Automatic renewal of lease agreement: is it subject to notarization?

Earlier we already wrote about the extension of lease agreement and the legal niceties of such process. A lot has changed since then. A general practice of the courts on that behalf has appeared, the Civil Code was amended.

But a large number of questions concerning the extension of lease agreements continue to be relevant despite the changes, and partially thanks to them.

Today we will answer questions that we often hear from our Clients:

• Is it necessary to notarize a contract if it was signed for less than 3 years and then extended by concluding an additional agreement?
• What to do in a situation where the parties simply extend the contract without signing an additional agreement, but use the general rule of automatic prolongation? Not denying its extension.

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Next, we are going to consider each individual situation with practical examples.

This material relates to the extension of any lease agreement, whether it is automatic prolongation of a lease of land, an apartment or a large office center.

Notarization of a lease upon its extension

The provisions of the Civil Code of Ukraine (hereinafter - the Civil Code) provide for mandatory notarization of a building lease (rental) agreement if it is signed for a period of more than 3 years.

However, in practice, there is a developed procedure when a contract is concluded for a shorter period (for example, 2 years and 11 months), which immediately removes the obligation to notarize a lease agreement.

Subsequently, there is a need to extend such an agreement, and in this situation you need to be especially careful. It is better to play it safe and get in touch with some real estate lawyers. If you plan to carry out the extension through your own effort, you should understand that there are two possible solutions to this situation.

The first option - is to conclude an additional agreement, which would amend the main contract by its regulation and thus extend its validity.

For example, the clause of the contract provided that its term was 2 years and several months, say 9. And then, by an additional agreement, provide for the replacement of the clause with the words "The term of the contract is 5 years."

In the case of such an extension, it is still necessary to notarize the contract, because based on its conditions, we see that the total term of its validity exceeds 3 years.

The second option - is automatic prolongation of the contract.

In legal practice, there are cases when the parties of the contract provide for its automatic prolongation. Then the contracts are considered as two separate deals. Therefore, it cannot be considered that they exceed the validity period of three years.

That is, notarization is not required.

This idea is also confirmed by generalizing judicial practice, in accordance with paragraph 2.9 of the Decree “On some issues of the practice of applying legislation on leasing (hiring) property”, it is noted that if the contract has all the essential conditions and is automatically prolonged, while having a period of validity of less than 3 years, then it cannot be declared invalid.

However, to be sure, it is better to seek legal support of professionals, because if it comes to large-scale projects (shopping centers and business centers), the correct development of the contract will affect your future activities.

Related article: Conclusion of a new lease because of company transformation in Ukraine

What will happen to the contract if it is not concluded according to the above procedure or with non-compliance with any legal requirements?

If the contract is not concluded correctly, then it may be invalidated by the court. Any inaccuracies made to the provisions of the contract may increase its validity by more than 3 years, and in case of failure to certify such a contract notarially - this will lead to declaring its as invalid.

Also, if the rules for signing a contract have already been violated, problems may arise with its certification by a notary. Notaries are rather suspicious of the extension of agreements of this kind, especially if the time has already passed since they were signed.

Invalidation of the contract also has its consequences. Often there are situations when the tenant rents the premises, imports and installs the equipment at his/her own expense, invests money in them, and then the landlord refuses to prolong the contract with the tenant and judicially recognizes the nullity of the contract. In this case, it is very difficult to prove your case and restore your position, and therefore, it is better to secure your finances from the very beginning.

So, there is a legal possibility of renting  premises without mandatory registration and notarization, however, you must take into account the practice of the court on these issues, have relevant experience and carefully read the terms of the contract.

If you want to check whether your lease agreement is drawn up correctly or to get help in concluding or prolonging the contract, call us up!