Lease agreements under the New Civil Code

The Romanian New Civil Code, which came into force on 1st October 2011, brought in amendments concerning the duration, enforceability, and subletting and assignment of lease agreements.

Lease agreements for commercial premises are now expressly regulated as a distinct category of lease. As such there are provisions referring to term, lessee’s preference right to agree a new lease, eviction and claims against sub-lessees, which are applicable not only to residential leases but also to commercial leases (unless the parties agree otherwise).

Note however that the concepts of “institutional lease” and “triple net lease” still do not exist as such under Romanian law (although in practice they are widely used in commercial letting).

Formal requirements

No formalities are required in order to enter into a valid lease agreement, however, the written form is recommended for evidential purposes. Registration of leases with the fiscal authorities is mandatory when the landlord is an individual/natural person (as opposed to an artificial legal person, e.g. a company). In addition, registration with the Land Registry is advisable in order to make leases binding upon third parties (even though it is not a condition of validity).

The New Civil Code provides that notarized lease agreements and those in writing and registered with the fiscal authorities are classed as writs of execution (titluri executorii) with respect to rent either at agreed terms or by law. From a landlord’s perspective, entering into a written agreement and registering it with the fiscal authorities may save a significant amount of time and costs with regard to notarization and enforcement procedures.

Term

Parties may enter into both fixed term leases and leases for an undetermined duration. However, under the New Civil Code the maximum term for a lease agreement is 49 years. If the parties agree a term longer than 49 years, it will be deemed to be a 49-year lease.

If the agreed term is a limited period which is not provided therein, the term will be deemed to be one year for both residential leases of unfurnished properties and for commercial leases.

Lessee’s preference right

The New Civil Code has introduced a provision that the lessee of an expired lease has a preference right to enter into a new lease of the same property (or part therein) in equal terms to the ones agreed upon with a new lessee.

This right is applicable (subject to up-front payment of rent) to any new lease entered into by the landlord:

(a) within 1 month after expiry of the former lessee’s agreement if the term of the expired lease was between 1 month and 1 year; or

(b) within 3 months after expiry if the term of the expired lease was longer than 1 year.

Any lease entered into by the landlord with a new lessee during the above-mentioned 3-month or 1-month period after the expiry of the former lease, is automatically terminated if the former lessee exercises its preference right within 30 days after notification by the landlord of the terms and conditions of the new lease.

A lessee does not have a preference right if it has not performed its obligations under the expired lease. Furthermore, the parties can explicitly agree in their lease to exclude the preference right.

Eviction

The New Civil Code provides that a lessee may only be evicted from leased property by court order, unless otherwise provided by law. Therefore a landlord may find it more difficult to evict a lessee (without the risk of being sued for damages) based on a mere contractual agreement that the landlord can evict the lessee by its own means (such as by changing the locks in the presence of neutral witnesses).

The lessee is however obliged to pay the rent set out in the agreement until the date of actual eviction, as well as to repair any damage caused to the leased premises and compensate the landlord for the loss suffered until the eviction date.

Subletting and assignment

Unless explicitly prohibited in the lease agreement, subletting and assignment is permitted under the New Civil Code.

In the case of residential leases, subletting and assignment are only allowed with the landlord’s prior written consent, and in all cases the sub-lessee/assignee and the lessee remain jointly liable for the obligations in the lease agreement (unless the landlord explicitly agrees to release the lessee from its liabilities upon subletting or assignment). Such joint liability is not applicable for commercial leases unless specifically provided in the lease.

Landlord’s direct recourse against sub-lessee

With respect to all leases, the New Civil Code provides that in the case of non-payment of rent by the headlessee the landlord has direct recourse against the sub-lessee. In such a scenario the sub-lessee would be bound to pay any amount that it owes to the headlessee directly to the landlord.

Similarly, while there is no contractual relationship between sub-lessee and landlord, the latter can oblige the sub-lessee to perform any obligation under the sub-lease agreement. Such new provisions strengthen the landlord’s control over its property and, in practice, may trigger lessees’ obligation to provide the landlord with a copy of any sub-lease agreement (even in cases where the landlord’s consent to subletting has already been granted in the headlease agreement).

The landlord’s direct recourse against the sub-lessee applies to all sub-leases entered into after 1st October 2011 (even if the headlease was agreed under the former Civil Code).