October 2023

Judgment of the Supreme Court on the Lessor's Compensation Obligation of 500,000 Euros for Non-Completion of the Lease

The Supreme Court issued its decision No. 1095/2023, which upheld the appeal decision on the basis of which the amount of 500,000 euros was claimed as compensation for non-performance of an ancillary obligation in a lease contract. In particular, our client, the lessor company, concluded a lease contract for a property with a leasing company managing a food store, while the latter undertook to carry out completion work on the leased property. For reasons of the lessee's business policy, the shop in question has never been used and the completion work has never been started. The lessor therefore terminated the lease contract on the grounds of the lessee's breach of that obligation and brought an action for damages. The Court of Appeal accepted what the Court of First Instance had accepted, namely that the leasing company was under an obligation, together with the payment of the rent, to complete the lease in accordance with certain specifications. It therefore awarded damages of EUR 500 000, since technical reports and tenders from construction companies had already been submitted at the time of the hearing of the case in order to determine the exact cost of the completion. 

In its judgment, the Supreme Court analyses interesting issues in relation to mixed contracts and the ability of the parties to freely formulate the consideration for the lease and any additional obligations to the detriment of the lessee. In particular, it was held that: "From the combination of the provisions of Articles 574 and 575 CC, which are applicable, according to Article 44 of Decree 34/1995, maintained in force by Article 13 (1-2) of Law 4242/2014, also to commercial leases, it follows that in the lease contract the lessor is obliged to provide the lessee with the leased premises suitable for the agreed use and to maintain it suitable for that use throughout the term of the lease. In view of the intrinsic nature of the provision of Article 574 CC and the autonomy of the private will established by Article 361 of the same Code, it is permissible to agree additional ancillary obligations to the detriment of the lessor or lessee. Other contracts, whether regulated or not, may be involved in the branded regulated contract of lease, whereby additional ancillary obligations are agreed to the detriment of the lessor or lessee. In cases where a contract contains the elements of several contracts, whether or not regulated, the predominant and dominant elements of the contract shall be examined and taken into account in order to determine the nature of that contract. In particular, in order to determine whether a contract involving other contracts, whether regulated or not, has the character of a lease, it is necessary to ascertain whether the principal obligation of the lessor is to grant the use of the goods for consideration, in the sense referred to above. The court of its own motion shall characterise the contract drawn up on the basis of its content which was accepted without examination, bringing that content within the meaning of a regulated contract (GC 18/ 2006, GC 845/2019)". 

The main issue raised before the Supreme Court was that of the use of the construction provisions of Articles 173 and 200 of the Civil Code. The Supreme Court ruled in this regard: "In particular, the Court of Appeal did not violate, either directly or indirectly, the above interpretative provisions of Articles 173 and 200 of the Civil Code, because it is clear from its premise, on which it based its evidentiary finding, that it did not find, either directly or indirectly, a gap, ambiguity or doubt with regard to the provision at issue in the case of ... private property lease agreement, namely as regards its content, its terms and the legal declarations of the contracting parties, and as regards the appellant's agreed additional obligation to carry out completion work on the lease, so as to give rise to a need to interpret it, and therefore it was not obliged to have recourse to the rules of interpretation of the legal transactions in Articles 173 and 200 of the Civil Code and did not have recourse to the use of those rules, by clearly accepting, without recourse to other documents and evidence outside the contract in question, that under the terms of the above private agreement the appellant-lessor undertook an additional contractual obligation, ancillary to the main lease, to carry out the remaining work on the completion of the lease at its own expense. [...] In particular, the Court of Appeal, as is apparent from its judgment under appeal, set out in it, clearly and fully, the content of the contract at issue in the form of the private agreement of ..., as proved, on the basis of which it held that that contract fell within the meaning of the contract of lease of immovable property, in accordance with Articles 574 et seq. CC and 1 par. 1, subsection 1(a) of the Decree-Law. 34/1995, which it did not directly violate, neither by implication, nor that of a project contract, nor of a mixed contract (lease of property and project contract), without invalidating this accepted character of the contract (lease), by the assumption of the assumption of an additional contractual obligation on the part of the appellant - lessee to carry out at its own expense the remaining work of completion of the lease, since, in accordance with what has been set out in the legal reasoning of this case, due to the intrinsic nature of the provision of Article 574 CC and the autonomy of the private will, established by Article 361 of the same Code, it is permissible to agree additional ancillary obligations at the expense of the lessor or lessee, and in the case at issue such obligations were agreed, in accordance with the assumptions of the contested decision, at the expense of the lessee-appellant".