Lease agreements regulated

The Constitutional Tribunal's judgement of April 23rd 2003 is of the utmost importance to all who lease real property, irrespective of whether they are involved in economic activity or not. It confirms the principle of stability and security that underpins Polish law

The importance of lease and tenancy agreements for our economy is exemplified by the continuing discussions about the possibilities of terminating such agreements, if they have been concluded for a definite period of time.

Doctrine and practice
The standpoints contained in the doctrine and presented in court decisions can be divided into three basic groups:
1. a restrictive standpoint does not permit the termination of lease agreements concluded for a definite period of time, irrespective of whether the parties to the agreement have provided for such a possibility;
2. a liberal standpoint propagates the principle of total liberty in shaping the content of the agreement. According to such a standpoint, there is a possibility of concluding agreements whose terms and conditions shape the legal relationship between the parties in an exhaustive manner, which reflects the will of the parties and also with regard to terminating the agreement;
3. an intermediate standpoint, confirmed by the Supreme Court in the resolution dated 22 January 1998, admitting the possibility of terminating a lease or tenancy agreement concluded for a definite period of time, only in cases specified in the agreement.
The aforementioned resolution of the Supreme Court constitutes a compromise solution between the restrictive and the liberal standpoint. The Supreme Court indicated the need to respect the principle of the liberty of agreements and the possibility of shaping such a legal relationship which reflects the needs and requirements of the parties. This is subject, however, to the limitations arising from the specific objective, i.e. the conclusion of the agreement for a definite period of time.
The judgement of the Constitutional Tribunal dated April 24th 2003, confirmed that article 673 paragraph 3 of the Civil Code is compliant with the Constitution. According to that article, it is possible to terminate a lease or a tenancy agreement only in the cases specified in the agreement. The regulations contained in it constitute an exception to the general rule of the inadmissibility of terminating a lease or tenancy agreement concluded for a definite period of time. That provision allows the parties to freely shape the content of a lease or tenancy agreement, as regards its termination. The Civil Code provides that the termination of the agreement can only occur in the cases specified in the agreement.

Compromise solutions
Art. 673 paragraph 3 of the Civil Code requires a precise and casuistic specification, in the agreement, of the reasons for termination, by the parties, of lease or tenancy agreements concluded for a definite period of time. Since the legislator provides for the necessity of specifying possible reasons for terminating an agreement, it is inadmissible to include, in such agreements, a general provision, or simply the right of the parties to terminate the agreement. A failure to specify the prerequisites will result in the impossibility of terminating and dissolving the agreement, concluded for a definite period of time.
The regulation concluded in the article in question is a compromise between safeguarding the stability of a legal relationship, arising from the agreement concluded for a definite period of time, and the principle of liberty of contracts. Article 673 of the Civil Code provides for the possibility of terminating such agreements in specific cases and allows the parties to freely specify the conditions of such terminations. The right to terminate the agreement, as specified in article 673 paragraph 3 of the Civil Code, can be exercised by both the leasor and the leasee, and the prerequisites for the termination of the agreement can be different, in a situation where the agreement is terminated by the leasor, from the situation where the agreement is terminated by the leasee. Agreements concluded for a specific period of time are of considerable importance to the parties, because they give each of them a guarantee of the existence of a legal relationship and its stability in the time defined by the parties. The specification of time frames of a legal relationship (lease or tenancy) binding the parties has a guarantee character for them.

Legal limitations of the parties' liberty
The scope and liberty of shaping the terms and conditions of the agreement by the parties is limited exclusively by article 353 of the Civil Code. According to that, the content and objective of a legal relationship cannot be contrary to its nature, the law or the principles of social co-existence. The basic feature of a lease or tenancy agreement concluded for a specific period of time, is its validity for the period agreed by the parties. The possibility of terminating the agreement before it expires, not only requires that those reasons be specified in the agreement, but that they should also be of such considerable weight, that the parties decide to resign from the legal relationship binding them.

The stability of law
The Constitutional Tribunal's judgement of April 29th 2003 was issued as a result of a complaint submitted by a leasee, who had concluded an agreement with the owner of commercial premises for a period of 2 years. The agreement contained a provision entitling both parties to terminate the agreement with the observance of one month's notice. The leasee terminated the agreement, but the leasor found the termination ineffective and filed a court action, for adjudication of the due rent for the entire period of the lease, together with interest. The courts in both the first and second instances adjudicated the due amount demanded, justifying their decision with the provision of article 673 par. 3 of the Civil Code, according to which the termination of a lease agreement concluded for a definite period of time is possible only "due to reasons specified in the agreement". The leasee had terminated the agreement for reasons not contained in it. The leasee did not agree with the judgement and challenged article 673 par. 3 of the Civil Code before the Constitutional Tribunal, maintaining that the said provision was not compliant with the Constitution, because it limited the rights and obligations of a citizen (article 31 section 3 of the Constitution) and the principle of liberty of contracts as well as economic liberty (article 22 of the Constitution). According to the claimant, the parties should have the possibility of terminating an agreement concluded for a specific period of time, without the necessity of foreseeing the "cases for terminating the agreement".
The Constitutional Tribunal's judgement of April 29th 2003 confirms the up-to-date nature and stability of Polish civil law, and - as stated by the Reporting Judge, Professor Andrzej Maczynski, in a discussion with journalists after the judgement was announced - we have a classic Civil Code fit for a market economy.
Article 673 paragraph 3 of the Civil Code does not infringe upon article 22 of the Polish Constitution. The provision concerns all lease and tenancy agreements concluded for a definite period of time, irrespective whether their parties are entrepreneurs or not.
The limitations arising from article 673 paragraph 3 of the Civil Code, concern all civil law relationships of lease and tenancy agreements concluded for a definite period of time - they are not a limitation aimed exclusively at entities conducting economic activity. The article in question does not infringe either upon contractual liberty or the principle of economic activity. A change of such provision would conflict with the idea of an agreement concluded for a definite period of time.
Article 673 paragraph 3 of the Civil Code also does not conflict with article 31 section 3 of the Constitution, which expresses a general principle of the constitutional rights and liberties of people and citizens. The basis for a constitutional complaint can only be such provisions, which expressly specify constitutional rights and liberties, and not general norms (as in the case of article 31 of the Constitution, guaranteeing freedom of economic activity).
The Constitutional Tribunal stated that the provision of article 22 of the Constitution, related to liberty of economic activity, had not been infringed. Consequently, there was no infringement of a general norm, specified in article 31 section 3 of the Constitution, which cannot be an independent basis for a constitutional complaint. z

Jolanta Nowakowska-Zimoch
The author is an lawyer and partner at the Lovells law firm