Czechia: Does the landlord have to pay compensation for an inherited customer base?

When the (then) new Civil Code introduced the legal concept, in 2014, of a compensation owed for inheriting the customer base of a previous tenant, this gave rise to a number of questions, especially among landlords. At least one of those questions has recently been given a definite answer by the Czech Supreme Court.

For starters, we ought to briefly recount what the idea behind compensation for taking over another person’s customer base is: as per Sec. 2315 of the Civil Code, at the end of a lease, the tenant who received notice of termination from the landlord is entitled to compensation for the benefit drawn by the landlord or the subsequent tenant from the fact that they get to take over the clientele built up by the terminated tenant (unless the tenant was given notice of termination on grounds of a gross breach of obligations).

This will usually concern retail premises or other operating premises in which goods and services are offered and sold whose character does not change even after a change of the operator, and which are not tied to the identity of the previous operator (the previous tenant). A good example would be a lease on premises for the operation of a restaurant: even after the operator has changed, the patrons of that restaurant might well continue to frequent this particular place. Conversely, if notice of termination is given to a doctor’s practice, it is fair to assume that the doctor’s patients will follow them to wherever they re-open.

One of the questions left unanswered by the above-described statutory provision is who is obliged to pay the compensation for the takeover of the customer base to the terminated tenant. Considering that the language of the law (i.e., the Civil Code) itself anticipates that the property advantage (benefit) which is to be compensated will be drawn (A) by the landlord or (B) by the subsequent tenant, it was always tempting to interpret the provision such that the compensation would be paid to the terminated tenant by either (A) or (B), depending on who of them actually got to enjoy the said benefit. However, this interpretation has now been refuted by the Supreme Court.

Rather, in its judgment of 14 March 2023 (Case Ref. 26 Cdo 3644/2022), the Supreme Court confirmed that the obligation to compensate for the takeover of a customer base arises from the lease agreement. This conclusion must be read in conjunction with the general principles for contractual relations under the law of obligations, pursuant to which the parties to a contract are not in a position to create obligations for any third person who is not themselves a party to the contract. The Supreme Court has now clarified that these principles must also be applied to the case at hand, i.e., the case of a lease agreement and the potential obligation to compensate the previous tenant for the benefit derived from inheriting their customer base. It is thus logical for the Supreme Court that the terminated tenant’s right to compensation for the advantage associated with “their” clientele must always be raised with the landlord, and with the landlord alone, even if the benefit is in the individual case actually enjoyed by the new tenant operating the premises.

The above-described judgment has at least brought some clarification as to how the legal institution, or concept, of compensation for an inherited customer base is supposed to work; even so, a number of questions clearly remains unanswered.

We find that the fundamental problem is the absence of any rules which would allow one to determine how the amount of compensation shall be calculated; in this respect, there is tremendous uncertainty even among people in the field. At the same time, the issue of compensation for the takeover of a previous tenant’s customer base isn’t the only pitfall of which landlords and tenants (users) of commercial property should be aware. Because of this, we can only recommend that you consult a law firm before entering into a lease agreement for such premises (whether in the role of the landlord or the future tenant), to discuss the terms of the lease. Our firm, bnt attorneys in CEE, has broad experience in the field of commercial leases, and more generally in real estate law, and will gladly put this experience into your service.

Civil Code (Act No. 89/2012 Coll., as amended)
Judgment 26 Cdo 3644/2022 of the Supreme Court of 14 March 2023

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