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Change of Owner

What is to be done by lessee?

Article by Anton Demin, INTELLECT-S lawyer.

Almost anyone who conducts business needs a place to receive the clients, keep the documents, place the office equipment. Office rental in this case is a popular solution. Usually it is a long term agreement providing for lessee's obligation of premises current repair and maintenance. And indeed the lessee himself holds out for his «business card» to be up-to-date, comfortable and every bit be as good as his competitors' ones.

In the contractual relations the lessee's counterparty is a lessor – the owner of the real property. According to the laws in effect the owner has a right of possession, exploitation and disposition of his property. Lease represents an encumbrance on real property, however it does not restrain the owner in his right to perform on his sole discretion any action with regard to the property owned by him which are in compliance with the law and do not infringe the rights and legal interests of the third parties including but not limited to dispose of his property to the benefit of other parties, disposition thereof in different manner (Art. 209 of the Civil Code of the RF).

Thus, the owner of the office has a full right and authority to enter a purchase-sale agreement on the leased property.

It is important to remark that in this case the rights and interests of the lessee are not infringed and are not modified. The change of the owner deems a termination cause for the agreement in effect. In event the new owner claims to terminate the contractual obligations due to the change of owner it should be clear that such claims are illegal.

In event of change of lessor it often happens that a new owner tries to increase the amount of rent on his own discretion. In this case the lessee should refer to the text of agreement. If it does not provide for other events for rent increase its amount stays unchanged within one year. As well the lessor will fail either to terminate the agreement or to amend it by court procedure.

Nevertheless the lease agreement itself should be brought in line with the civil laws inasmuch as it is the owner who is vested the right to lease the property. The parties shall sigh an addenda providing the new lessor details (Individual Taxpayer's Number, registered place of business, bank account, etc.). The parties' addenda amending the real property lease agreement shall be a subject to sate registration as it constitutes its integral part and amends the scope and terms of encumbrance produced by the lease agreement. In other words the new lessor acquires his rights and is authorized to claim the rent only upon the state registration of the agreement.

There arises a question, what is to be done if a lease agreement has not been registered? Whom and, even more important, from which date the lessee shall pay the rent? Pursuant to the position of the Presidium of the Supreme Arbitrazh Court of the RF dated January 11, 2002 №66, in event when the owner of leased property changes irrespective of raising the issue of re-execution of the lease agreement the former owner loses and the new one acquires the right to collect rental revenue. The new owner shall give to the lessee a written notice on transfer of the right to collect rental revenue.

According to 385.1 of the Civil Code of the RF the lessee is authorized not to perform obligations in favor of the new lessor until the latest provided the evidence that the claim was transferred to him. What steps is a new owner to undertake in this case? We believe the new lessor shall notify in written and warrant his title by forwarding on the address of the lessee the copies of the title documents (agreement).

Art. 382.3 of the Civil Code of the RF provides that in event the lessee is not notified on the transfer of title to the other party the new lessor bears the risks of the effects thereof. I.e. in this case the rent payment to lessor deems justified and the new owner is not authorized to recharge the lessee for property use.

In the situation of unstable economy we hope our advise will allow the participants of lease relations to avoid excessive troubles and expenses.

Business Transactions, Contract Law, Real Estate, Real Estate Disputes

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