December 12, 2024
Recent changes to Croatia’s Law on Lease and Sale of Business Premises highlight the importance of staying informed about the legal framework governing commercial lease agreements. These agreements are crucial for landlords and tenants engaged in commercial real estate transactions, as they define the rights and obligations of both parties. This blog post provides a detailed overview of commercial lease agreements in Croatia, covering key provisions, legal requirements, and common disputes, all within the context of the Zakon o zakupu i kupoprodaji poslovnog prostora (Law on Lease and Sale of Business Premises) and the Zakon o obveznim odnosima (Law on Obligations).
What is Commercial Real Estate?
Commercial real estate refers to properties utilized for business activities, encompassing a wide range of property types, including offices, retail spaces, industrial facilities, and warehouses. These properties generate income through rent payments or increase in value over time. In Croatia, the lease of residential property is governed by the Residential Lease Act, while industrial property and offices typically fall under the general guidelines of the Obligations Act and the Leasing and Sale of Business Premises Act. Retail leases may incorporate turnover rents, where the rent is partially or fully determined by the store’s profits, and may include provisions allowing landlords to maintain a specific mix of tenants. Retail tenants might also be subject to obligations that benefit the shopping center as a whole, such as adhering to specific trading hours and contributing to the center’s marketing efforts. Hotel leases share similarities with office leases, with variations depending on the hotel’s location and specific characteristics.
Key Provisions of a Commercial Lease Agreement in Croatia
A well-drafted commercial lease agreement in Croatia should clearly outline the rights and obligations of both the landlord and the tenant. It’s crucial to understand the interplay between the Lease Act and the Obligations Act when interpreting these agreements. Specific provisions in the lease agreement take precedence, followed by the Lease Act, and then the Obligations Act. Here are some of the key provisions to consider:
- Lease Duration: The agreement must specify the lease term, which can be for a definite or indefinite period. If the agreement is for an indefinite term, the Lease Act provides for a 30-day notice period unless otherwise agreed by the parties. It’s important to note that most lease terms can be negotiated, allowing for shorter or longer durations depending on the mutual agreement between the landlord and tenant. Short-term leases, typically for six months, are also available, particularly in tourist areas or for vacation rentals. Very long leases, often granted for land (building rights), may involve a one-off payment instead of a market rent. For market rent leases, common terms range from three to fifteen years. It is also standard practice to include a renewal provision in the lease agreement. Furthermore, the Republic of Croatia or a local self-government unit, acting as the landlord, can offer a new lease agreement to a tenant who fulfills all obligations. This offer can be made up to 60 days before the expiration of the current lease, with a maximum duration of ten years and the possibility of extension for another ten years.
- Rent: The agreement should clearly state the amount of rent, payment frequency, and due date. It may also include provisions for rent adjustments, such as indexation or turnover rent. For business premises owned by local self-government units, the rent is determined based on criteria established by the local unit, considering the type of business activity conducted in the premises.
- Security Deposit: Landlords typically require a security deposit to cover potential damages or unpaid rent. The agreement should specify the amount and conditions for its return.
- Maintenance and Repair: The agreement should outline the responsibilities of each party for maintaining and repairing the property. Typically, tenants are responsible for minor repairs, while landlords are responsible for major structural issues.
- Furnished or Unfurnished: The lease agreement should specify whether the property is rented furnished or unfurnished. This choice depends on factors such as the tenant’s length of stay, budget, and personal preferences.
- Subleasing and Transfer: The agreement may include provisions regarding the tenant’s ability to sublease the property or transfer the lease to another party. The Law on Lease and Sale of Business Premises generally prohibits subleasing unless explicitly allowed in the agreement.
- Termination: The agreement should specify the grounds for termination, such as non-payment of rent, breach of contract, or damage to the property.
Form of a Commercial Lease Agreement in Croatia
A written agreement is mandatory by law to ensure clarity and avoid disputes. In some cases, such as long-term leases or those involving significant investments, a written agreement is often certified by a public notary for the purpose of enabling the enforcement clause for tenant eviction.
Building Use Permits
In Croatia, using a building for business purposes requires a separate use permit. This permit is issued after a technical inspection confirms that the building complies with building regulations and permits. Tenants should ensure that the landlord has obtained the necessary use permit before entering into a lease agreement.
Dispute Resolution
Disputes may arise between landlords and tenants regarding various aspects of the lease agreement. The agreement should include a clause outlining the preferred method of dispute resolution, such as mediation or arbitration. In Croatia, arbitration is governed by the Arbitration Act, which outlines specific rules and procedures for resolving disputes outside of court.
Commercial Courts and Dispute Resolution
Commercial courts in Croatia have jurisdiction over various commercial disputes, including those related to lease agreements. These courts play a vital role in resolving commercial matters and ensuring the enforcement of legal rights and obligations.
Protecting Yourself from Non-Payments and Breaches
To mitigate risks associated with non-payments and breaches, landlords can incorporate specific clauses in the lease agreement:
- Guarantees: Requiring a bank guarantee or a debenture note (zadužnica) as security for rent payments.
- Insurance: Requiring the tenant to obtain liability insurance to cover potential damages.
- Penalties: Specifying penalties for late rent payments or other breaches of contract. Please note that penalties on monetary obligations are not allowed under Croatian law.
- Dispute Resolution: Including a clause outlining the preferred method of dispute resolution, such as mediation or arbitration.
For instance, if a tenant consistently fails to pay rent despite reminders and warnings, the landlord may have grounds to terminate the lease agreement and pursue enforcement or other legal action to recover the unpaid rent and any associated costs.
Other General Practices
- Due Diligence: Before entering into a lease agreement, both parties should conduct thorough due diligence. This includes verifying the legal status of the property, checking for any pre-emption rights, and assessing the other party’s financial standing. It’s also essential to be aware of statutory time periods for issuing authorities to make decisions on real estate transactions.
- Legal Advice: Seeking legal advice from a qualified attorney is highly recommended. Croatian attorney for a lease agreement can help identify potential risks, ensure compliance with Croatian law, and negotiate favorable terms. This proactive approach can prevent future disputes and protect your interests.
- Clarity and Specificity: The agreement should be drafted in clear and unambiguous language, avoiding vague terms that could lead to misinterpretations.
- Local Regulations: Be aware of any local regulations that may apply to the specific type of commercial property and business activity.
Conclusion
Commercial lease agreements in Croatia are subject to a specific legal framework, and recent legislative changes emphasize the need for landlords and tenants to stay informed. A well-drafted lease agreement is crucial for a successful landlord-tenant relationship, clearly outlining the rights and obligations of both parties. By understanding the key provisions, legal requirements, and potential disputes, both landlords and tenants can protect their interests and establish a solid foundation for their business operations. Seeking legal advice is highly recommended to ensure compliance with Croatian law and to navigate the complexities of commercial lease agreements effectively.
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