Commercial Business Rent Adjustment Lawsuit

Critical points:

- The case involved a dispute over a rent adjustment under sections 288 and 388 of the CC due to an alleged reduction in the rental value of a leasehold property operating as a service business and the corresponding financial consideration for the provision of parking services by the lessor company at the same property. The monthly agreed rent was EUR 63 000 and the monthly financial consideration for the parking services was EUR 15 000. After a series of court proceedings, the claim was dismissed in its entirety at first instance and the parties reached a settlement.

- The proper support of the case resulted in the lessor avoiding the risk of losing millions of euros, which the lessor would have been required to pay if the action was upheld in whole or in part and the rent was reduced from the date of the action and for the agreed duration of the lease. 

- The evidence introduced finally convinced the court that, on the one hand, the lessee had not suffered any reduction in its turnover and profitability and, on the other hand, there had been no reduction in the rental value and, therefore, no reduction in the monthly rent and financial consideration was justified in this case.

Background

The leasing company is active in the service sector. In 2009 it agreed to lease a building, which was still under construction at the time, and which was configured to its specifications. In the basement of the leasehold premises there would be spaces for parking the customers' cars, while the lessor undertook to provide all services related to the parking of vehicles. The monthly rent was agreed to be EUR 70,000, while the financial consideration for the provision of parking services was agreed to be EUR 15,000. In 2011, before the gym even started operating, the rent was reduced by 10% by agreement between the lessor and the lessee, due to the economic crisis in our country. Approximately one and a half year after the opening of the gym, in 2013, the lessee filed a lawsuit in which it sought a reduction of the rent and the financial compensation by approximately 50%, citing the prolongation of the economic crisis in our country, while a few months earlier, in the context of a settlement of another dispute, it had acknowledged the fairness and reasonableness of the rent. Following the adjournment of the first hearing of the action, at the second hearing the court held that it lacked jurisdiction and referred the case to a higher court. In the year 2016, the lessee filed a second lawsuit in which it sought an even greater reduction of the rent and financial consideration of approximately 60% for the period from 2016 onwards. 

Strategy

Critical elements that were identified and helped to dismiss the lawsuit, but also forced the lessee into a settlement were the following:

- The significant time delay in the final hearing of the claim by the competent court. The first decision ruling on the merits of the case was only issued in December 2019 for a lawsuit filed in the year 2013. This time delay was not due to the delayed administration of justice, but to procedural errors in the handling of the opposing side that were identified and proposed to the courts. It should be noted that before the debate on which the final decision on the merits of the case was delivered, three other debates had taken place, at which non-final decisions (!) had been delivered.

- The sound legal documentation and thorough research of the case law on the issue of rent adjustments due to changes in circumstances, which highlighted issues that are often overlooked in court decisions. In particular, the adjustment of the rent is linked not only to the rental value of the property, but also to the financial situation of the tenant. The mere fact that the rental value may have decreased does not automatically lead to an adjustment of the rent if the tenant's business is thriving and is not affected by the economic situation. 

- The evidence gathered. The search of data, upon the prosecutor's request, on the turnover and number of employees in the tenant company was crucial. This information showed that, despite the economic crisis, the leasing company was experiencing a steadily increasing turnover and was employing an increasing number of workers. 

- A thorough examination of the evidence submitted by the opposing party. The lessee submitted four valuation studies which claimed that the rental value of the properties in the area where the lease was located had decreased. However, those studies used different methods of approach and it transpired that the author of three of those studies had in 2011 valued the rental value of the area of the lease at a much higher level, which cast doubt on the opposing parties' claims. 

Result

After 6 years of litigation, the claim relating to the period 2013-2016 was dismissed in the first instance, as the court held that there was no case of changed circumstances justifying a reduction in the rent, as the financial data of the leasing company had not only been deteriorated during the period in question, but had instead improved, while there was no evidence of a reduction in the rental values of similar properties in the area where the lease was located. In particular, the court held that: 'The lessor [...] submits the documents of the Tax Office No. [...] and [...]. [...] according to which the percentage change in [the lessor's] turnover did not decrease, as the latter wrongly claims, but increased in the financial years 2012-2016, in particular in the year 2012-2013 by [...]%, in the year 2013-2014 by [...]%, in the year 2014-2015 by [...]%, in the year 2015-2016 by [...]% and in the year 2016-2017 by [...]%. [...]. The tenant-plaintiff of the [...] action, in support of the reduction of the rent, submits the [...] and [...] valuation studies of [...] by [...], with the mentioned shops and commercial buildings on [...] Avenue, [...] Avenue and [...] Street as comparables. ], with a smaller surface area in terms of the main areas and built before 2008, which do not constitute suitable comparative data since, apart from the aforementioned, their condition is not clear and it is not stated whether they could operate a business with an activity related to the activity of the leasing company and the services it offers.  [...] In addition, the lessee submitted the reports of [...] and [...] on the determination of the rental value of the rent of the rented premises of the company [...], according to which the rental value of the rented premises amounted to EUR 28,700 on 10-3-2015 and was further reduced to EUR 26,228.16 on 26-4-2016. These reports are not considered reliable evidence and cannot be relied upon by the Court to draw a safe conclusion for the reason that the same company that carried out the valuation of the lease also carried out a valuation of another property of the lessor, on which a building with a commercial use will be erected in the future in the block enclosed by Avenue [... ], [...], [...], [...] and [...], the rental value of which was estimated at 60-90 €/sqm. Indeed, the report states that the rental values of the ground floor shops located on the section of [...] Avenue or at points overlooking it have the aforementioned rental value. However, as can be seen from the above, it considers that the lease, which also faces the [...] avenue, has the above-mentioned special characteristics and includes - in addition to the ground floor - the first and second floor and the roof at the aforementioned much lower prices per sqm. [...] In view of the above, it is clear that the contractually adjusted rent of 63. 000 euros, which the tenant has since then paid, plus stamp duty, until 11-7-2016, until the bringing of the action, is not higher than the 'free' rent for a gym of similar area and general condition in the same area, since it has not been proven that in the period from the above reduction until 11-7-2016, properties of the same commercial value in the same area were rented out at a rent proportionately lower than that paid by the tenant'. 

Two years earlier, in fact, a judgment had been delivered on the second claim (i.e. the one relating to the period after 2016), the hearing of which was pending final judgment on the first claim. 

The lessee, having already had a negative judgment at first instance for the period 2013-2016, would have had to wait for the Court of Appeal's judgment to be delivered in order to be able to seek a redetermination of its second claim relating to the period 2016 onwards. In these circumstances, the dispute ended with a compromise between the parties after the lessee retreated from its initial positions. 

Conclusion 

The proper use of procedural rules highlighted the tenant's procedural errors and resulted in significant delay in the litigation it was embarking on. It is indicative that three times the case was heard and, ultimately, referrals or adjournments were issued. It was not until the fourth hearing of the case that a decision on the merits of the case was issued. At the same time, a thorough knowledge of the case law led to the search for the right evidence and its use before the court. The long time delay resulted, on the one hand, in the case finally being heard when the economy had now fully recovered, but also put pressure on the leasing company. This, combined with the dismissal of its claim at first instance, led the lessee company to settle and close the court cycle.