Rent Charges and Expenses: Which Ones Does the Tenant Pay and Which Ones Does the Lessor Pay? - Law Firm Psarakis & Kefalas

Legal Insight

February 2024

Danae Stamarga, LL.M

Summary: When a property lease agreement is concluded, the lessor undertakes the obligation to grant the use of the leased property to another person, the lessee, in exchange for consideration, namely rent. Thus, the lessee undertakes, on their part, the obligation to pay the agreed rent to the lessor. But what about the other expenses associated with the lease such as taxes, fees, water and electricity consumption costs, etc.? In this article, we will attempt to answer, on a case-by-case basis, the question of who bears the various expenses of the lease, the lessee or the lessor.

1. The rule

According to Civil Code Article 590, "The lessor bears the burdens of the lease and the taxes that burden it." Burdens are understood to include water and electricity consumption expenses, the lease's share of the common expenses of the building it is part of, various fees (sewerage or garbage collection) etc. Taxes include various public or municipal taxes and fees burdening the leased property, such as property tax, lighting fee (see Supreme Court 573/1996), tax on uncovered spaces etc.

It is noted that the lessor is not responsible for the lease's burdens if they are related to the lessee's business activity conducted on the lease.

2. Dispositive law – Common practice:

The above provision is dispositive law. This means that the contracting parties can agree among themselves on something different, without such an agreement binding third parties, such as the Public (see Athens Court of Appeal 7303/2000). Thus, even if in the relationship between lessee and lessor for some burden or tax of the lease, it has been agreed that the lessee is responsible, against third parties, the lessor-owner of the property remains responsible. For example, if between lessor and lessee it has been agreed that the lessee is obliged to pay the lessor each month, in addition to the rent, the equivalent for the water consumption corresponding to the specific period, the lessor has the right to claim this amount from the lessee, but against the water utility, the lessor remains responsible. An exception is the case of electricity, where in practice the lessee contracts directly with the electricity provider in their own name, thus being responsible towards the provider.

Therefore, it is quite common in practice for the lessee and lessor to agree that certain burdens of the lease will constitute rent and will therefore burden the lessee. In case of such an agreement, the delay in paying these burdens gives the lessor the right to terminate the lease and demand the rent. Such burdens typically include:

· Stamp duty along with the Social Security Organisation surcharge, totaling 3.6% of the rent. This fee is imposed on commercial leases and according to Article 13 § 2 item ζ' and 4 item α' of the Stamp Duty Code, it burdens half on the lessor and half on the lessee (unless the duration of the lease has been compulsorily extended, in which case it burdens the lessee entirely). However, often in practice, the parties agree that the stamp duty will burden the lessee exclusively, thus becoming part of the rent.

· The expense of electricity, water, telephone consumption (even when the related supplies remain in the name of the lessor), but also the expenses for municipal taxes and fees (such as sewerage, see Supreme Court 859/1982) are usually borne by the lessee, as they are the ones using the property and, therefore, consuming the electricity, water etc (see Thessaloniki Court of First Instance 620/2014 which stated that "in case of silence of the contract, it should be interpreted, within the framework of the interpretative rules of Articles 173 and 200 of the Civil Code, that the expenses of water and electricity consumption, since they refer to the granting of use, must be considered as rent unless they have been expressly excluded and undertaken by the lessor", and Supreme Court 1133/1995 for the case where these expenses have been agreed to burden the lessee). It is noted that municipal fees for cleanliness and lighting always burden the person responsible for paying the electricity bill, for this reason, the name of the person actually using the property should be declared to the electricity company, so that the related electricity consumption bill is issued in their name and they are also charged with the above cleanliness and lighting fees.

· Common expenses. Very often in practice, the lease includes a clause according to which the lessee is obliged to pay the share that burdens the lease on the common expenses of the building, as they actually use the common areas of the building, consuming the related electricity etc. In this case, it has been judged that this share in the common expenses constitutes part of the rent (see Thessaloniki Court of First Instance 620/2014). Furthermore, it is possible to distinguish in the relevant clause between the expenses that burden the property owner lessor and those that burden the lessee. Even if no such distinction is made, this clause should still be interpreted based on good faith taking into account the transactional customs. Given that the lessor is obliged to maintain the lease suitable for the agreed use, they are required to repair any defects that prevent the agreed use, as well as the necessary repairs so that both it and its common areas (elevator, staircase, central heating system etc.) are maintained suitable for the agreed use (see also below under necessary expenses). Thus, the expenses for repairing the elevator or central heating (e.g., replacement of main components, cable, door, boiler etc.), painting of the common parts of the building etc. burden the lessor, while the regular maintenance and operation expenses (monthly maintenance, fuel etc.) as current expenses burden the lessee. However, the contracting parties may agree on something different, that all common expenses will burden either the lessor or the lessee.

3. Necessary expenses

Necessary expenses are those, as mentioned above, objectively necessary for maintaining the lease suitable for the agreed use. These expenses may concern maintenance and repair works of the lease and primarily burden the lessor (Civil Code Articles 575 and 592). In case they are paid by the lessee, then the latter can seek them based on the contract or the provisions for actual defects of the lease (Civil Code Article 578), or the provisions for the management of others' affairs or unjust enrichment. Usually, the lessee will undertake these expenses themselves, although they do not burden them, either in order to maintain the lease suitable for the agreed use, in case the lessor neglects to undertake them, or in order to avoid a substantial, direct, and imminent risk of deterioration or destruction of the lease (e.g., replacement of broken glass panes or water pipes, roof insulation from which rainwater enters the lease, restoration of water pipes, sewerage, central heating, elevator, water heater, electrical installation - Athens Court of Appeal 7389/2006, foundation support, restoration of damages from earthquakes - 346/1980 Thessaloniki Court of First Instance, while according to Supreme Court 65/2008, the installation of a security door was considered a necessary expense).

In case of total destruction of the lease, the lessee is not entitled to demand expenses for complete reconstruction, nor to demand reconstruction, as the lease contract is terminated.

4. Beneficial expenses

Beneficial expenses are considered those that objectively increase the market value of the lease e.g., expenses for the construction of a building on the leased property or for planting fruit trees on the leased barren land, installation of an air conditioning system etc. These expenses are returned according to the provisions for the management of others' affairs (Civil Code Article 591 § 2 item α'). Thus, in case they were made for the benefit of the lessor and according to their real or presumed will, the lessee can seek them from the lessor based on the provisions for the mandate (736 Civil Code), while in any other case they are returned according to the provisions for unjust enrichment (737 and 904 et seq. Civil Code). In this case, either a real saving of expenses for the lessor is required or an inclusion in them of economic value that has a truly beneficial impact for them (see Patras Court of Appeal 1031/2008 which stated that "In this case, namely, it is crucial if the enriched lessor a) actually saved expenses to which they would otherwise definitely have proceeded or were obliged to proceed and b) if an economic value came to them, which truly has a beneficial impact for them, aiming for this at the specific subjective conditions of the recipient of the enrichment. Thus, for example, an expense on another's property that increases its market value or the possible revenues from it (e.g., rents), in reality, does not benefit the owner if they intend to maintain the property for their exclusive use, being unable or having no interest based on the subjective conditions under which they operate to liquidate or otherwise exploit it. Only, therefore, if and to the extent there is an actual and specific enrichment, the enriched is obliged to return the enrichment to that extent"). In the same way, luxurious expenses are returned, namely, those made to satisfy the lessee's particular aesthetic demands or whims, such as replacing sanitary ware with more luxurious ones, painting walls by a distinguished painter etc.

In practice, it is common for the lessee to waive the right to seek the above expenses (Thessaloniki Court of Appeal 2446/2006), even if they are due to a defect of the lease (Athens Court of First Instance 3592/1997).

It is noted that expenses for replacement made by the lessee cannot be considered beneficial for the lease. Thus, if the lease has a specific spatial layout that does not serve the lessee and they proceed to a new layout, replacing the old layout of the space, this expense cannot be considered beneficial for the lessor in every case, and thus the lessee does not always have the right to claim these expenses.

The lessee's right to demand the above expenses (necessary, beneficial, luxurious) is barred six months after the termination of the lease (603 Civil Code). The amount returned in case of beneficial expense is that by which the value of the lease increased and provided that this increase is preserved. If the increase in the value of the lease amounts to more than the expense, then the lessee is entitled to demand only the amount of the expense.

5. Wear or alterations

In case of wear of the lease, even if it resulted from the agreed or customary use by the lessee (Civil Code 592), the lessor is obliged to undertake the related maintenance and repair works. This provision is also dispositive law, thus again the parties have the possibility to agree differently. Conversely, in case of damage or destruction of the lease due to the fault of the lessee or persons for whom they are responsible (e.g., cohabitants), an obligation arises for the lessee to compensate the lessor (see Larissa Court of Appeal 175/2004 which ruled that "Since from the provisions of Articles 574, 599 §1, 600, 335, and 336 item a' of the Civil Code it follows that in case the lessee cannot return the lease in the condition they received it because it was destroyed or damaged by fire and was not insured, they are in principle obliged to compensate the lessor when the fire is due to their negligence or that of their cohabitants").

Therefore, if nothing different has been agreed, the lessee is not responsible and, therefore, is not obliged to restore the alterations due to the agreed use such as the colors (walls, doors, or windows), wallpaper or carpet, while, conversely, they are responsible for example for the damage of the floor due to water that they did not take care of and left to stagnate for a long period, or for wear caused to the floor requiring stuccoing, or for the wear of a lock requiring restoration. Courts have ruled that the destruction of the facade wall (Athens Court of Appeal 7729/1996) and the wear resulting from the removal of heating bodies or fuses from the electrical panel, from the wall excavation of the toilet for water transfer to another point, and from not cleaning the wallpaper and painting the walls (Larissa Court of Appeal 143/2007) are not due to usual use.

6. Epilogue

From the above, it is concluded that in principle most of the expenses of leased properties seem to burden the lessor by law. However, in practice, it is observed that either following a relevant agreement between the contracting parties or based on the actual circumstances of each case, they may burden either the lessor or the lessee. For this reason, when concluding a lease contract, particular attention is recommended to the individual terms that the parties will agree on, as they may be found responsible for the payment of expenses that by law may have burdened their counterpart.