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Czech Supreme Court puts another spoke in the wheel of landlords – why does it refuse to recognize voluntary agreements between two parties?

According to the Czech Supreme Court, it is not possible to enforce a notarial deed by evicting tenants from rental property. This does nothing to strengthen the legal certainty of contractual parties or to improve the functioning of the real estate market.

Landlords know all too well how troublesome delinquent payers can be. This is why they seek to protect their interests with a great variety of contracts and arrangements, among them notarial records with a clause under which the obligor consents to the direct enforceability of such record.

This notarial record with direct enforceability represents what is known as a contractual enforcement title. It ranks equal alongside enforceable judgments obtained in court, and may be used to order and carry out the enforcement procedure.

The creditor for whose welfare the notarial record with debtor’s consent to direct enforceability was drawn thus avoids the need to pursue the (often long and expensive) path of a court trial. Instead, it may proceed to enforcement and force the other party to discharge the obligation secured by such a notarial record.

Because of this, notarial records with debtor’s consent to enforceability have become a popular instrument in the toolbox of creditors with which to expedite (and, above all, keep down the costs for) the recovery of performances from delinquent debtors.

Eventually, it became common practice to draw up notarial records in which the obligor as the user of a third-party property (i.e., as a rule, the tenant of such property) consents to enforceability against them by way of eviction from the real property. If the debtor fails to meet its obligation to timely make the agreed payments (i.e., in particular, rent) to the creditor in time and this leads to the termination of its use right to the real property (e.g. by cancellation of the lease), the landlord may proceed to evict the obligor. An alternative case would be a debtor who fails to vacate the premises after the use right has expired (e.g. at the end of the term of lease or based on cancellation of the lease).

However, the Supreme Court has now taken exception to this practice. Referring to earlier case law, a Supreme Court decision of May this year states that enforcement under a notarial record with debtor’s consent to enforceability may only be ordered to enforce performances under an obligation (i.e., usually, a contractual obligation) but not under other legal relations. According to the Supreme Court, the obligation to vacate a property which the debtor uses without a proper legal title never arises from a relationship under the law of obligations but only ever from the protection of the property owner’s ownership rights. This is supposed to hold true even if the debtor itself undertook in a contract to vacate the property.

The Supreme Court goes as far as to rule out that two parties might voluntarily agree or confirm in a contract the obligation to vacate a real property, and thus also agree on direct enforceability of this obligation for the event that the debtor is in breach, in the form of a notarial record with direct enforceability.

We believe that this formalistic approach taken by the Supreme Court is wrong. In our view, it runs counter to the principle of the freedom to contract, and in no way contributes to the legal certainty of contractual parties or to the proper functioning of the real estate market. The Supreme Court has made it much harder for property owners to attain a swift eviction. Unless the debtor vacates the premises voluntarily, the owner will have to undergo an arduous trial proceeding, thus further unnecessarily increasing the number of disputes pending in the courts. We believe that the situation calls for an overturning judgment or a change to the law.

With respect to the above-described issues, owners of non-residential space at least have the option to agree, in their contract with the debtor, that the debtor give them power of attorney (with limited revocability) authorizing the owner to enter the premises used by the debtor if the latter fails to vacate them after their use right has expired, and to remove them (thus taking the law into their own hands). However, there is always the risk that this approach by the owner (arbitrary eviction by the landlord itself) may under certain circumstances be found to be against the good morals in court. As for premises designated for taking permanent residence, this approach is ruled out in the first place.

Source:
Supreme Court resolution 26 Cdo 2085/2019 of 26 May 2020

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