Subletting in Civil and Commercial Leasing

Legal Insight

December 2022

Daphne Sfyri, LL.M

Summary: Subletting is permissible in civil leases unless expressly agreed to the contrary in the lease agreement, whereas in commercial leases subletting is not permissible unless expressly agreed to the contrary. Unauthorised subletting of the lease constitutes a misuse of the lease and entitles the lessor to terminate the lease and to claim damages for exceeding the agreed use.

In times of economic/business insecurity and inflation, the tenant's retention of the right to sublease the property (leased to him) can be a financial lifesaver. In practice, therefore, the following question often arises: can the tenant sublet the property that he is leasing to a third party for a financial consideration? If so, under what conditions? What consequences can a prohibited subletting have for the parties? First of all, before going into the substance of the above questions, it is necessary to define the concept of subleasing: A sublease is a contract whereby the lessee, acting as lessor, grants the use of the leasehold, which he acquired under the main lease, to a third party (sub-lessor) for a certain consideration-rent and for a certain period of time. The sub-tenant is not the owner of the lease but is himself the lessee of the lease.

The answer to the above questions differs depending on whether the lease is civil or commercial. More specifically, in a civil lease the rule of CC 593 applies, according to which: "The lessee has the right, unless otherwise agreed, to grant the use of the leased premises to another person and in particular to sublet them, being liable to the lessor for the fault of the third party. The mere consent of the lessor to the subletting or to the assignment of use does not relieve the lessee of that liability". Therefore, it can easily be understood that the rule in civil leasing is the permissibility of subletting, regardless of whether or not there is an express agreement in the Lease Agreement on the permissibility of subletting. In even simpler terms, only if it is expressly agreed between the parties that subletting of the lease will not be permitted can the tenant be prevented from doing so.

In contrast to the civil lease, the exact opposite rule of article 11 of the decree 34/1995 applies to the commercial lease, i.e. the non-permissible total or partial assignment of the lease to a third party, unless there is an explicit agreement of the parties to the contrary. An exception is introduced only in the following cases: "However, after three years from the conclusion of the contract, it is permissible to grant the use of the lease to a partnership or limited liability company or a private limited company or a joint stock company, which will be established with a minimum participation of the lessee of 35%. Both the lessee and the company to which the use of the leasehold is assigned are jointly and severally liable to the lessor. A change in the persons of the partners by contract, except for the person of the lessee, is allowed only once. A second change shall result in the termination of the lease, unless there is the written consent of the lessor. In such cases, the lessor must be notified in writing within a period of thirty (30) days of both the conclusion of the contracts and the details of those to whom the concession was made."

Therefore, in civil leases, if the impermissibility of subletting was not agreed in the Lease Agreement, subletting is permissible, while in commercial leases, if the permissibility of subletting was not expressly agreed in the Lease Agreement, subletting is not permissible (except in the above cases). At this point it should be clarified that, in both civil and commercial leases, if subleasing is contractually permitted or prohibited, it is considered that the grant of use is also permitted or prohibited accordingly (C.A. 12018/87 C.R.C. 18988/307).

But what happens in cases where the tenant, even though this was not permitted, subleased the property to a third party? 

First of all, let us clarify that the conclusion of a sublease (even if prohibited) does not result in any changes to the rights and obligations of the lessor and the lessee under the lease contract. The debtor of the rent and any ancillary debt, as well as the creditor of the claim for the concession of the use of the leasehold, remains the lessee vis-à-vis the lessor from the original lease relationship and the sub-lessor vis-à-vis the lessee from the sublease relationship (B. Vathrakokikilis, ERNOMAK - Special Law (Articles 496-618)).

However, the assignment of the use of the lease or its subletting to a third party, despite the existing prohibition, constitutes a misuse of the lease, in the sense of performing an action contrary to the contract for its use, and entitles the lessor to terminate the lease and to claim damages for exceeding the agreed use in accordance with Article 594 CC. In fact, this applies not only to civil but also to commercial leases (Court of Appeal 15/1990 Section D). 

The clause in the lease contract for the lessor's consent to sublease is legally removed/modified orally (and of course in writing) between the lessor and the lessee (B. Vathrakokilis, ERNOMAK - Special Legal Code (Articles 496-618))). The oral/written amendment of the lease contract as to the permissibility or otherwise of subletting is the most frequent line of defence of the lessee, if the lease contract is terminated by the lessor due to prohibited (according to the lessor) subletting - misuse of the lease. At the same time, the lessee may raise as a defence any objection of abuse of right (Article 281 CC), if the lessor's attitude has directly or indirectly fostered the belief in the lessee that he will not terminate the lease contract because of the prohibited subletting - misuse of the leased premises.

At the same time, it should be stressed that the sub-tenant is not independently protected against the landlord. Thus, if for any reason the civil or commercial lease is terminated/expires, for example, if the lessor terminates the lease contract due to unauthorised subletting (misuse of the lease), the lessor is entitled, under the provision of Article 599 par. 2 of the CC, the lessor is entitled to claim the lease from both the lessee and the sub-lessor, even if the sublease contract between the lessee and the sub-lessor is also a commercial lease (CC 306/2014, CC 1226/2012). In this case, however, the sub-lessor will be able to turn against the lessee and claim compensation for the damage suffered from the breach of their contract (sub-lease).

It is therefore preferable - before drawing up a sublease contract - to process the main lease contract in order to understand whether or not a sublease contract is permissible, in order to prevent future litigation.