Lease versus tenancy: What's the difference?
"To secure the payment of rent ...the lessor shall have a statutory right of pledge on all movable objects brought onto the premises by the lessee..." Art. 670 (1) Polish Civil Code.
Our law firm currently has three offices in Poland, located in Gdynia, Warsaw and Katowice. Each office is rented under the terms of a contract of lease. Many of our clients, in contrast, rent retail and warehouse space under the terms of a contract of tenancy. At first glance, these two types of rental agreements appear similar. Both convey a contractual right of occupancy in exchange for the payment of rent for either a defined or undefined period of time. Beyond this point, however, the similarities fall away. Contracts of lease and contracts of tenancy have distinct characteristics, and depending on the nature of the thing to be leased and the intended duration of use, the choice of contract will create differing legal rights and obligations. Now, let's take a look at some of these differences.
A contract of lease, pursuant to Art 659(1) of the Polish Civil Code, obligates the owner to convey to the renter a thing for use (real property) for a period of time in exchange for the payment of rent. In contrast, a contract of tenancy, pursuant to Art. 693(1), expands upon a contract of lease by not only obligating the owner to convey to the renter a thing for use, but also granting to the renter the right to "collect fruits" from the thing rented. Fruits are generally understood to mean agricultural products harvested from the land. As such, a contract of tenancy may be used to rent, for example, a free standing store or warehouse if the agreement includes land as one of its elements, thus providing the possibility to collect fruits. On the other hand, if the store is located within a shopping center and does not include the underlying land as part of the rental agreement, a contract of lease must be used.
Of course, most commercial tenants have no interest in planting a row of corn in their parking lot, so what's the big deal? Does one form of contract provide any advantage? Yes! A contract of tenancy may be established for a longer term than a contract of lease.
A contract of tenancy is valid for up to 30 years, while a contract of lease is only valid for up to ten years. According to Art. 661, "a contract of lease concluded for a period longer than ten years shall be deemed, after the lapse of that period, to have been concluded for an indefinite period." In other words, after the lapse of ten years, even if the contract of lease is written for twenty years, either party may terminate the contract of lease upon three months notice. The same is true for a contract of the tenancy, but only after the lapse of 30 years.
Any other differences? Of course. Under a contract of tenancy, the renter is obligated to "make repairs indispensable for maintaining the object of the tenancy in a non-deteriorated condition." In contrast, under a contract of lease, the renter is only obligated to make minor repairs, while the owner remains liable for major repairs and maintenance. Moreover, a contract of lease provides the renter with the right to terminate the lease if defects in the leased premises pose a health hazard.
Under a contract of tenancy a renter may be required to pay, in addition to the rent, all taxes and other burdens connected with the ownership of the property. A contract of lease does not usually carve out such payments as a separate obligation, but is rather calculated into the overall rent.
Termination rights also differ, depending on whether the contract is for a fixed term or an indefinite term. Under a fixed-term contract of lease, the owner may terminate the lease if the lessee fails to pay the rent for at least two consecutive months following one month notice. A fixed-term contract of tenancy, meanwhile, may be terminated following the failure of the tenant to pay the rent for two consecutive payment periods (not necessarily monthly), upon giving the tenant one month notice to pay the overdue amount. If the rent is payable on an annual basis, and payment is more than three months past due, the contract of tenancy may be terminated upon three months notice. If a contract of lease or tenancy is for an indefinite term, meaning that no termination date is specified, either party may terminate the contract of lease or tenancy subject to the terms of the contract, or, failing such terms, upon three months notice.
Moreover, if the owner subsequently sells the property to a third party, the new owner may terminate the contract of lease or tenancy subject to the statutory time limits for notice (generally three months). A new owner, however, may not terminate an existing contract of lease or tenancy if an agreement has been concluded for a definite time and stamped with a certified date. The lack of a certified date will enable the new owner to terminate a fixed-term contract of lease or tenancy.
Any similarities between a contract of lease and a contract of tenancy? A few. In addition to some shared termination rights, the owner of the premises, subject to certain exceptions, is automatically granted a statutory right of pledge on the movable things brought into the leased premises by the tenant or lessee in order to secure the payment of rent. Once a movable item has been removed from the leased premises, it is no longer subject to the pledge, unless its removal is opposed by the owner of the premises. By the way, this statutory right of pledge also applies to residential lease contracts, including personal items purchased by other members of the family and brought into the apartment, even if these family members are not signatories to the contract of lease.
Paul Fogo is a senior attorney with Miller Canfield W. Babicki & Partners.
Our law firm currently has three offices in Poland, located in Gdynia, Warsaw and Katowice. Each office is rented under the terms of a contract of lease. Many of our clients, in contrast, rent retail and warehouse space under the terms of a contract of tenancy. At first glance, these two types of rental agreements appear similar. Both convey a contractual right of occupancy in exchange for the payment of rent for either a defined or undefined period of time. Beyond this point, however, the similarities fall away. Contracts of lease and contracts of tenancy have distinct characteristics, and depending on the nature of the thing to be leased and the intended duration of use, the choice of contract will create differing legal rights and obligations. Now, let's take a look at some of these differences.
A contract of lease, pursuant to Art 659(1) of the Polish Civil Code, obligates the owner to convey to the renter a thing for use (real property) for a period of time in exchange for the payment of rent. In contrast, a contract of tenancy, pursuant to Art. 693(1), expands upon a contract of lease by not only obligating the owner to convey to the renter a thing for use, but also granting to the renter the right to "collect fruits" from the thing rented. Fruits are generally understood to mean agricultural products harvested from the land. As such, a contract of tenancy may be used to rent, for example, a free standing store or warehouse if the agreement includes land as one of its elements, thus providing the possibility to collect fruits. On the other hand, if the store is located within a shopping center and does not include the underlying land as part of the rental agreement, a contract of lease must be used.
Of course, most commercial tenants have no interest in planting a row of corn in their parking lot, so what's the big deal? Does one form of contract provide any advantage? Yes! A contract of tenancy may be established for a longer term than a contract of lease.
A contract of tenancy is valid for up to 30 years, while a contract of lease is only valid for up to ten years. According to Art. 661, "a contract of lease concluded for a period longer than ten years shall be deemed, after the lapse of that period, to have been concluded for an indefinite period." In other words, after the lapse of ten years, even if the contract of lease is written for twenty years, either party may terminate the contract of lease upon three months notice. The same is true for a contract of the tenancy, but only after the lapse of 30 years.
Any other differences? Of course. Under a contract of tenancy, the renter is obligated to "make repairs indispensable for maintaining the object of the tenancy in a non-deteriorated condition." In contrast, under a contract of lease, the renter is only obligated to make minor repairs, while the owner remains liable for major repairs and maintenance. Moreover, a contract of lease provides the renter with the right to terminate the lease if defects in the leased premises pose a health hazard.
Under a contract of tenancy a renter may be required to pay, in addition to the rent, all taxes and other burdens connected with the ownership of the property. A contract of lease does not usually carve out such payments as a separate obligation, but is rather calculated into the overall rent.
Termination rights also differ, depending on whether the contract is for a fixed term or an indefinite term. Under a fixed-term contract of lease, the owner may terminate the lease if the lessee fails to pay the rent for at least two consecutive months following one month notice. A fixed-term contract of tenancy, meanwhile, may be terminated following the failure of the tenant to pay the rent for two consecutive payment periods (not necessarily monthly), upon giving the tenant one month notice to pay the overdue amount. If the rent is payable on an annual basis, and payment is more than three months past due, the contract of tenancy may be terminated upon three months notice. If a contract of lease or tenancy is for an indefinite term, meaning that no termination date is specified, either party may terminate the contract of lease or tenancy subject to the terms of the contract, or, failing such terms, upon three months notice.
Moreover, if the owner subsequently sells the property to a third party, the new owner may terminate the contract of lease or tenancy subject to the statutory time limits for notice (generally three months). A new owner, however, may not terminate an existing contract of lease or tenancy if an agreement has been concluded for a definite time and stamped with a certified date. The lack of a certified date will enable the new owner to terminate a fixed-term contract of lease or tenancy.
Any similarities between a contract of lease and a contract of tenancy? A few. In addition to some shared termination rights, the owner of the premises, subject to certain exceptions, is automatically granted a statutory right of pledge on the movable things brought into the leased premises by the tenant or lessee in order to secure the payment of rent. Once a movable item has been removed from the leased premises, it is no longer subject to the pledge, unless its removal is opposed by the owner of the premises. By the way, this statutory right of pledge also applies to residential lease contracts, including personal items purchased by other members of the family and brought into the apartment, even if these family members are not signatories to the contract of lease.
Paul Fogo is a senior attorney with Miller Canfield W. Babicki & Partners.
