Czechia: Legal entities as ‘close persons’ for the purposes of a lease of commercial premises

Is it possible to draw a legal parallel between a relationship of legal entities, one of which exercises influence over the other, and the relationship of a natural person and those who are close to them? If so, may one legal entity (the tenant) make rental premises available to another for use by the latter even without the landlord’s consent?

The claimant had sought declaratory relief in court, seeking to nullify the termination of their lease of commercial space, whereas they had been given notice of termination on grounds of a breach of the lease contract, presumably committed by the claimant when it allowed a third party (under the control of the claimant) to use and enjoy the rental property. The Supreme Court concerned itself with the question whether a relationship between legal entities, one of which has influence over the other, may in legal terms be treated as equivalent to the relationship between a natural person and a person close to them, and whether the rental premises may in such a case be made available for use by the other person even without the landlord’s consent.

The parties to the dispute had entered into an agreement on the lease of commercial space based upon which the defendant had let to the claimant premises designated for commercial operations, subject to the terms set out in the lease agreement. One of these terms anticipated that the claimant would operate a craft beer store on the premises. The claimant however lacked the requisite business license for such activities, which was why its subsidiary operated the business on the premises in its stead.

The defendant gave notice of termination to the claimant on grounds of the fact that the claimant had made the rental premises available to a third party without the defendant’s consent and thus breached the lease agreement, whereas the claimant failed to remedy this breach even within an additional time period granted for this purpose by the defendant. The claimant considered this approach by the defendant to be unlawful and took to the courts.

The first-instance court found that grounds for termination were given in the case at hand and thus ruled in favor of the defendant, in a judgment which the claimant appealed. The court of appeals took the opposite stance and decided that the notice of termination had been given unlawfully, whereupon the case ended up before the Supreme Court.

According to the Supreme Court, it follows from Sec. 22 (1) of the Civil Code that, while a legal person is not a “close person” (associated person, relative), the protection which the law affords third parties in certain cases by way of special terms or restrictions regarding the transfer, encumbrance, or allocation for use of property to a close person applies also to legal transactions between a legal entity and other entities to which it has a certain kind of relationship.

The Supreme Court did not agree with the legal assessment of the appellate court, which had put the relation between close persons on equal footing with that between legal entities (one influencing the other) when it comes to the lease of commercial premises. In particular, the appellate court failed to reflect that Sec. 22 (2) of the Civil Code seeks to protect third parties, which is not the case of one legal entity making available rental premises to another legal entity for commercial use.

If the landlord’s right to terminate the lease was ruled out in such a case, then this would mean, instead of the protection of third-party rights, a curtailment of the owner’s right to dispose of their property as they see fit.

Consequently, the Supreme Court (as the court of review) quashed the contested appellate judgment and ordered a retrial of the matter.

Judgment 26 Cdo 878/2022 of the Supreme Court of 8 January 2022

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