Lease Agreement: termination impossible to continue

25.05.2020

Alexander Burtovoy

Miy biznes

The crisis has made adjustments both in business development and in the economy of Ukraine and the world. Many entrepreneurs are forced to reformat and optimize business processes. As a result, the need to rent part or all of the commercial premises that were previously used has disappeared. Is it possible to prematurely terminate the lease? The answer is given by the partner of the law firm “Antika” Alexander Burtovoy.

This issue is extremely relevant for both landlords and tenants. Since everyone understands that the business environment has changed, and everyone is trying to adapt to new conditions and minimize losses. The possibility of early termination of the lease will largely depend on the conditions of the signed contract. At the same time, situations often occur in practice when certain provisions of lease agreements do not comply with peremptory provisions of the law, which cannot be derogated from, even by mutual agreement of the parties. As a result, the validity of the relevant provisions can be appealed in a judicial proceeding and the legal relations of the parties can be settled according to the rules established by law.

Normative base

The legal framework for regulating lease relations in the field of commercial real estate is the Civil Code of Ukraine (chapters 58, 59), the Commercial Code of Ukraine (§ 5 of chapter 30) and, in some cases, the Law of Ukraine “On the rental of state and communal property”.

The current legislation of Ukraine does not provide for the possibility of a unilateral refusal (both for the lessor and for the lessee) from a real estate lease agreement concluded in the economic field. At the same time, part 2 of article 291 of the Commercial Code of Ukraine (HKU) establishes a list of circumstances as a result of which the lease terminates. These include:

1) the expiration of the period for which the lease was concluded;

2) redemption (privatization) of the leased object;

3) liquidation of a business entity – a tenant;

4) death (destruction) of the leased object.

In h. 3 Article. 291 HKU noted that the lease can be terminated both by agreement of the parties, and at the request of one of the parties. At the same time, the legal grounds for terminating the lease at the request of one party and the consequences of its termination are determined by the relevant provisions of the Civil Code of Ukraine (GKU) governing employment relations.

Tenant VS Landlord

The grounds for termination of the lease on the initiative of the lessor and the tenant are established in Articles 783 and 784 of the Civil Code, respectively.

So, part 1 of article 783 of the Civil Code established that the lessor has the right to demand the termination of the contract of employment, if the lessee:

1) uses the thing contrary to the contract or the purpose of the thing;

2) without the permission of the landlord transferred the thing for use to another person;

3) by his negligent behavior creates a threat of damage to things;

4) did not proceed with the overhaul of the thing if the obligation to carry out the overhaul was assigned to the employer.

For its part, the tenant in accordance with Part 1 of Art. 784 of the Civil Code has the right to demand the termination of the contract of employment if:

1) the landlord transferred for use a thing whose quality does not comply with the terms of the contract and the purpose of the thing;

2) the landlord does not fulfill his obligation to overhaul the thing.

General grounds for termination of the contract

Do not forget about the general grounds on which any contract can be amended or terminated. These include:

1) a significant violation of the contract by his party, as a result of which the other party suffered damage, which largely deprives such a party of what it had counted on when concluding the contract;

2) a significant change in the circumstances by which the parties were guided when concluding the contract.

A change in circumstances is significant if they have changed so much that if the parties could have foreseen this, they would not have concluded an agreement or would have concluded it on other conditions.

It should be borne in mind that due to a significant change in circumstances, the contract can be terminated (and, in exceptional cases, amended) by a court decision at the request of the interested party if the following conditions exist simultaneously:

1) at the time of conclusion of the contract, the parties proceeded from the fact that such a change in circumstances would not occur;

2) a change in circumstances is caused by reasons that the interested party could not eliminate after they arose with all the care and discretion that were required of it;

3) the performance of the contract would violate the balance of property interests of the parties and would deprive the interested party of what it relied on when concluding the contract;

4) it does not follow from the essence of the contract or business customs that the risk of a change in circumstances is borne by the interested party.