With the real estate market constantly changing and more (economic) rules coming into play, it is important, especially for freelancers, to have alternative solutions in mind. Especially regarding the property where they house their business, it is useful for them to know the type of lease they have entered into as well as the legal framework under which it is regulated. Let’s take a look at commercial leasing, which has undergone several legislative amendments in recent years, so that we know what applies today and each person has an idea of their rights and obligations regarding the property they rent, in order to avoid finding themselves in an unpleasant situation.
1.What is commercial leasing?
With this term, which you may have heard in practice, we mean leases of properties made so that the tenant can install there a business/space for the exercise of their profession, as well as those activities related to it. In order to encourage traders to conclude commercial leases, but also in order for them to better secure their interests, certain facilities are provided in commercial leases such as a more stable lease duration, termination only for certain and serious reasons, and generally a more organized legal framework compared to what applies to (classic) residential leases.
It is worth mentioning that commercial leasing is considered the lease referred to as such by the law itself. Therefore, the parties cannot enter into a residential lease and “rename” it as commercial by declaring false information to the competent authorities. Nor can it be considered that the provisions of the law apply proportionally to other professional activities; each time we need to examine whether the professional activity is one of those protected by the relevant legal framework.
2.What types of businesses does it include?
In order to clarify the landscape regarding which professions are protected as commercial in the relevant leases and which are not, the law presents a relevant list of several professions considered commercial and to which the provisions can be applied. More specifically, commercial leasing can be concluded by individuals practicing the following professions:
3.What is the duration of the lease if there is a business involved?
This is a topic that has undergone… through 40 waves due to the many amendments of the law, which compels us to clarify the landscape. For this reason, in order to determine the validity of the lease that was concluded, we must distinguish:
- If the lease was concluded before March 1, 2014, and the parties did not specify its duration, then it is valid for 12 years. The concept of establishment also includes the possibility of the lease being extended or renewed, even silently, before the aforementioned date, or if the 12-year protection period has expired but not yet 9 months have passed since the lease ended. To terminate such a lease, the parties must have a private document (with signatures and date) proving their desire and agreement to terminate it; oral agreements for early termination are excluded.
- If the lease was concluded after March 1, 2014, then the rule is again that, if the parties did not specify its duration, it is valid for at least 3 years. To terminate this lease, as mentioned above, a private document (with date and signatures) is required, which must be communicated to the other party. It is important to note that the consequences of termination begin 3 months after the termination is communicated to the other party.
Let’s keep in mind that the above regarding the minimum duration of the lease applies if the parties have not agreed on something different (and legal, of course) = it would be good to check your lease for any relevant clause about the lease duration.
4.How is the rent determined?
Here, the rule is that the rent when the contract is concluded is freely determined by the contracting parties and may be readjusted at regular intervals (usually after 1 or 2 years). Regarding the adjustment of the rent, a law was recently issued which stipulated that for commercial leases from 1/1/2024 to 31/12/2024 the new rent, for the year 2024-2025, can be increased by up to 3% compared to the rent of the previous year, that is, for the year 2022-2023.
Since a similar law had been issued in 2022, let’s not exclude the possibility that the same applies for this year = the provisions of the law regarding commercial leases are set aside regarding the adjustment of the rent.
An exception to the rule of freely agreeing on the rent at the beginning is introduced when the lessor is a Real Estate Investment Company, businesses operating commercial centers which must have at least 15,000 sq.m. as an area, as well as their companies/subsidiaries in which the Greek State is the sole shareholder. In the above cases, what happens is that the rent can be unilaterally determined by the lessor without further negotiation, creating inequality for the lessee.
6.I rented a property from someone who was not its owner.What happens in that case?
This situation arises quite frequently in practice, especially if the tenant has not checked regarding the owner of the property or if there are encumbrances on it (annotations, mortgages, etc.). To protect the tenant who trusted this situation and to maintain the security of transactions, the law makes the following provisions:
- The lease will be valid and will produce regular results against the owner and the beneficiary of the property.
- However, the lessee must have acted in good faith at the time of concluding the lease.
- That is, he should not have known or have been unaware due to gross negligence that the property did not belong to the person presented to him as the owner and lessor.
- Additionally, it is required that the owner of the property did not lodge a written objection to the lessee within 3 months from the time he learned about the conclusion of the lease.
- In the event that the property came to the owner through inheritance, the deadline for him to object is again 3 months from the time he learned about the lease but after he has previously accepted the inheritance = this practically results in a much longer deadline.
7.Under what conditions can the lease be terminated?
To answer this question, we must first mention that for leases concluded after March 1, 2014, termination of the lease for personal use or for reconstruction of the leased property by the lessor is not valid = in case the lessor wanted to stay in the property or renovate it. Similarly, the lessee himself can no longer terminate the lease within 1 year after it was concluded, as he could previously, under a much more favorable arrangement for himself.
Therefore, things are quite simplified with the recent law regarding the termination of commercial leases. The rule now is that the lease can be terminated at any time after at least 3 years have elapsed since its conclusion. All that is needed is for the parties to agree to terminate the lease with a private document, so that their agreement is proven. This solves many problems regarding the complex conditions required for personal use and reconstruction of the leased property to be legally valid reasons for termination.
Additionally, the provisions of the Civil Code regarding civil leases apply, about which I wrote to you in a previous text. To make the concepts easier to understand, we will discuss those reasons for termination in the next question. It is important to know that the declaration of termination from either party must be delivered to the other (=handed over by a judicial bailiff at a cost starting from 35 euros).
8.Does termination of the lease for personal use/occupation still apply?
As mentioned above, to determine which legislative regime applies to a commercial lease, we need to know whether it was concluded before or after March 1, 2014. Because in the second case, termination of the lease due to personal use or occupation is no longer valid, as this specific reason for termination has been abolished by law.
Therefore, the reasons for which the lease can now be terminated are derived (also) from the Civil Code and thus:
- The lessee may terminate the lease if the property was not delivered to him for the agreed-upon use (either in full or in part).
- He may also terminate the lease if using the leased property poses a serious health risk to him (or his relatives).
- This applies even if he was aware of the property’s defect threatening his health from the outset, and it does not matter that he waived the right.
- Similarly, the lessor may terminate the lease if the lessee misuses the leased property, which may result from an agreement between the parties.
- However, to terminate in this case, the lessor must have previously complained to the lessee for him to cease the misuse of the lease.
- Obviously, the lessor can terminate the lease if the lessee delays payment of the rent (either in whole or in part).
- Finally, the lessor can also terminate the lease if the lessee unlawfully sublets the property to a third party = without the lessor’s consent.
9.Does anything change if it is a gas station or pharmacy?
Due to the frequent appearance of such establishments in economic life, the legislator exclusively and specifically regulated the case where their owners wish to lease property to exercise their relevant profession. Regarding gas stations, these are protected by the provisions for commercial leases, provided that leasing the property is required for the operation of the commercial agency contract between the lessor and the lessee.
Additionally, the law allows the lessee to sublet the property to a third party = and this lease will be protected by the provisions of commercial leases. However, if the commercial agency contract is terminated or if any party breaches its terms or an act of force majeure occurs, the lease can be terminated without a time limit and without compensation to the other party. Similarly, the conviction of the gas station owner for a crime related to the improper delivery of products, such as fuel adulteration, results in the same outcome, provided that he acted with intent.
As for pharmacies, the law states that the owners of the business can hire a partner in their business, as well as allocate the leased property for the creation of a drug warehouse or to house a second pharmacy alongside the one operated by the original owners. To facilitate the owners, the property can be leased to a company to house its own business, without any changes to the lease agreement = there are no sudden and unforeseen modifications of the terms.
If one of the partners withdraws from the company that was established or it is decided to transfer the business in which the property we discussed above was assigned, then we revert to the initial terms of the lease, as agreed upon from the beginning by the owner of the business with the lessor. Of course, if there was no provision for this development, the provisions of the law that essentially “supplement” the lease agreement will be applied.
10.Is the property protected from foreclosure?
This is a very common question for self-employed professionals who operate their businesses in properties they rent from themselves. This is because it is not uncommon for such properties to have encumbrances due to their owner (e.g., a mortgage note taken out by the owner), the consequences of which the tenant ultimately bears.
In essence, the tenant is somewhat protected, as the buyer who acquires the property through foreclosure (the highest bidder) does have the right to terminate the lease existing on the property (which will now belong to them), but the consequences of the termination take effect 6 months after it occurs. Thus, the tenant has a period of time to find new premises for their business. Moreover, since the foreclosure process is not known for its speed, the tenant usually would have been informed 1-2 years before the termination of the lease that foreclosure proceedings have begun against the property owner. Therefore, they would have sufficient time to organize their business moves.
It must be mentioned that to prevent cunning behavior by either the owner and/or the tenant of the property, the law stipulates that the decision of the court issued can also be enforced against the sub-lessee (if a sublease has been entered into) as well as anyone else deriving rights from the property = relatives/assistants of the tenant who are involved in the business with them, occasional visitors, etc.
Next to the client and their needs.
Athina Kontogianni – Lawyer
The above does not constitute legal advice, and no liability is assumed for it. For more information, please contact us.