House with an old rental contract
There has been a significant change in the lease agreements signed after 01.01.1995; which, as it was mentioned in the last article, is a key date in the Urban Lease Act. This fact should be especially important for real estate investors interested in buying houses or residential apartments as you can still find contracts similar to those signed before 1995.
The main feature of lease agreements signed before 1995, which were subject to the Urban Lease Act of 1964, was a mandatory contract extension. Mandatory for the owner and optional for the tenant. As if this was not enough, there was a system of subrogation of the lease in favor of the widowed spouse and their relatives in case of death of the tenant.
The Law of 1964 continues defining the rights and obligations of the contracting parties but with some amendments. In 1994, the Transitory Provisions of the new Law were adopted limiting the contract subrogation to the most direct relatives (spouse and children); but, generally speaking, it could be assumed that these contracts expired in the moment of death of the tenant or their spouse.
Another characteristic of lease agreements signed before 1995 was that the rent amount agreed by the Parties wasn’t updated during the lease, which oftentimes brought the owner or the property manager a financial loss. After 1995, it was possible to increase and update the rent under certain conditions as well as transfer the property tax and supply costs on the lessee. The limitation of subrogation, the possibility of increasing the rent amount and transfer of particular costs on the lessee made the investments more reasonable and interesting.
The last but not least, the rule of 1985 established the freedom of choice with respect to the term agreed in the lease agreement, thereby eliminating the legal obligation to a mandatory contract extension, which from then on, only applied in cases where the Parties expressly requested it. Now, it’s obligatory to specify a date of the contract duration and the mandatory extension is no longer legal.
What happened in cases when the contracts where signed by a legal person? If the tenant was a legal person, the contracts were automatically extinguished in 5, 10, 15 or 20 years, depending on the rate paid for the Economic Activities Tax in 1994, which generated considerable controversy. On 01/01/2015 all such agreements for business purposes whose tenants were legal entities extinguished.