Statutory right of a lessor to increase hire money


The arrangement of the amount of the rent is one of the most important elements of negotiations between lessor and tenant. However, both parties forget about an important decision which gives a lessor a possibility of one-sided increase of rent.

The amount of the rent often determines if the conclusion of a lease agreement is profitable for both parties. It is worth remembering about Article 685 (1) of the Civil Code which gives a lessor a possibility of one-sided increase of rent.

The mechanism of periodic, usually annual, increase of hire money does not surprise any party of a commercial lease agreement. Thus, a lessor tries to obtain the same value on account of a rent in the whole term of a lease, that is in each year of the lease he expects the rent which is valorized (increased) by depreciation of the money in time. Lease agreements usually define a mechanism of valorizing the amount of rent and they refer to proper indexation rates.

However, sometimes parties to the contract forget about Article 685 (1) of the Civil Code, according to which a lessor may increase rent by terminating foregoing amount of rent at the latest month ahead, at the end of a calendar month. This regulation was introduced to the Civil Code in 2001 and the sounding of it has been changing over the years. For instance, within few years it concerned only lease agreements concluded on unspecified time. However, it may be used to all lease agreements of business premises.

Indicated regulation – apparently clear and beneficial for lessors – stirs up numerous controversies in practice. According to it, the termination of the amount of rent on the basis of the indicated regulation is an one-sided declaration of will of a lessor, and the change of the amount of rent does not require a consent of a tenant in such mode. But what happens when a tenant does not agree to a rise? One of the ideas of the doctrine in the Civil Code indicates that due to the fact that the arrangement of the amount of rent is a subjectively crucial element of a lease, the non-acceptance of the change of the amount of rent by a tenant means that the agreement will be cancelled (or it will expire) after a monthly period of notice. The representatives of another standpoints claim that if a legislator wished the non-acceptance of a tenant for a new amount of rent causes cancellation of a lease agreement, he would directly regulate it in the indicated regulation. According to them, in such situation a lease agreement will not be cancelled and a tenant is obliged to pay higher rent.

Another problem which is related to Article 685 (1) of the Civil Code is the issue of modifications’ acceptability or exclusion of employing this regulation. So far, neither jurisdiction, nor civil law doctrine have elaborated an unitary answer for the question if it is a comparatively or absolutely effective regulation. Regulations which are comparatively effective (dispositive) come into force when parties did not regulate differently a certain issue in an agreement. Absolutely effective regulations, in turn, cannot be changed by the will of parties. Therefore, it is impossible to give an unambiguous answer if parties may effectively exclude or modify Article 685 (1) of the Civil Code in a lease agreement, on which counts alert tenants. In such situation, all what may be done is the application of additional contractual regulations which allow to secure a tenant against increase or effectively guarantee this right to a lessor.

Controversies mentioned above make that a statutory right of a lessor to one-sided increase of business premises’ rent unclear and complicated. The most important elements for parties to the agreement and banks which finance the building of offices and shopping malls are certainty and predictability. Therefore, it is worth taking care of a precise regulation of this matter in a lease agreement so as to minimize and eliminate risks indicated above.

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