Up until fairly recently, the lease of business buildings and business premises (offices, warehouses, pertaining parking spaces, etc.) in Slovenia was governed by the Business Buildings and Business Premises Act (“Act”). Since the Act was adopted back in 1974, it was not shaped for the modern business environment in which it is both in the interest of the lessee and the lessor to be able to act quickly and have at least a certain degree of flexibility when it comes to adopting business decisions. The obligatory 12-month notice period for termination of lease agreements, concluded for an indefinite period, and the obligation to terminate the lease agreement through court proceedings, for example, all but served those interests.
The legislator consequently decided to put an end to this long outdated legal regime by repealing the Act in its entirety with Article 52 of the Act Amending the Housing Act, which came into force on 19 June 2021. Lease agreements, concluded prior to this date, continue to be governed by the Act, however lease agreements concluded at a later date are now governed by Articles 587 to 618 of the Obligations Code, and by the provisions agreed between the parties in each such agreement.
The practical consequences of this change in legislation are presented below.
As mentioned above, pursuant to the Act the statutory notice period for termination of lease agreements, concluded for an indefinite time, is 12 months. Unilateral termination for non-fault-based reasons is only possible through court intervention. Consequently, most lease agreements for business premises are concluded for a definite period and prolonged (usually yearly) with annexes, which is in some cases quite impractical as the parties are obliged to re-negotiate or merely re-sing the agreement on a yearly basis, just to avoid the hassle which would inevitably arise if one party would wish to unilaterally terminate the lease. The statutory termination notice period for lease agreements concluded for an indefinite period pursuant to the Obligations Code is much shorter, i.e. eight (8) days, unless otherwise agreed in the lease agreement, and the agreement may be terminated by giving the other party a simple notice.
Both under the Act and the Obligations Code it is possible to withdraw from the agreement (i.e. terminate it without a notice period and without court intervention) in case of fault-based reasons. Those reasons are quite similar under both acts, however there are certain differences, for example, under the Act the lessor was able to terminate the agreement if, for reasons beyond their control, they were permanently unable to use the premises designated for the performance of their business activities and therefore needed the leased premises for their own use. The Obligations Code does not list this as a reason for unilateral termination, therefore it is necessary to explicitly include it in the agreement if the lessor so requires.
Additionally, under the Obligations Code the lessee may terminate the lease agreement due to a defect of the leased premises if a material defect which cannot be rectified interferes with the agreed or normal use of the leased premises, or in case of a legal defect (right of a third party, restricting the lessee’s right to use the leased premises).
Conversion from fixed term to indefinite term
Both the Act and the Obligations Code stipulate that a lease agreement for a fixed term is converted into a lease agreement for an indefinite period if the lessee continues to use the leased premises following the expiry of the agreed term. Under the Obligations Code it is enough that the lessor does not object to the continuing use, whereas under the Act the lessor was obliged to file a claim before the competent court, demanding the latter to issue an order for the lessee to vacate the leased premises.
Under the Obligations Code the lessee may sublease the leased premises to a third party without prior written consent if the lessor does not suffer any damage by such sublease, unless otherwise explicitly agreed in the lease agreement. Under the Act the lessor must give its prior written consent for the sublease to be valid.
Despite the fact that the repealed Act was somewhat impractical and often criticized for its rigidness and outdatedness, it regulated the lease of business premises in detail, whereas the Obligations Code is more general and gives the parties more freedom to agree on the specifics of the lease which best suit their business needs. Given the abovementioned, consulting with a legal professional who is able to prepare the best possible agreement to serve the specific needs of your business is crucial. As they say, an ounce of prevention is worth a pound of cure!
The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.
By Ermina Delic Kamencic, Attorney at law from Ketler & Partners, member of Karanovic & Partners