November 10, 2021
What you need to know when concluding a lease agreement for non-residential premises
3. Mandatory terms of the Contract
5. Termination of the Contract
5.1. By agreement of the parties
5.2. At the request of one of the parties through the court
5.3. Unilateral refusal to perform the Contract
6. How to make a Contract focused on one or another side of the Contract
6.1. How to make a Contract focused on the Lessor
6.2. How to make the Lessee-oriented Contract
1. Civil Code of the Republic of Uzbekistan;
2. The Law of the Republic of Uzbekistan of 19.11.1991 No. 427-XII “On lease”;
3. Appendix No. 1 to the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan dated December 29, 2018 No. 1060 “Regulations on the Procedure for State Registration of Rights to Real Estate”;
4. Resolution of the Plenum of the Supreme Economic Court of the Republic of Uzbekistan dated December 01, 2011 No. 234 “On Some Issues of Application by Economic Courts of the norms of civil legislation on property rental (lease)”.
This article is devoted to the consideration of the main aspects when concluding a lease agreement for non-residential premises (hereinafter – the “Contract“).
It is important to note that the Contract must always be concluded in writing, otherwise it will be invalid. The Contract concluded for a period of more than a year is subject to state registration and enters into force from the moment of such registration. At the same time, the parties should take into account judicial practice when assessing the need for state registration of the Contract, in particular, according to paragraph 17 of the Plenum of the Supreme Economic Court of the Republic of Uzbekistan No. 234 dated 01.12.2011, the term of the Contract, «determined from the 1st of any month of the current year to the 30th (31st) of the previous month of the next year, … is recognized as equal to the year». In other words, if, for example, the parties have concluded the Contract for a period from June 1, 2020 to May 30, 2021, then such Contract is subject to state registration, since it will be recognized by the court as equal to a year, despite the fact that in fact the term is 11 months.
It is worth noting that the responsibility for registering the Contract lies with the owner of the non-residential premises. The Contract must be registered within a month from the date of signing the Contract (paragraph 11 of Appendix No. 1 to the PCM of the Republic of Uzbekistan dated 29.12.2018 No. 1060). In addition, all amendments and additions to the Contract which is subject to registration, in accordance with article 384, are also subject to registration.
Furthermore, it is important to note that the Contract concluded between individuals is subject to mandatory registration with the tax authority. In addition, such responsibility is imposed on legal entities from January 1, 2022 (clause 3 of the Resolution of the CM of the Republic of Uzbekistan dated 09.22.2021 No. 595).
3. Mandatory terms of the Contract
At the conclusion of the Contract, the parties must agree on the following conditions:
- The composition and value of the leased property, the procedure for its transfer;
- Lease terms;
- Terms and amount of rent, terms of its payment;
- The condition of the property in which the Lessor must provide it to the Lessee;
- Terms of use of the property by the Lessee;
- The condition and procedure for returning the property to the Lessor after the termination of the contract;
- Obligations of the parties for the restoration and repair of leased property;
- Conditions for further ownership of the property after its full depreciation;
- Conditions, procedure and terms of redemption of leased property, if it is transferred with subsequent redemption;
- Conditions, procedure and possibility of subleasing the leased property;
- The amount of information and the timing of its submission to the Lessor;
- Responsibility of the parties.
It is important to take into account that the Lessee’s obligation to make payments for the use of the property arises only from the moment of transfer of the leased property to him. If the Lessor does not transfer the rental object to the Lessee at the time of conclusion of the contract or other term established by the contract, he has no right to demand from him payment for the use of the property for the corresponding period.
In addition, it should be noted that in the case of using the property after the expiration of the lease term, the Lessee will be obliged to pay rent for the entire period of use.
5. Termination of the Contract
In accordance with the Civil Code of the Republic of Uzbekistan , there are 3 ways to terminate the contract: 1) by agreement of the parties; 2) at the request of one of the parties by a court decision; 3) by unilateral refusal to perform the Contract.
5.1. By agreement of the parties
The Contract may be terminated by agreement of the parties. At the same time, you do not need specify this condition in the Contract, since this right is enshrined in the law.
5.2. At the request of one of the parties through the court
At the request of one of the parties, the Contract may be terminated in the following cases:
At the request of the Lessor, the Contract may be terminated prematurely by the court in cases where the Lessee:
- uses the property with a significant violation of the terms of the contract or the purpose of the property or with repeated violations, despite a written warning from the Lessor;
- significantly degrades property;
- does not pay a fee for the use of the property more than twice in a row after the expiration of the payment period established by the contract;
- does not carry out capital repairs of the property within the time limits established by the contract, and in the absence of them in the contract – within a reasonable time in cases where, in accordance with the legislation or the contract, capital repairs are the responsibility of the Lessee.
At the request of the Lessee, the Contract may be terminated prematurely by the court in cases where:
- the Lessor does not provide the property for use by the Lessee or creates obstacles to the use of the property in accordance with the terms of the contract or the purpose of the property;
- the property transferred to the Lessee has disadvantages that prevent its use, which were not specified by the Lessor at the conclusion of the Contract, were not known to the Lessee in advance and could not be detected by him during the inspection of the property or checking its serviceability at the conclusion of the Contract;
- the Lessee does not carry out major repairs of the property within the time limits established by the contract, and in the absence of them in the contract – within a reasonable time of the obligation of the Lessee;
- the property, due to circumstances for which the Lessee is not responsible, will be in a condition not suitable for use.
At the same time, you do not need specify this condition in the Contract, since this right is enshrined in the law. It is important to note that the Contract may specify other grounds for early termination.
5.3. Unilateral refusal to perform the Contract
This method of termination of the Contract involves termination at the will of one of the parties without judicial intervention. It is important to note that one of the parties is granted such a right only if it is provided for in the Contract.
6. How to make a Contract focused on one or another side of the Contract
One of the ways to make the Contract more preferable for one or another party to the Contract is to change (exclude) dispositive norms of legislation that are not respectful to the party in the Contract. It should be borne in mind that many dispositive norms are dispositive insofar as it is not otherwise specified in the law or in the legislation or in the contract. Thus, it should be noted that in some cases it is impossible to exclude norms even by prescribing otherwise in the Contract. Below we give some examples of such a change (exception).
6.1. How to make a Contract focused on the Lessor
- According to Article 547 of the Civil Code of the Republic of Uzbekistan, the Lessor is obliged to carry out major repairs of the leased property at his own expense, unless otherwise provided by law or contract. Thus, if the Lessor does not want to make major repairs at his own expense, the contract should assign this obligation to the Lessee.
- According to Article 553 of the Civil Code of the Republic of Uzbekistan, unless otherwise provided by law or contract, the Lessee who has duly performed his duties has, upon expiration of the contract, all other things being equal, the right to conclude the Contract for a new term over other persons. And also according to Article 14 of the Law “On Lease”, if after the expiration of the contract the Lessee continues to actually use the leased property and the Lessor had no objections to this before the expiration of the contract, the contract is considered renewed for the same period, unless the contract provides otherwise. Thus, the Lessor who does not want to extend the lease agreement with the Lessee after expiration of the term of the Contract must definitely enter a provision that excludes the Lessee’s preemptive right to conclude the Contract and automatically renew the contract.
- According to Article 15 of the Law “On Lease”, in the event of the death of the Lessee, one of his heirs has the right to demand recognition as the Lessee on the basis and conditions of the existing lease agreement. However, the Lessor has the right to refuse to recognize the heir as the Lessee if the personal qualities of the deceased Lessee were a condition for concluding the existing lease agreement. Thus, if the Lessor has concluded a contract under the condition of the personal qualities of the Lessee and does not wish that in the event of the death of the Lessee, his heir has the right in accordance with Article 15, the Lessor should indicate in the contract that one of the conditions for concluding the contract were the personal qualities of the Lessee.
6.2. How to make the Lessee-oriented Contract
- According to Article 548 of the Civil Code of the Republic of Uzbekistan, the Lessee is obliged to maintain the property in good condition, make repairs at his own expense and bear the costs of maintaining the property, unless otherwise established by law or contract. If the Lessee does not wish to bear the obligation prescribed by Article 548, then it should be written about this in the lease agreement.
- Analyzing the rental legislation, it can be concluded that the majority of dispositive norms play in favor of the Lessee. For example, Article 8 of the Law “On Lease”, which gives the Lessee the right to sublease the property, Article 11, which gives the Lessee the right to demand compensation for all expenses incurred to improve the property with the permission of the Lessor, or articles 14, 15 of the Law “On Lease” and Article 553 of the Civil Code of the Republic of Uzbekistan, discussed in the previous section.