The new provisions of the law on commercial leases

The new provisions of the law on commercial leases

Following our newsletter dated 19 February 2014 regarding the proposed amendment of Presidential Decree (“P.D.”) 34/1995 on Commercial Leases, we highlight here below the main changes thereto that were voted by the Greek Parliament.

LEASES TO BE ENTERED INTO AFTER THE NEW LAW COMES INTO EFFECT (NEW LEASES)

The term of the new leases shall be freely agreed upon by the contracting parties; however, if the contractual term is less than 3 years or it is agreed to be of an indeterminate duration, then a minimum 3-year term shall apply. Under the new legislative framework, prospective lessees should now ensure that the contractual term is long enough for them to avoid the risk of expiry of the lease and therefore avoid finding themselves under the obligation to return the leased property prematurely, so that they may both amortise their investment and enjoy its returns. They should also ensure that they have the right to unilaterally terminate their lease, providing of course for a reasonable time in order for the termination to become effective, so that the lessor’s legal interests are also protected, i.e. that the lessor will have enough time to lease the property to a new lessee.

In what regards the option to dissolve the lease before the contractual term (if longer than 3 years) or the term provided by the law (3 years) expire, the new law reiterates the provision which already exists in P.D. 34/1995, i.e. that the lease may be dissolved by a subsequent agreement, evidenced by a document bearing a certain date. However, paragraph 1, subparagraph 2, includes a provision which creates ambiguity. In particular, it states that the termination of such leases will become effective after 3 months as from its notification, without however clarifying what this termination is. The position of this subparagraph, which follows the subparagraph providing for the dissolution of the lease by a subsequent agreement of a certain date, raises questions, while, by its wording interpretation it is understood that it awards a termination right to both parties with a notice of 3 months without any limitation as to its timing (for example even immediately after the start of the lease).

Also in what regards new leases, the lessee’s option to terminate the lease early under Article 43 of P.D. 34/1995 is now abolished as well as the previous provisions of the same presidential decree on termination for “own use” or construction by the lessor, on compensation for goodwill etc. no longer apply for new leases.

LEASES THAT HAVE BEEN OR WILL BE ENTERED INTO BEFORE THE NEW LAW COMES INTO EFFECT (OLD LEASES)

A mandatory minimum lease term of 12 years still applies for lessors (whereas lessees may terminate the lease early according to Article 43 of P.D. 34/1995). However, it is no longer provided that the term of the lease is automatically converted to 16 years if the lessor does not file against the lessee a lawsuit for the recovery of property within 9 months until the expiry of the mandatory 12-year term, at the same time offering to pay 24 monthly rents to the lessee. This now abolished provision actually led to a mandatory term of 16 years as far as the lessor was concerned, since very few lessors were willing to pay 24 monthly rents to the lessee in order to recover the leased property after the expiration of the minimum 12-year term.

Old leases may be dissolved by a subsequent agreement, evidenced by a document bearing a certain date, or by the lessee, according to the provisions of Article 43 of P.D. 34/1995—which were ultimately not amended as expected according to the original form of the amendment—and after they expire they are dissolved automatically unless the lease is converted into a lease of indeterminate duration under the law, in which case it may be terminated according to Article 609 of the Greek Civil Code.

Moreover, in what regards deadlines and indemnification for termination by the lessor for “own use” or construction, the new deadlines allow for a termination for reasons of own use/construction 9 to 18 months after the commencement of the lease instead of 18 to 30 months, and indemnifications will be from 8 to 15 monthly rents for termination for own use, from 15 to 20 monthly rents if a similar business operates by the lessor in the leased premises, and from 6 to 9 monthly rents for termination for construction.

Article 13, paragraph 3 of the new Law provides an indemnification equal to 6 monthly rents and payable to the lessee by the lessor for any terminations with immediate effect by the lessor until 31 August 2014 in what regards:

Leases the 12-year term of which will be completed until such date

Leases the term of which is, after the lapse of the 12 years, in the 9 month deadline within which the lessor could file a lawsuit for the recovery of the property under the previous regime, at the same time offering to pay 24 monthly rents, and

Leases the term of which is in the 4-year extension after the expiry of the foregoing 9-month deadline

This regulation will catch by surprise those lessees who expected to enjoy a 16-year lease term under the previous regime, since lessors are now able to terminate the 12-year lease after its expiry by paying to the lessee an indemnification of only 6 monthly rents, instead of 24, and no deadline is provided for the termination to become effective, meaning that such terminations are with immediate effect and that the lessee is under the obligation to return the property and the lessor is under the obligation to pay the indemnification as soon as the termination is notified.

If you require any further information or assistance concerning the above, please contact:

Nikos Christoforidis at n.christoforidisatzeya.com