In a decision on 29 January 2020 (file no. 26 Cdo 3721/2019), the Czech Supreme Court considered the distinction between a leasehold and a rental.
While the essence of a rental is the landlord’s provision of the leased object for temporary use by the tenant, who undertakes to pay rent for this use, under a lease, the landlord provides the tenant with the right not only to use the object (ius utendi) but also to enjoy it (ius fruendi), i.e. the right to enjoy the fruits and the benefits of the leased object (or what may be understood in economic terms as the yield of the leased thing). A leasehold for economic use is a way of generating revenue. As a rule, in the case of a rental, the object can be used without further modification, but in the case of a lease, the use is always made possible by the tenant’s own diligence and effort. When distinguishing between a rental and a lease, it is not the particular nature of the leased object that is relevant but the purpose of the contract. The economic purpose of the contract is, thus, the basic distinguishing criterion; the content of the contract will always be decisive when assessing whether it is a rental or a lease.
Even in the context of the current legislation (the Civil Code), there is no reason to depart from the traditional interpretation of a leasehold or from past case law about what may be considered a leasehold. Leaseholds apply mainly to agricultural land, plants, quarries and land containing mineral deposits, etc. An area of land may, thus, be the subject of a lease (typically for agricultural or forestry activities) and a rental (e.g. as a garden, a parking space, circus stadium, horse stables, etc.). Under the past case law, the arrangement was a rental (of land) even if the tenant had, for example, to build a shed on the land itself in order to sell coal or for a horse stable, etc.
The use of land (or its part) as a carpark does not automatically imply its enjoyment, even if it is used as a public car park.
When deciding whether a contract has the features of a lease and which rules should apply to the rights and obligations arising from it after 1 January 2014 under Sec. 3074 (1) of the Civil Code, we must remember that it is often difficult to distinguish a rental from a leasehold even for contracts concluded during the effective period of the Civil Code. Courts are all the more reluctant to assess contracts concluded before 1 January 2014, i.e. during the effective period of the previous statute, which did not recognise leaseholds.
As far as Sec. 3074(1) of the Civil Code is concerned, a court must, of course, consider whether a leasehold might apply when dealing with a rental agreement that was concluded before 31 December 2013. Nevertheless, an exemption from the false retroactivity rules under Sec 3074(1) should only be granted if based on the contract’s content, it would undoubtably have been a leasehold if it had been concluded under the current legislation.
Since the entire regulation of leases of business premises is discretionary, the parties may depart from this subsection of the Civil Code when arranging the rights and obligations arising from their relationship. It is not significant that those rights and obligations were arranged “otherwise” before the Civil Code took effect.
JUDr. Gabriel Achour
T +420 270 006 111
E gabriel.achour@achourpartners.com
Gabriel Achour provides legal advice on M&A and real estate and construction matters including the structuring and implementation of investments in transport infrastructure, energy, residential development and large-scale shopping centre projects. Gabriel has extensive experience in financing, litigation and international arbitration. He has participated in many projects involving the creation of standard banking documentation for major Czech banks, including the preparation of comprehensive loan agreements and security documentation.