Do the restrictions on contractual penalties in residential leases also apply to subleases?

Lease vs. Sublease Relationship: The Accessory Nature of a Sublease

Another decision of the Supreme Court, specifically file no. 26 Cdo 1524/2019 of 17 March 2020, implies (although a sublease relationship for non-residential premises was assessed here) that the provisions on leases apply to a sublease relationship only analogously, taking into account the specifics of the sublease relationship, and only to the extent that the rights and obligations of the parties to the sublease relationship are not regulated by the sublease agreement.

Contractual Penalty in an Apartment Lease: Limited Possibility until 30 June 2020

For an apartment lease under the Czech legislation effective until 30 June 2020, stipulating a contractual penalty in the lease agreement was generally prohibited. Section 2239 of the Civil Code at that time clearly stipulated that a landlord of an apartment could not demand a contractual penalty from the tenant for a breach of their obligations arising from the lease agreement. This regulation was considered mandatory and was intended to protect the apartment tenant as the weaker party in the contractual relationship, as has been repeatedly confirmed in case law, for example, in the decision of the Supreme Court of 5 June 2019, file no. 26 Cdo 2059/2018.

On 1 July 2020, the legislation changed, and contractual penalties in apartment lease agreements are no longer prohibited. The parties to an apartment lease agreement can now therefore agree on a contractual penalty for a breach of obligations by the tenant, the amount of which is, however, limited by law so that the security deposit and the contractual penalty combined may not exceed three times the monthly rent.

Contractual Penalty in an Apartment Sublease: A Different Approach Compared to an Apartment Lease

An apartment sublease is regulated quite briefly under Section 2274 et seq. of the Civil Code, and the rules for its conclusion are based on the general provisions for leases. While an apartment lease is regulated in great detail to protect the tenant as the weaker contractual party, according to the Supreme Court, a subtenant of an apartment does not enjoy the same legal protection as a tenant.

In its decision of 20 August 2024, the Supreme Court states: “If it is true that a sublease is a ‘weaker’ relationship than a lease, and therefore the subtenant does not enjoy the same protection as the tenant, then the relatively mandatory regulation protecting the apartment tenant cannot (logically) apply to them – even if the subject of the sublease is an apartment (see the already cited judgment file no. 26 Cdo 1002/2023). There is no reason to extend the special protection for an apartment tenant to other legal relationships establishing the right to use an apartment. The prohibition on stipulating a contractual penalty in the regulation of apartment leases until 30 June 2020 was an expression of precisely this relatively mandatory regulation; therefore, it applies only to the protection of the apartment tenant and does not extend to the subtenant.”

Thus, unlike an apartment lease, according to the referenced Supreme Court decision, the possibility of stipulating a contractual penalty for a breach of obligations by the subtenant is not limited in an apartment sublease. The Supreme Court also stated that this was the case even under the legislation effective until 30 June 2020, when it was completely forbidden to stipulate a contractual penalty of any amount for an apartment lease (in contrast to the current legislation). 

In the aforementioned decision, the Supreme Court clearly distinguished between a lease and a sublease relationship for an apartment. It stated that there is greater contractual freedom in apartment sublease agreements than in apartment leases, and the possibility of stipulating a contractual penalty for a breach of the subtenant's obligations is therefore generally permissible, regardless of the explicit legal restrictions on apartment leases. However, this contractual freedom cannot be understood as absolute. As is common with all contractual arrangements, the limitation imposed by the principles of good morals also applies here, meaning that the contractual penalty must not be unreasonable or discriminatory towards the weaker party.

The Sublease Relationship as a Consumer Contract

In its decision, the Supreme Court also concludes that if a sublease relationship is concluded between an entrepreneur and a non-entrepreneur (consumer), this relationship may fall under the legal regulation of consumer contracts. This means that the subtenant, as a consumer, may be protected against unreasonable contractual arrangements, including contractual penalties.

Conclusion

Based on the above conclusions, it can be concluded that apartment subtenants are not protected against the stipulation of a contractual penalty in sublease agreements in the same way as apartment tenants are. This was also true under the legislation effective until 30 June 2020, according to which a contractual penalty of any amount could not even be validly agreed upon against apartment tenants.

The Supreme Court's decision highlights the importance of distinguishing between lease and sublease relationships. Are you interested in legislative news for 2025? We have prepared a webinar for you.

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