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
