viber

Change of ownership of leased property

Irina Bekish, lawyer

In the process of carrying out business activities, many business entities are faced with the problem of changing the ownership of leased property. In this case, questions arise: whether it is necessary to terminate the lease with lessees, whether it is necessary to amend the lease contract and make calculations, the rights and obligations under the lease contractare transferred to the new owner or not, etc. Let's try to anylise the situation.

According to paragraph 2 of article 210 of the Civil Code of the Republic of Belarus (hereinafter - the Civil Code), the owner has the right, at his discretion, to perform any actions with his property which do not contradict the law, including alienating his property to other persons, remaining the owner, transferring to them the rights of possession, use and dispose of property, pledge property and encumber it with other means, and use it in another way.

According to clause 1.3 of the Decree of the President of the Republic of Belarus, in the case of concluding agreements involving the transfer of ownership of real estate, the landlord must indicate in the corresponding contractinformation on the encumbrance of the property with the right to lease, sublease, gratuitous use. A transaction made in violation of this requirement is disputable and may be declared invalid by the court at the lawsuit of the acquirer of real estate.

Thus, by virtue of the current legislation of the Republic of Belarus, leased property is both an object of property relations and the subject of a lease. On the one hand, the lessee’s right to own and use the leased property encumbers him. On the other hand, the transfer of property for rent does not limit the right of the owner to dispose of this property by transferring it to another person.

The right of ownership to leased property may be transferred in the result of universal succession - inheritance of property of an individual, reorganization of a legal entity. On the basis of the “right of succession”, the indicated encumbrances of the leased property remain in case of its transfer to the ownership of another person. The transfer of ownership of the property leased to another person is not a basis for amending or terminating the lease contract. In this case, only the lessor is changed - the former owner stops to be the lessor.

So, according to paragraph 1 of article 588 of the Civil Code, the transfer of the right of ownership (inherited life estate) for the leased property to another person is not a basis for changing or terminating the lease contract.

Law enforcement practice proceeds from this requirement. In the clarifications of the Supreme Economic Court of the Republic of Belarus from 15.06.2009 №02-43/1371 "On the application of article 588 of the Civil Code of the Republic of Belarus" (hereinafter – the Clarification of the SEC) indicated that the change of ownership of the leased property at the same time leads to replacement of the lessor under the lease contract. At the change of ownership of the leased property, regardless of whether the issue of the renewal of the lease contract raised, the former owner loses and the new acquires a right to receive income from the rental property.

In practice, the change of ownership of leased property is as follows. The old or new owner notifies the lessee about the change of ownership of the property, indicating the new lease and his account details for the transfer of rent. The notification shall be accompanied by evidence of the transfer of ownership (for example, a copy of the certificate of state registration of transfer of ownership). This is due to the fact that debtor (lessee) in the performance of the lease contract (transfer of rent) has the right to demand proof that the execution is accepted by the creditor (lessor) or a person authorized by him.

The current legislation does not explicitly indicate that the parties of the contract need to renew the lease contract in connection with the change of ownership. However, if you do not make changes to the rental relationship after the change of ownership, it turns out that the actual relationship does not correspond to the content of the contract, which may later become a subject of proceedings in the court.

Registration of change of ownership in lease relations is possible in the following ways:

- by signing an additional contractto the lease contract to change the information about the lessor. This additional contractis concluded after the state registration of the transfer of ownership.

The additional contractchanges only the information about the lessor (name, address, bank accounts, etc.). The right to sign such an contractto the lease contract by the new owner arises in connection with the succession after the transfer of ownership.

- termination of the lease contract with the old lessor during the period when the lessor was still the owner of the property, and the conclusion of the lease contract on the same terms with the new owner after registration of the transfer of ownership.

However, with using this method, the lessee risks, since after the termination of the contract with the old owner, the new owner does not have the obligation to conclude a lease contract with the former lessee, including on the same conditions.

- by signing a tripartite contract on the replacement of the lessor in the lease. The parties to this contract are the lessee, the old and new owners of the property. A tripartite contract is concluded prior to state registration of the transfer to the latter of the right of ownership of real estate. Such an contract prescribes the condition that from the moment of state registration of the transfer of ownership of real estate, the new owner exercises the rights and bears the obligations of the lessor under the lease agreement;

- by concluding an contract on assignment of a claim between the old and new owners of real estate (clarification of the Supreme Economic Court of the Republic of Belarus dated 21.11.2006 No. 03-32 / 2218 “On the possibility of concluding an contract on assignment of claims”). Meanwhile, in the legal environment there is no unequivocal opinion on the possibility of concluding a contract for assignment of a claim, since when transferring ownership of the property to a new owner, not only the rights (claims) under the lease contract, but also the lessor’s obligations (for example, to make capital property repair (part 1, paragraph 1 of article 587 of the Civil Code)). And the latter cannot be the subject of a contract for the assignment of a claim.

When changing the owner of a leased property, the legislation contains certain nuances regarding the lessee’s identity in case of inheritance. So, article 588 of the Civil Code provides for the possibility of limiting the inheritance of the rights and obligations of a citizen who according to the legislation or a lease contractis a lessee of real estate. The right to inherit property is guaranteed by art. 44 of the Constitution of the Republic of Belarus and the Civil Code. However, even in cases where neither inheritance of the rights and obligations of a citizen-lessee of real estate is provided for by the legislation or the lease, the lessor has the right to refuse the successor of such a lessee to enter into the contract for the remaining period if the conclusion of the lease was due to the personal qualities of the lessee. This norm derives from Art. 388 of the Civil Code, providing for the termination of an obligation by the death of a citizen, if the performance cannot be made without the personal participation of the debtor or the obligation is otherwise inextricably linked to the identity of the debtor, and also if the performance is intended personally for the creditor or the obligation is otherwise inextricably linked to the identity of the creditor.

There are separate issues in case of change of ownership of leased property for sub-lessees. Law enforcement practice suggests that, despite a different reason for changing the sub-lessee under the sublease agreement, in this case the nature of the legal relationship remains the same, due to the encumbrance of the leased property with the rights of third parties. The encumbrance is remained both for the new owner (lessee's rights) and on the basis of Art. 586 and 588 Civil Code for the new lessee (sublease rights).

In practice, there are also issues of preserving the lessee's right of redemption, as enshrined in the concluded lease contract with the previous owner, when changing the owner of the specified property. As previously mentioned, the transfer of the right of ownership (inherited possession for life) to the leased property to another person does not constitute a basis for amending or terminating the lease contract (Clause 1 of Article 588 of the Civil Code). According to paragraph 1 of Art. 595 of the Civil Code, a lease contract may provide that the leased property can be purchased by the lessee after the lease expires or before it expires, subject to the lessee having paid the entire redemption price stipulated by the agreement, as well as the procedure for making the redemption price and paying the rent. Thus, by virtue of the Clarifications of the Supreme Economic Court and paragraph 1 of Art. 588 Civil Code when changing the owner of the leased asset, even if the terms of the lease contract provide for the redemption of the leased property, the conditions of the previously concluded contract remain valid.

Thus, lessees may not worry when changing the owner of the leased property, as the current legislation of the Republic of Belarus guarantees the first to maintain rental relations with the new owner. The most acceptable option for filling out changes to the lease contract, in our opinion, is the signing of an additional agreement between the new owner and the lessee on changing the information on the lessor after state registration of the transfer of ownership of the property.