Situation 1
A Western company, a building materials distributor, concluded a leasing agreement for storage premises on the territory of Moscow oblast for 11 months. The leasing contract gave the lessee the right to sublet the premises. The lessee made use of this right. But six months later, the lessor demanded the cancellation of the contract and the vacation of the premises, because the lessee had not agreed the sublet with the lessor. The lessor took the case to court. The company applied to lawyers for help.
A legal analysis of the situation was made. Part 2 of Article 615 of the RF Civil Code states that the lessee has the right, with the agreement of the lessor, to sublet leased property. At the same time, RF civil law makes no provision for the procedure and form of expression by the lessor of agreement to such deals. It is proposed that the situation could be dealt with in various ways: by written or verbal agreement of the lessor to each subletting contract; by written or verbal notification of the conclusion of a standard subletting contract; and also by the inclusion of the appropriate articles in the text of the agreement between the lessor and lessee itself.
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In this case, the leasing contract included the following form of words: “The lessee has the right to sublet the leased property”. It does not follow from this that the lessee has to obtain the lessor’s agreement when concluding each subletting contract, or notify him. It should therefore be acknowledged that the subletting agreement was part of the contract between lessor and lessee. This was the position taken in the court case.
The lawyers succeeded in proving that the lessee had not breached the terms of the leasing agreement, and that the lessor had no grounds for unilateral cancellation of the contract. Consequently, nor were there grounds for the lessee to be forced to vacate the storage premises. The lessor’s petition was rejected.
The number of such disputes in legal practice is quite high, and only 30% of them are won by lessees. To avoid considerable material expense for the company, long-drawn-out litigation and stress to morale, it is better to devote attention to this question at the stage of drawing up the contract. Before signing the contract, the form and procedure for obtaining the lessor’s agreement to the property being handed over as a sublet must without fail be agreed and set out in detail in the contract.
Situation 2
A foreign company, a furniture distributor, concluded a short-term leasing contract for office space in Moscow. The contract included the full address of the building and the storey on which the offices were located, but the room numbers were not specified. No plan of the building’s storeys was attached. Two months later, the lessor demanded that the premises be vacated, since in his opinion, the property handed over under the contract was not sufficiently agreed, and consequently the contract was invalid under Clause 3, Article 607 of the RF Civil Code. After the lessee’s refusal to vacate the premises, the lessor submitted a claim to court. The lessee applied to specialists to protect his interests.
A legal analysis revealed a resolution of a plenary session of the RF, No. 73, dated 17.11.2011, entitled “On specific questions of the practice of the application of rules of the RF Civil Code on leasing contracts”. Article 15 of this resolution states that a contract in which the property being leased is not individually specified (i.e., the terms of the object and subject of the contract have not been agreed) cannot be deemed invalid if it has actually been carried out by the parties. In this case the following circumstances indicated that the leasing contract had been carried out by the parties: the absence of claims against each other when the object was handed over and the acceptance deed for it was drawn up; the fact that the lessee had paid the lease payment for two months; and also the payment into the lessor’s account of an insurance deposit for the premises in the sum specified in the leasing agreement. It was proved in court that the short-term leasing contract had in fact been carried out. Therefore the lessor’s claim was rejected.
Nevertheless, actually, according to the RF Civil Code, in the event of a significant condition not being agreed in the contract, the contract is considered not to have been concluded, i.e. it does not confer any rights or impose any obligations on the parties. And the lessor has the right to demand the return of the property under the regulations on unfounded enrichment (article 1102 of the RF Civil Code). Such legal disputes can be avoided by giving complete specifying details of the property to the lessee at the stage of the conclusion of the leasing contract, and also by attaching to the contract a storey plan of the building with the premises marked on it.
Situation 3
The Moscow branch of a large Western company concluded a long-term leasing contract for non-residential premises on Moscow territory. It was planned to use the premises as an office. The contract specified that it was the lessee’s responsibility to carry out major repair work. The state of the property was not specified in the contract. The property was handed over in an unusable condition, so the lessee was obliged to carry out a major renovation of the premises before he could start using them. After this, the lessee applied to the lessor for reimbursement of expenses, but was refused. The lessee took the case to court.
The RF Civil Code states that it is the lessor’s responsibility to carry out major repair work of leased property at his own expense, unless otherwise stipulated by law, by other legislative acts or by the leasing contract. A breach by the lessor of his obligation to carry out major repair work gives the lessee the right to carry out such major repair work as specified by the contract or as a matter of urgent necessity, and to recover the cost of the repair from the lessor or have it deducted from his lease payments.
Clause 1 of Article 611 of the RF Civil Code makes it the lessor’s responsibility to hand over the property to the lessee in a condition in accordance with the terms of the contract and the purpose of the property, even in the event of the state of the property not being stipulated in the leasing contract. Since the premises were handed over to the lessee in a condition making them unfit for use, the obligation imposed on the lessee by the contract for major repair work to the premises did not involve the loss of the lessee’s right to demand reimbursement of the cost of the capital repair work. The right of recompense for such costs, or their deduction from the lease payment, is an independent right given to the lessee by law. It may be restricted in the leasing contract, but in this case, no such provisions were contained in it. The lawyers managed to recover the costs incurred in the major repair work on the premises carried out by the lessee. Nevertheless, litigation could have been avoided if the parties had taken a more responsible approach to setting out the provisions of the contract covering the distribution of expenses on major repair work.
Situation 4
A large international company with an office in Moscow concluded a leasing agreement on an apartment for its top manager. The contract made provision for the possibility of its termination ahead of schedule on the lessee’s initiative, subject to 90 days notification. If this notification time was exceeded by the lessee, then the lessor, under the terms of the leasing contract, had the right to retain the lessee’s security deposit. The contract was cancelled on other grounds, by agreement between the parties, which did not stipulate any sanctions payable by either the lessor or the lessee. Nevertheless, the lessor did not return the security deposit, claiming that the contract had been terminated not by agreement between the parties, but on the lessee’s initiative.
Clause 1 of Article 450 of the RF Civil Code provides for a contract being terminated by agreement between the parties. In this case, the lessor insisted that he had not given his agreement for the contract to be terminated. Therefore the contract had been terminated on the lessee’s initiative. At the same time, it was proved by the lessee’s email records of his correspondence with the lessor that the lessor wanted to conclude a new leasing contract with another lessee. Furthermore, there was written confirmation of the fact that the lessor had long been looking for another lessee. Therefore in fact, both parties had an interest in the contract being terminated ahead of schedule.
The lawyers to whom the international company applied drew up a claim against the lessor, demanding the return of the security deposit. The case was settled out of court by the return of the security deposit.
In order to avoid such situations and not to fall into traps set by unscrupulous lessors, more attention should be paid to the wording of the provisions of the leasing contract concerning its termination and amendment. And negotiations concerning the termination of the contract ahead of schedule should only be in written form (by email), and all the correspondence should be kept.