Double rent? The Supreme Court has commented on the termination of a lease in case of a change of ownership

Author of the article: Mgr. Pavel Čech, ARROWS (office@arws.cz, +420 245 007 740)

The decision of the Supreme Court of 9 October 2024, Case No. 26 Cdo 513/2024, brought and confirmed important conclusions concerning the lease law, specifically the issue of the transfer of rights and obligations under the lease to the new owner of the property and the question of the validity of the termination of the lease of an apartment upon a change of ownership. The key points of the decision were the timeliness of the action for invalidity of the termination, the question of the obligation to pay rent to the new landlord in the event of prepayment and procedural errors in the application of new evidence on appeal.

Factual and legal framework of the dispute

The tenants entered into a 49-year lease with the original owners of the property in 2014, with rent prepaid for eight years in advance. Following a change of ownership in 2019, the new landlord terminated the lease on the grounds that the tenants had not paid rent for ten months. However, the tenants claimed that their obligation to pay rent had already been discharged by prepaying the original landlord.

The courts of first instance and the Court of Appeal had a different view of the case. While the court of first instance found the termination to be unjustified, the Court of Appeal decided the opposite, with the key issue being whether the new owner was obliged to accept the prepaid rent.

Prepaid rent and transfer of rights to the new owner

The Supreme Court has clearly emphasized that the transfer of rights and obligations under a lease to a new owner is a legal succession that preserves all the essential elements of the lease, including prepaid rent. The key provision was Section 2221 of Act No. 89/2012 Coll., the Civil Code, which provides that upon a change of ownership of real property, all rights and obligations of the original landlord are transferred to the transferee.

The Supreme Court emphasized that prepayment of rent is a normal part of the lease relationship, and the new owner is obliged to respect this obligation if it is part of the contract or is otherwise demonstrable. The Court of Appeal's reasoning that the new owner was unaware of the prepayment cannot stand, as the legislation does not allow the tenant to have to pay rent twice.

Procedural issues: New evidence on appeal

Another point of contention was the question of the timeliness of the action for annulment of the lease. The Court of Appeal (after its previous judgment in this case had been overturned by another Supreme Court decision) admitted new evidence (postal complaint letters) proving earlier service of the notice, thereby concluding that the action was untimely. However, the Supreme Court held that this procedure was contrary to the procedural rules, specifically Section 205a of the Code of Civil Procedure.

The defendant had ample opportunity to adduce evidence in the proceedings before the court of first instance and its failure to do so could not be subsequently remedied on appeal. The fact that the defendant had not been advised in the previous proceedings of the consequences of his failure to produce that evidence is, according to the Supreme Court, of no significance. The burden of proof in respect of that fact (the timeliness of the application) was on the applicant. The Supreme Court emphasised that the appeal procedure is based on the principle of incomplete appeal, which allows novelties (new evidence and facts) only under precisely defined conditions, which were not met in the present case.

The importance of the decision for practice

This Supreme Court decision brings and confirms several key conclusions:

1. Respect for prepaid rent: The new owner is required to accept prepaid rent as part of the lease. An interpretation by the Court of Appeal that would lead to a duplication of the tenant's obligation to pay rent would be contrary to the principles of fairness and tenant protection.
2. Strict rules on novelty on appeal: courts must strictly observe procedural rules, especially regarding the admissibility of new evidence. The additional presentation of evidence that could have been adduced at first instance is inadmissible.
3. Protection of tenants' rights: the decision emphasises that the legal continuity of the tenancy must not be disturbed by a change of ownership of the property, which protects tenants from uncertainty and possible disputes.

Conclusion

In this decision, the Supreme Court confirmed that tenants have the right to continuity of their rights after a change of ownership of the leased property, while reiterating the clear rules for the application of new evidence on appeal. The decision has a significant impact on tenancy relations and general procedural procedures and is a further step towards ensuring legal certainty in this area.