A lease agreement is one of the oldest and most commonly used contractual relationships. Although it is regulated by the Law on Obligations, the law does not prescribe a written form as a condition of its validity. In other words, a lease agreement may exist even without a formally executed written contract, provided that the parties have reached an agreement on its essential elements.
The essential elements of a lease agreement have remained unchanged for decades. For a lease to exist, there must be a leased asset, rent as consideration for the use of that asset, and a lease term, which may be either fixed or indefinite. However, while the essence of leasing has remained the same, lease agreements today look significantly different from those used twenty or thirty years ago.
In the past, lease agreements generally contained only a few basic provisions governing the leased premises, the amount of rent, the duration of the lease, and the fundamental rights and obligations of the parties. Today, it is not uncommon for a lease agreement to span dozens of pages and include numerous annexes, declarations, and security instruments.
To some extent, this evolution is justified by the demands of the modern market. Higher property values, more complex business models, and the need for greater legal certainty have led to the development of various contractual mechanisms designed to protect the interests of the parties. Nevertheless, practice shows that many provisions now regarded as standard primarily serve to protect the landlord, often placing the tenant in a significantly less favorable position.
Modern lease agreements regularly impose obligations on tenants that go far beyond the basic duty to pay rent and properly use the leased premises. These obligations often include security deposits, promissory notes, bank guarantees, rights of retention over the tenant’s property, the possibility of forced sale of such property for the purpose of debt recovery, contractual penalties, predetermined amounts of damages or mechanisms for their calculation, as well as obligations that have traditionally not been borne by tenants, such as the payment of certain property-related taxes and charges.
Viewed individually, many of these provisions have a legitimate purpose. Landlords seek to secure payment of their claims and minimize the risks associated with non-performance of the lease. The issue arises when a large number of such mechanisms are accumulated within a single agreement.
In such circumstances, the tenant assumes numerous contractual obligations, and even a minor breach may constitute grounds for termination of the lease, enforcement of security instruments, and the imposition of various penalties. As a result, while the agreement formally establishes a number of separate obligations, it effectively creates broad opportunities for unilateral termination by the landlord.
This does not mean that all modern contractual provisions are unnecessary. On the contrary, certain mechanisms make a significant contribution to legal certainty.
Particularly important is the inclusion of enforceability clauses in lease agreements certified by a notary public. In situations where a tenant refuses to vacate and surrender the leased premises after the termination of the lease, the landlord may avoid lengthy court proceedings and more efficiently exercise its right to recover possession of the property. Such provisions are an example of contractual solutions that benefit both parties and contribute to the efficient functioning of legal transactions.
A particularly important issue concerns lease agreements concluded for a fixed term.
The primary purpose of such agreements is certainty. The landlord knows for how long rental income will be generated, while the tenant knows that it will be able to use the leased premises without disturbance throughout the agreed period and plan its business activities or personal needs accordingly.
For this reason, increasing attention is being paid to provisions that are becoming more common in practice and grant the landlord the right to unilaterally terminate a fixed-term lease agreement without cause, subject only to a notice period. Although freedom of contract is one of the fundamental principles of contract law, the question arises as to whether such a provision is truly consistent with the nature of a fixed-term lease. If one party may terminate the agreement at any time without a specific reason, it is legitimate to ask what remains of the certainty that constitutes the very purpose of concluding a lease for a fixed period.
When such provisions are considered together with the numerous additional obligations imposed on the tenant, the result is a situation in which the landlord has access to multiple mechanisms for terminating the agreement and enforcing various forms of security, while the tenant often lacks an equivalent level of contractual protection.
For this reason, it is more important than ever that lease agreements are not viewed as standard templates to be signed without careful review. Behind a large number of pages there is often much more than the regulation of technical issues concerning the use of property. What is really being negotiated is the allocation of contractual risk between the parties.
Whether a lease agreement ultimately represents a balanced legal relationship or an instrument that provides one party with a substantially stronger position than the other depends largely on how those risks are allocated.