Perpetual leases: what are the rights of the lessor and lessee?

• 12 December 2022
• Local News
• 6630 Views

According to article 244 of the Civil Code, a perpetual lease refers to a long-term lease of immovable property for not less than 15 years.

The agreement/contract must be written to be effective by law, otherwise, it will be considered a lease for an indefinite period (general lease).

The contract is quite similar to a general house or land lease contract, but they mandate the rights of the lessor and lessee differently. (Read more)

Perpetual leases are mostly applied to commercial activities, such as the leasing of commercial buildings, state-owned private property, and economic land concessions.

The period of the contract must not be less than 15 years but cannot exceed 50 years. If the period is more than 50 years, it must be reduced to just 50 years.

However, the contract can be renewed but not for more than 50 years (Article 247 of the Civil Code).

According to article 246 of the Civil Code, the perpetual lessee must register his or her perpetual lease with the Department of Land Management, Urban Planning, Construction and Cadastral in order to hold up against a third party. The department will issue a certificate of perpetual lease to the lessee.

Below are some main rights of perpetual lessor and lessee:

1. Rights of perpetual lessor:

-Right to demand the increase of rental fee (article 249): lessor may request the court to increase the rental to an appropriate amount if the rental fee is no longer appropriate on account of a change in circumstances. For instance, the lessor may increase the rental if the rent does not match the value of the property due to the change in market price.

-Perpetual lessor’s right of cancellation (article 250): If the perpetual lessee fails to pay the stipulated rental for three years, the perpetual lessor may cancel the perpetual lease.

2. Rights of the perpetual lessee:

-Rental (article 248): the perpetual lessee shall pay the rental to the perpetual lessor at the stipulated time.

-Right to demand decrease of rental (article 249): in such long-term leases, the market of real estate is not stable. Therefore, the lessee has the right to ask the court to reduce the rental if the market price of the property falls.

-Perpetual lessee’s right of cancellation (article 251): If no profit can be derived from the immovable for 3 years on account of force majeure, or damage to part of the immovable, the perpetual lessee may cancel the perpetual lease.

-Assignment: perpetual leases may be transferred or used for sale, exchange, gift, or pledge with or without fee, as long as there is an agreement. On the other hand, the lessee may sub-lease the immovable property and create a succession (transfer of rights and obligations on the immovable property to the heirs).

Upon termination of a perpetual lease, the lessee must return the immovable to the lessor. If the immovable has been destroyed or fundamentally changed its nature, the lessee must restore the immovable to its original condition (article 254).

Moreover, the lessor shall acquire ownership over any improvements and structures installed on the immovable by the perpetual lessee without having to pay compensation to the perpetual lessee unless both parties agree on compensation in the contract.

Generally, people have known “long-term lease” than “perpetual lease” which has the same meaning and is mostly used in Land Law 2001. But now, “long-term lease” has been replaced by “perpetual lease”, according to Civil Code 2007.

Only land or building with the hard title can be subject to perpetual lease, otherwise, the lease cannot be registered.

• Business and Market