its execution.
A tenancy agreement may be entered into in any form, but for evidential purposes, a written form is advised if the value of the annual rental (and in the case of a tenancy agreement entered into for a period shorter than one year - the value of the rental for the entire term of the agreement) exceeds the amount of PLN2.000. Failure to observe the written form in such circumstances does not result in the invalidity of the agreement, but it makes the conducting of potential court proceedings difficult, due to the impossibility (in general) of using witness testimony or evidence from the interrogation of the parties to prove that the tenancy agreement was executed.
A tenancy agreement for a period of longer than one year concerning real property or an apartment should be entered into in written form. In the case of failure to observe the written form, such an agreement is deemed as executed for an unspecified time, irrespective of the term of the agreement intended by the parties thereto.
A landlord has numerous obligations. The most important ones include an obligation to release the object to the tenant in a condition which enables the use specified in the agreement, and an obligation to bear the costs related to the maintenance of the object during the term of the tenancy relationship, except for minor expenses resulting from its ordinary use.
A tenant is obliged to pay rental, make minor investments resulting from ordinary use of the object, and to return the object of the tenancy in a non-deteriorated condition upon expiration or termination of the agreement.
The rental may be paid in one lump sum, or in several installments for the entire term of the agreement. The parties decide the date of payment. Should the agreement fail to provide for such a date, the rental is paid in advance:
In the case of delay in the payment of rental, the landlord may request the tenant to perform the obligation and to pay statutory interest. In the case of the tenant's delay (ie, delay due to the fault of the tenant), the landlord may request the payment of damages.
In order to secure the claims of the landlord regarding the payment of rental and additional expenses related thereto which have not been made by the tenant for over a year, the landlord has a statutory right to establish a pledge on the movables of the tenant contributed to the object of the tenancy. The right to establish a pledge expires when the objects burdened with the pledge are removed from the object of the tenancy - to which the landlord may object.
If it is not prohibited under a tenancy agreement, a tenant may, without the consent of a landlord, grant the object of the tenancy for sub-tenancy or for gratuitous use.
A tenancy entered into for a specified time expires on the date specified under the agreement. Earlier termination of such an agreement may occur if the landlord or the tenant violates the obligations under the tenancy agreement (eg, if the tenant is in default of payment of the rental for at least two full payment periods). In such circumstances, the agreement may be terminated without notice. The possibility of terminating a tenancy agreement entered into for a specified time is still disputable. The standpoint of the Supreme Court regarding this matter is not uniform. Currently, there is a general view that a tenancy agreement entered into for a specified time may be terminated upon notice, but only in situations explicitly set by the parties under the tenancy agreement (eg, in the case of bankruptcy of a tenant).
A tenancy agreement entered into for an unspecified time may be terminated upon notice, observing the contractual termination periods. Should the agreement fail to provide for termination periods, the following statutory periods are applicable:
Termination or expiration of a tenancy relationship means that the issue of improvements made in the object of the tenancy by the tenant must be resolved. Unless the tenancy agreement provides otherwise, a landlord may in such circumstances either retain the improvements upon paying the tenant an amount representing the value thereof, or request that the tenant remove the improvements and return the object of the tenancy to its previous condition.
A tenancy agreement (as well as a sub-tenancy agreement) is subject to stamp duty amounting to one per cent of the sum of the tenant's payments, due during the term of the agreement. In the case of the tenancy of an apartment, stamp duty is calculated on the basis of the value of the tenant's payments for the period for which the agreement was entered into, but for no longer than five years. The obligation to pay stamp duty is jointly and severally borne by the landlord and the tenant.
A lease agreement is similar to a tenancy agreement. The legislators have not regulated this issue in the Civil Code in great detail, but in those areas that have not been separately regulated, the provisions of the Civil Code relating to tenancies may also apply.
Under a lease agreement a lessor agrees to grant to a lessee an object for use for a specified or unspecified time, and the lessee agrees to pay rental to the lessor. From the above definition of the lease agreement it follows that, in contrast to a tenancy agreement, a lease not only enables the use of an object, but also the reaping of fruits from it, both civil (ie, income earned from the object on the basis of a legal relationship, eg, rental) and natural (eg, crops). Therefore, only an object that provides fruits may be the subject of a lease (eg, animals, agricultural land, peat land, etc).
Similarly, as in the case of a tenancy, a lease agreement may be entered into for both a specified and an unspecified time. However, in view of the productive functions of a lease, it is a more permanent relationship than a tenancy, due to the fact that the maximum period in which the parties are bound by the agreement is set at 30 years (in the case of a tenancy - ten years).
The productive functions of a lease are also reflected in the imposed manner of use of an object. A lessee is obliged to use the object of the lease in accordance with the requirements of proper management, while a tenant is obliged to use the object of a tenancy in the manner set out in the tenancy agreement. If such an agreement fails to provide for the manner of use of the object, it should be set out in a manner which is compliant with the qualification and purpose of the object.
Contrary to the situation of the tenant, a lessee is obliged to make all repairs that are necessary to maintain the object of the lease in a non-deteriorated condition, and may not sublease the object of a lease agreement or grant it for gratuitous use without the consent of the lessor. Should a lessee violate such a prohibition, the lessor may terminate the lease agreement without notice.
In view of the specific nature of a lease agreement, the rental may not only be set as a cash amount, but also as a fraction of fruits (eg, one-fifth of the potato crops of a leased field).
Unless a lease agreement states otherwise, the rental is paid on a semi-annual basis in arrears. It is assumed that the rental will be paid from the fruits collected by the lessee. By way of court proceedings, Polish law allows for a decrease in the amount of rental if, due to circumstances that are beyond the control of the lessee (eg, a drought or hailstorm), the ordinary revenue from the object of the lease is significantly decreased.
If a lessee is in default of payment of the rental for at least two full payment periods, or if he is in default for over three months on a rental that is paid annually, a lessor has the right to terminate the lease agreement without observing the notice periods. However, similar to the case of termination of a tenancy agreement, the lessee should be notified of this fact, and should be given an additional three month period for the payment of the outstanding rental.
The lessor's right to a pledge securing the payment of the rental and other payments of the lessee not only includes the object of the lease itself, but also, contrary to a statutory pledge to which a landlord is entitled, encompasses all other objects used for running a farm or an enterprise and located in the area of the object of the lease, even if they do not constitute the property of the lessee.
A lease entered into for a specified time expires on the final date specified in the lease agreement. If a lease agreement is entered into for a period longer than 30 years, such an agreement is deemed as entered into for an unspecified time. A lease entered into for an unspecified time may be terminated with immediate effect if any of the parties thereto violates contractual obligations, or it may be terminated with observance of notice periods stipulated in the agreement.
Should a lease agreement fail to provide for such dates, a statutory notice period is applied, ie, six months in advance prior to the lapse of a lease year, and in the case of agricultural land, one year in advance prior to the end of a lease year.
The specific nature of a lease of agricultural land is also reflected in the lessee's statutory right of first refusal to purchase the real estate that is the object of the lease (should the lessor decide to sell). But this is only in the case of a lease agreement entered into for a period longer than three years, or actually lasting at least ten years.
A lease agreement (and also a sublease agreement) is subject to stamp duty amounting to one per cent of the sum of the lessee's payments, due during the term of the agreement. The obligation to pay the stamp duty is jointly and severally borne by the lessor and the lessee.
The leasing agreement has yet to be regulated under Polish law, and therefore, there are no uniform and generally applicable legal standards for this agreement. It is currently being shaped by economic practice based on foreign models of leasing, as well as financial leasing and operational leasing.
Under a leasing agreement, within the scope of operations of their enterprise, a lessor agrees to grant a lessee an object for use for a specified time, and the lessee agrees to pay leasing rental to the lessor.
Within the scope of freedom of agreements applicable in Poland, two models of leasing agreements may be distinguished: financial leasing and operational leasing.
Financial leasing differs from the tenancy or lease, firstly in respect of its commercial purpose. Financial leasing constitutes a type of material credit which enables the lessee to use a selected object for a period close to the commercial durability of the object (its full depreciation) upon payment of rental. The aggregate amount of the rental basically represents the value of the subject of the leasing increased by depreciation costs, a risk-related fee, and other costs incurred by the lessor. An agreement on financial leasing is always entered into for a specified time, and in general, there exists no possibility of its termination. In financial leasing the risk of loss or damage of the object of leasing is borne by the lessee, despite the fact that the object constitutes the property of the lessor for the entire term of the leasing agreement. Upon lapse of the contractual period of use of the object, the lessee usually obtains the right to purchase the object or to extend the agreement for an unspecified time.
Operational leasing is similar to a lease and it is often identified as such. An agreement on an operational lease is entered into for a shorter period than the durability of the object of the lease, usually for three years, with the possibility of its termination. Operational leasing concerns objects that may be made available to several users successively. Under an agreement on operational leasing, a lessee does not have the option of purchase of the object upon lapse of the period of its use. However, a lessee may be granted the right of first refusal to purchase the object.
It may be anticipated that in the near future the leasing agreement will be regulated in the Polish Civil Code. The content of this regulation will undoubtedly be influenced by the existing way in which leasing agreements are shaped, in particular in respect of financial leasing.
For more information, contact Domanski Szubielska i Wspólnicy Law Office, Warsaw Financial Centre, Ul. Emilii Plater 53, 00-113 Warsaw, Poland. Tel: (48 22) 520 8800 Fax: (48 22) 520 8810 E-mail: email@example.com