Czech Republic: new insolvency laws from 2008

Czech Republic

From 1 January 2008, the introduction of new insolvency laws will affect the rights of parties under lease agreements where one of them becomes insolvent.

In this situation, insolvency trustees will still be able to terminate the lease agreement. The maximum termination period will be 3 months.

The new laws also protect tenants who have invested in premises leased from an insolvent landlord for a fixed term, allowing them to challenge any attempt by the insolvency trustee to terminate the lease on behalf of the landlord on the basis that the tenant would or could suffer considerable loss.

Landlords should note that, from 2008, they will no longer be entitled to terminate a lease on the grounds that an insolvent tenant has failed to pay rent or some other payment due before the insolvency process began or because the tenant’s financial position has worsened. In our view, this should not prevent the parties including an express provision that the lease will automatically terminate or the landlord will have an express right to terminate if the tenant should become insolvent. There may, of course, be other more limited interpretations of this provision which can only be clarified by the approach of insolvency trustees and the courts when it comes into effect.

Law: Insolvency Act, no. 182/2006 Coll.