Institutional lease – what is it and how does it work?
After changes to the act on the protection of tenants’ rights in September 2017, the term “institutional lease” has appeared. What does it mean and how is it different from the previously known occasional rental?
INSTITUTIONAL LEASE VS OCCASIONAL LEASE
First of all, institutional leasing is intended for entities that run a real estate rental company. The entity may be a natural or legal person, as well as an organizational unit without legal personality (e.g. a partnership). It cannot be used by a natural person who does not conduct such activity. With the entry into force of the provisions on institutional lease, the provisions on occasional lease changed. From September 2017, the subject of an occasional lease agreement may only be a natural person who does not conduct activities related to the rental of real estate.
Thus, the division has become clear: institutional leases are intended for people professionally involved in renting real estate, and occasional – only for those who do not conduct such activities. In the case of an occasional lease agreement, it was also necessary to report to the Tax Office within 14 days from the date of its signing. Such an obligation does not exist in the case of institutional rental, because the entrepreneur settles the rental within the framework of the company.
Another difference is the minimum deadline for leaving the premises that the landlord can indicate. In the case of occasional rental, it is 7 days, and in the case of institutional – 14.
INSTITUTIONAL LEASE AGREEMENT
This agreement, made in writing, must be concluded for a specified period of time. Unlike a regular rental agreement and an occasional rental agreement, in the case of a contract for a period longer than 10 years, it does not automatically become a contract for an indefinite period. There is also no upper limit to the length of time it can be included. This gives the landlord a stable income, and the tenant a sense of security and a constant roof over his head.
The conclusion of the contract may also depend on the tenant paying a deposit securing the coverage of costs related to the damage caused by the tenant or possible costs of enforcement of the obligation to empty the premises. It cannot be higher than 6 times the monthly rent and must be refunded by the landlord within a month, after deduction of the amount due. The deposit can also cover unpaid rent.
The institutional lease agreement expires after the period for which it was concluded or, in the event of its termination, after a notice period.
DOCUMENTS NECESSARY FOR AN INSTITUTIONAL LEASE AGREEMENT
To conclude the contract, a notarial deed is necessary in which the tenant declares that:
- submitted to enforcement and obliged to empty and deliver the premises used under the institutional lease agreement within the period specified in the request, but not shorter than 14 days;
- acknowledged that in the event of the necessity of emptying and handing over the premises, he is not entitled to a social flat or a temporary room.
- In the case of a dishonest tenant, the landlord, after the period of notice or termination of the contract, may apply to the court for an enforcement clause for the act and proceed to enforcement.
In the case of a dishonest tenant, the landlord, after the period of notice or termination of the contract, may apply to the court for an enforcement clause for the act and proceed to enforcement. For a long time, this information was not clear from the act on the protection of the rights of tenants, which aroused opposition both by notaries and people interested in drawing up the relevant act. Some notaries even refused to sign the deed necessary to conclude the contract.
Why? According to various interpretations, the rate initially specified in the act (PLN 13.46) was to be multiplied by the number of meters of the rented property, or to be the entire amount due to the notary. In both cases there were protests – the amount for renting a flat with an area of 50 m2 increased to a considerable rate of PLN 673, while the amount of 13.46 was completely unprofitable for notaries.
Ultimately, according to the amendment to the act, this cost is “no more than 1/10 of the minimum wage for work referred to in the Act of 10 October 2002 on the minimum wage for work”. So in 2019 it could be a maximum of PLN 225.
WHAT ARE THE ADVANTAGES OF INSTITUTIONAL LEASE?
- no regulations on changing the contract for an indefinite period
- no upper limit of the rental period
- the possibility of eviction of a dishonest tenant