Lessor's Compensation Obligation of 500.000 Euros for Non-Completion of the Lease

Critical Points

The case concerned a dispute arising from a commercial property lease agreement, intended for use as a mixed food store (supermarket).

Proper handling of the case led to the irrevocable award of compensation in favor of our client, the lessor company, amounting to €500,000, due to the lessee's breach of contractual obligation to perform completion works on the leased property, leaving it in a cold shell condition, which in no way allowed its immediate exploitation.

Background

Our client entered into a property lease agreement with a lessee company operating in the food store management sector. Within this framework, beyond the obligation to pay the agreed rent, the lessee undertook the obligation to carry out completion works on the property, which was received in the condition of reinforced concrete shell. For reasons of the lessee's business policy, this particular store was never exploited, nor were the agreed completion works ever initiated. Consequently, the lessor company denounced the contentious lease relationship due to the lessee's breach of the aforementioned contractual obligation, subsequently filing a compensation lawsuit to redress the damage suffered due to the non-execution of the completion works. The lessor's lawsuit was accepted, and the Athens Court of First Instance obliged the defendant lessee to pay compensation of €500,000. Following the submission of a relevant request and given the commercial nature of the dispute, the decision of the court of first instance was declared partially provisionally enforceable, allowing the lessor to relatively immediately collect part of its claim.

Strategy

Key points for the successful outcome of the case were the following:

Termination of the contract: Demonstrating immediate reflexes against the lessee's culpable breach of contractual obligation to carry out the completion works, the lessor denounced the lease agreement for the above reason, establishing its claim for compensation.

Interpretative approach to the contract: Crucial for the outcome of the dispute was the interpretation of the lease agreement and, in particular, the term regarding the execution of the completion works. The court of first instance accepted that the lease agreement was absolutely clear regarding the existence of an obligation on the part of the lessee to perform the said works and not a relative right, as it attempted to argue. This finding presupposed the correct highlighting of the contracting parties' intentions, as reflected in the drafting of the lease agreement.

Calculation of damage: The damage to the lessor from the non-execution of the completion works consisted of the expense to which it would have to submit for their conduct and the arrangement of the leased property as a mixed food store, as relatively agreed. For the calculation of its damage, the lessor submitted technical reports from mechanical engineers and architects, with a detailed depiction of the expenses for materials and works, on which the court supported its evidentiary conclusion, along with offers from construction companies. Simultaneously, the documented refutation of the corresponding technical reports of the lessee, which concluded in underestimating the relevant expenses, contributed to the award of compensation exceeding 75% of the amount the lessor claimed with its lawsuit.

Outcome

The judgment of the court of first instance was ratified by the Athens Court of Appeal, which confirmed that the lessee was obligated to proceed with the completion works, based on a related ancillary contractual obligation, which did not affect the rental character of the contract. Similar conclusions were reached by the Supreme Court (see here), which rejected the lessee's petition for annulment, irrevocably resolving the related dispute.

Conclusion

A contract may conceal risks for the interests of the contracting parties, not visible or predictable at the time of drafting. Therefore, the effective defense of the parties' interests in a contract depends significantly on the careful drafting of its content, a task that burdens the legal advisors of the contracting parties. Avoiding contractual ambiguities, which may later act as a trigger for overturning the agreement, constitutes a preventive measure in defending the parties' interests. To the extent that, nonetheless, a dispute cannot be avoided, the drafting of the correct strategy is the key to its successful outcome.