The fate of the property lease after the auction - The possibilities of the successful bidder

Legal Insight

March 2024

Giorgos Kefalas, L.LM. mult., M.Sc.

Summary: With the number of auctions conducted increasing rapidly in recent years, the question of what happens to the lease of the auctioned property is being raised more and more frequently. Does it still apply? Can the highest bidder evict the tenant? If yes, under what conditions? Is there any specific provision in the case of residential leases? We try to answer these questions in this article.

1. Introduction

In recent years, there has been a significant increase in the number of property auctions. Often, the properties that are auctioned have been leased, raising the question of what happens to these leases after the auction and to what extent the tenant is protected from the actions of the highest bidder.

As we will detail below, the formation of rights varies depending on a series of factors, the most basic of which are the following:

- Whether the lease agreement was made before or after the imposition of the seizure on the auctioned property.

- Whether it is a business lease or a residential lease.

- Whether the lease is evidenced by a document of certain date.

2. Lease established before the imposition of the seizure and evidenced by a document of certain date.

In cases where the lease was signed before the imposition of the seizure and additionally is evidenced by a document of certain date (such as posting the lease details on taxisnet), it is judged that the tenant deserves the broadest possible protection from the legislator. However, the situation varies depending on whether it is a business lease or a residential lease. Specifically:

2.1 Properties leased for business operations

Firstly, a lease for business operations is considered when the rented property is used for the business's activities within it (e.g., use of rent for a garment manufacturing workshop). There is a question of whether a lease should be considered for business operations when the business involves the property itself, especially in the case of exploiting the auctioned property (e.g., subleasing it). Thus, the decision no. 10634/2022 of the Single Member Court of First Instance of Thessaloniki canceled the eviction notice for rent payment that had been notified to the tenant business by the highest bidder, ruling that the case in question, where the challenging company rented properties with the purpose of further subleasing them as residences, does not fall under the concept of "lease for the operation of a business on the property."

In any case, it has been judged that law offices, individual medical practices, dental and veterinary clinics, individual offices of graduate engineers and technicians, notary offices, offices of judicial officers, and unpaid land registry offices, as well as recognized charitable institutions, do not constitute a business in the sense of the aforementioned law. In these cases, therefore, the highest bidder of the property automatically enters into the existing lease and is bound by its terms.

On the contrary, when it comes to properties rented for business operations, the law specifies that "the highest bidder has the right to terminate the lease, which then dissolves after six (6) months from the termination notice." Therefore, the highest bidder has two options:

a) To continue the lease, thereby stepping into the position of the previous lessor.

b) To terminate the lease, in which case the lease dissolves after the lapse of six months from the delivery of the termination notice to the tenant. The law does not set a deadline for the highest bidder to exercise the right of termination.

However, a precondition for the highest bidder to proceed with the termination of the lease is to have acquired ownership of the property. This happens when, after paying the price to the notary, they receive the summary of the adjudication report and proceed with its registration at the competent land registry/cadastre office.

2.2. Properties leased as residences

In the case where the rented property is used as a residence (either primary or secondary), the above-mentioned applies, but it is clarified that termination is not possible before three years from the start of the lease, according to the provision of article 2 of Law 1703/1987. This provision specifically states: "The lease of a property for residential use is valid for at least three (3) years, even if it has been agreed for a shorter period or for an indefinite time. This provision applies even after 1.7.1997. Shortening of the three-year period is allowed with a newer agreement at least six (6) months after its formation and evidenced by a notarial document."

Therefore, in the case where the highest bidder acquires a property that is leased as a residence, they have the following options:

a) To continue the lease, thereby stepping into the position of the previous lessor.

b) To terminate the lease, in which case the lease dissolves after the lapse of six months from the delivery of the termination notice to the tenant. However, termination cannot occur before the minimum period of three years prescribed by law.

3. Lease established after the imposition of the seizure and evidenced by a document of certain date.

In the case of a lease established after the imposition of the seizure, whether it is a business lease or a residential lease, the law provides that the highest bidder can terminate the lease within two months from the registration of the summary of the adjudication report. In this case, the lease dissolves after two months from the notification of the termination, and the highest bidder can then evict the tenant from the property.

In these cases, the tenant is deemed to deserve less protection, and thus the law restricts the time period from the termination notice to the dissolution of the lease (two months instead of six), and the minimum three-year duration of the lease does not apply against the highest bidder (in cases where the rent is used as a residence).

However, if the highest bidder does not proceed with the termination of the lease within two months from the registration of the summary of the adjudication report, then the lease continues normally, and they step into the position of the lessor.

A practical problem has arisen due to the significant delay observed regarding the registration/transfer of the summary of the adjudication report at the local cadastre offices, which dates back to the time of the application, often making it impossible in practice for the highest bidder to adhere to the above-mentioned two-month deadline. This issue is expected to be judged by the courts due to the interpretive difficulties it creates.

4. Lease established after the imposition of the seizure and not evidenced by a document of certain date.

In the specific case where the lease is not evidenced by a document of certain date, article 615 of the Civil Code applies, where it is stated that the new owner (in this case, the highest bidder) can terminate the lease before one month if the lease has a duration of up to one year and before two months if it has a longer duration. In the case, therefore, where the lease has not been established with a document of certain date, the protection of the tenant is further limited, as the termination immediately takes effect, while no deadline is set by the law for its exercise.

5. In lieu of a conclusion

Above, we presented the different scenarios regarding the fate of the lease in the event of the auctioning of the rented property. The development of the lease depends on a plethora of factors, the most significant of which are whether a "business" is conducted on the rented property or if it is a residential lease, as well as the timing of the lease's signing, especially if it is prior or subsequent to the seizure. Therefore, tenants must be particularly careful, both when establishing the lease – they should check whether the property is seized or not – and in case of their eviction following an auction, so as to know their rights and defense options.