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The new regime governing commercial leases

The new regime governing commercial leases

 

Commercial leases, as leases in general, have experienced a large decline during the recession period. This is due to the reduced demand of commercial spaces and limited flexibility when entering into agreements.

The new framework, introduced by the Ministry of Development amending the Presidential Decree no 134/1995, provides that the minimum period for new commercial leases is set at 3 years. Any agreement between owner and tenant may lay down a longer duration of the lease, while they can terminate the lease before the expiry of three years after relative consensus.

Regarding existing leases, the scheme of 12-year minimum lease period is still effective. However, renters may terminate the lease two years after its start opposed to one year which was effective by article 17 of L. 3853/2010. In this case, the tenant must also pay compensation to the owner, equal to four rentals. It is noted that according to the former scheme the renter should pay just one rental.

Additionally, if the owner needs the property for private use or reconstruction, the compensation paid to the tenant amounts to 8 and 6 rentals respectively. According to the repealed L. 3853/2010, the relative compensations were 16 and 12 rentals respectively. It is mentioned that the abovementioned penalties may be increased up to 15 and 9 rentals, after Court decision.

Since 2013, the business leases may be also subject to 23% VAT, allowing companies to offset the VAT of revenues with VAT of rents, without having to pay stamp duty. Therefore, construction and property management companies, which have large amounts of VAT credit balances, can benefit from tax refund. The same practice can also be applied in intra-group leased properties.

In conclusion, it is really doubtful whether this amendment gives a boost to business leases or not, as it sets a favorable context for landlords in relation to tenants. This intervention may be based on a high tax burden on real estate in recent years and the government’s effort to relieve property owners. Certainly, the choice of a commercial property, the adoption of the proper hiring process and the full specification of the terms of contracts require the advice of experienced real estate agents and lawyers.