30 September 2011
As of 1 October 2011 the New Civil Code approved under Law no. 287/2009, as amended, will enter into force. The New Civil Code brings major amendments to contractual law in general, including to the legal regime of lease agreements.
The lease agreements concluded prior to the entry into force of the New Civil Code will continue to be governed by the existing Civil Code. However, the execution of addenda to such lease agreements after 1 October 2011 will be governed by the New Civil Code.
As a general rule, elements which do not make the object of the amendments implemented under the addenda will remain governed by the existing Civil Code, with certain exceptions, regulated by the New Civil Code (e.g. the direct claim of the landlord against the sub lessee for sublease contracts concluded after 1 October 2011, but deriving from lease contracts concluded before such date, the implied renewal of the lease contract (the tacit relocation – Romanian “tacita relocatiune”) which shall be governed by the provisions of the New Civil Code if the lease term shall elapse after the enactment of the New Civil Code etc.).
Some of the important changes with respect to lease agreements include:
1. Enforceable character of lease agreements with respect to rent and evacuation of the tenant upon expiry of the lease
Under the New Civil Code lease agreements are considered to be writs of execution (Romanian “titluri executorii”) for rent, as well as for evacuation of the tenant upon expiry of the lease, in case certain form requirements are met.
These form requirements are (a) lease agreements have to be executed in authentic form in front of a public notary; or (b) lease agreements have to be registered with the fiscal authorities. Clarifications are expected from the fiscal authorities regarding the procedures for registration of the new lease agreements wherein the landlord is a legal entity (Romanian “persoana juridica”).
With respect to the possibility to evacuate the tenant based on the lease agreement as a writ of execution, the New Civil Code refers strictly to the case where the term of the lease has expired, suggesting that the lease agreement will not be considered a writ of execution for the purpose of evacuation of the tenant in case of early termination of the agreement.
Also, the New Civil Code refers to the possibility to start enforcement directly based on the lease agreement with respect to rent, without making any reference to other amounts payable under the lease agreement, leaving the situation of operating expenses/service charges, penalties or other kind of damages deriving from the lease contracts unclarified.
2. Statutory preference right of the tenant for a new lease agreement
Under the new Civil Code, tenants will have a statutory preference right to conclude a new lease agreement for the leased premises, for equal terms as the terms offered by a third party. This preference right is provided for the lease of lodging as well as for lease agreements concluded between professionals.
3. Tenant’s self-help right with respect to repairs which are not performed by the landlord in time
Under the previous reglementation, the tenant could not perform major repair works (which would be under the obligation of the landlord) without a court decision authorizing the tenant to do so, unless otherwise contractually agreed. The New Civil Code provides that the tenant may proceed with such repair works in case the landlord does not take measures to remedy the problems immediately upon receiving notice from the tenant, and the landlord shall reimburse the tenant for the costs of the works and shall also owe interest from the date the expenses were advanced by the tenant.
In case of urgent works, the tenant may start the works immediately and serve the notification to the landlord afterwards. In this case the landlord may be requested to pay interest on the costs of the repairs calculated only from the date when he received a notification.
4. Right to damages for improvements performed by the tenant
The improvements performed by the tenant in the leased space are reglemented in the New Civil Code in more detail than the previous applicable legal provisions. It is expressly stated that the landlord is entitled to keep any improvements or works performed by the tenant without having the landlord’s prior approval, without any compensation to the tenant. Alternatively, the landlord may choose to request the tenant to remove these improvements or works and to reimburse the landlord in case any damages were brought to the leased premises.
In case the landlord approved the works, the general rule is that the tenant is entitled to a compensation for such works, unless otherwise agreed by the parties.
5. Provisions regarding landlord’s privilege over the tenant’s assets have been repealed
Under the current legislation, the landlord was the beneficiary of a legal privilege over the tenant’s assets located in the leased premises. This legal privilege allowed the landlord to have priority against other unsecured creditors of the tenant, for recovering unpaid rent from the amounts obtained from the sale of these assets.
The New Civil Code has repealed this legal privilege. A conventional retention right and correlative privilege could be however agreed contractually.
6. Direct claims of the landlord against sub-tenants
In case the main tenant is in breach of its obligations regarding payment of rent, the landlord may claim directly from the sub-tenants the amounts owed by the sub-tenants to the main tenant (as sub- lessor) under their sub-lease agreement. The landlord also has a direct claim against sub-tenants with respect to any other obligations undertaken under the sub-lease agreement.
These new rights of the landlord granted under the New Civil Code are applicable to any sub- lease concluded after 1 October 2011, even in those cases where the main lease agreement was concluded prior to such date.
7. Maximum duration of the lease of 49 years
Under the current legislation there is no express reglementation of the maximum duration of a lease agreement. The legal doctrine has established the principle that a perpetuous lease is prohibited, but there was not a unanimous consent regarding the admitted maximum term. The New Civil Code expressly provides that the maximum term of a lease agreement is of 49 years. The parties may agree however to renew the lease after expiry of this term.
The above are a few examples of the amendments brought to lease agreement under the New Civil Code. This is not intended to be an exhaustive presentation of all changes implemented by the New Civil Code, as a large part of the changes may be seen as rather legal technicalities.
There are also other amendments to contract law which will impact the lease agreements concluded under the New Civil Code, such as new rules regarding negotiation of contracts (moment when contract is considered to be concluded, good faith obligation, etc), the reglementation of the imprevision (hardship theory), the possibility to contractually amend the prescription terms, etc.