Leasing premises in Lithuania: changing terms and ending the lease early

A landlord cannot change the terms of the lease on its own, unless the lease itself gives it that right. Article 6.223(1) of the Civil Code of the Republic of Lithuania (CK) says that a contract is amended by agreement of the parties. Nor can a fixed-term lease be ended early without consequences, unless the law or the lease itself allows it. In every other case what remains is negotiation, and what the lease says about termination matters a great deal there. When the term runs out, the lease may become one for an indefinite period if you keep using the premises and the landlord does not object. And liquidating your company does not in itself end the lease.

Below: what is worth agreeing in the lease from the start, and what to do when you need to leave early.

What a lease must state

The law asks for little. Most problems come from what the lease leaves out.

• What is leased. The lease must identify the thing leased or give features that allow it to be identified. If they are missing and the subject cannot be identified otherwise, the lease is treated as not concluded (CK 6.477(3)). For premises this means the address, the unique number, the area and, ideally, a plan marking the premises.
• Form. A lease for a term longer than one year must be in writing (CK 6.478(1)). A lease of buildings and structures must always be in writing (CK 6.531(1)).
• Registration. A lease of immovable property for more than one year can be relied on against third parties only if it is registered in the public register (CK 6.478(2)). For leases of buildings and structures this is not limited by term: only a registered lease can be relied on against third parties (CK 6.531(2)). In practice this matters when the building is sold: the lease remains valid against the new owner if the rights under it were registered (CK 6.494(1)).
• Term. If the lease does not set a term, it is treated as a lease for an indefinite period (CK 6.479(2)).
• Repairs. The landlord carries out major (capital) repairs at its own expense and the tenant carries out routine repairs, unless the law or the lease provides otherwise (CK 6.492(1), CK 6.493(1)). So it is worth stating clearly in the lease what counts as a capital repair.
• Subletting. You may sublet only with the landlord’s written consent, unless the lease provides otherwise (CK 6.490(1)).
• Handover. A building or structure is handed over and accepted under a handover and acceptance certificate signed by both parties (CK 6.535(1)). The condition recorded in it matters later for the condition in which you must return the premises, unless the lease agrees otherwise.
• Improvements. If you invest in fitting out the premises, deal with it in the lease. If you improved the premises with the landlord’s permission, you can claim the necessary costs of doing so, unless the law or the lease provides otherwise (CK 6.501(1)). The landlord does not have to pay for improvements made without permission that cannot be removed without damage (CK 6.501(3)).

One client, about to sign a long office lease, asked in advance how to protect the money spent on fitting out if the landlord wanted to end the lease early. That question is best settled before signing: matching notice periods, compensation for the investment in the first years, and penalties that are the same for both sides (“mirror” penalties). When reviewing another lease we pointed to two common points as well: high penalties for early termination and indexation of the rent. Both are worth negotiating while the lease is still unsigned.

Can the landlord change the terms without your consent?

No. A lawfully concluded and valid contract has the force of law between the parties (CK 6.189(1)), and it is amended by their agreement (CK 6.223(1)). The landlord may propose a new version. Until you sign it, the old one applies.

The Civil Code has a separate rule on rent. Unless the lease provides otherwise, the rent may be changed by agreement of the parties at intervals they agree, but not more often than twice a year (CK 6.487(5)). So check first whether the lease contains an indexation or other adjustment mechanism. If it does, that has already been agreed.

Without your consent, only a court can change the lease. That is possible if the other party has materially breached it, or in other cases set by the lease or the law (CK 6.223(2)). A claim can be filed only after the other party refuses to amend the contract or does not answer a proposal to amend it within thirty days (CK 6.223(3)).

How to end a fixed-term lease early

A common question goes like this: the team has shrunk, the office is too big, but the lease runs for several more years. The answer depends on what the lease says, because a party may refuse to perform a contract only in cases provided by law or by the contract (CK 6.223(4)).

The law gives the tenant these grounds to ask a court to end the lease early (CK 6.498):

• the landlord does not carry out repairs it is obliged to carry out;
• the premises have become unusable for reasons you are not responsible for;
• the landlord does not hand over the premises or prevents you from using them;
• the premises have defects that were not disclosed and were not known to you, and because of them the premises cannot be used for their purpose;
• other grounds set out in the lease.

The tenant may also end the lease early if the landlord refuses consent to a sublease without reasons (CK 6.490(2)), and, if the premises change owner, may require the lease to end (CK 6.494(3)).

The landlord, for its part, can ask a court to end the lease early, for example, when the tenant does not pay rent or uses the premises for a different purpose (CK 6.497(1)). But it can ask to end a fixed-term lease only after a written warning, where the breach has not been remedied within a reasonable time (CK 6.497(3)). This is worth remembering in negotiations: if it matters to you that one or two late invoices cannot end the lease, that can be written into the lease directly.

Without going to court, a contract can be terminated where the other party has materially breached it (CK 6.217(1)), or in cases set out in the contract (CK 6.217(5)). Notice is given in advance within the period set in the contract or, if there is none, thirty days before (CK 6.218(1)). A lease of immovable property for an indefinite period can be terminated by either party at any time on three months’ notice (CK 6.480). The lease may set longer notice periods.

If there is no ground at all, what remains is an agreement. In practice this route works:

1. Work out what the lease provides for a unilateral exit: the penalty, the deposit, the notice period.
2. Offer the landlord a specific date and compensation lower than the contractual penalty.
3. If a deposit has been paid, propose setting it off against the rent for the last months.
4. Do not let the condition of the premises deteriorate before you move out. Leases often allow the deposit to be used to restore the premises, and then the landlord has no reason to agree.

If the penalty in the lease is unreasonably high, a court can reduce it, but not below the actual losses (CK 6.258(3)). That is not a way to leave without consequences, but it is a strong argument in negotiations.

Termination releases the parties from further performance, but it does not put everything back where it started. Where performance is continuing and divisible, only what was received after termination can be claimed back (CK 6.222(2)). Rent paid for past months is not returned.

What happens when the term ends

A fixed-term lease ends when its term expires, unless the parties renew it (CK 6.496). However, if the tenant keeps using the premises for more than ten days and the landlord does not object, the lease is treated as having become one for an indefinite period (CK 6.481). Many leases also have their own automatic renewal clause. Then the key date is the deadline for telling the landlord that you do not want the renewal.

A tenant who has performed the lease properly has a pre-emptive right to renew it (CK 6.482(1)). The landlord must notify the tenant of this right in writing within the period set in the lease or, if there is none, within a reasonable time before the lease ends (CK 6.482(2)). When the lease is concluded for a new term, its terms may be changed by agreement (CK 6.482(3)). If the landlord refused to renew but, within one year after the lease ended and without telling you, leased the same premises to someone else, you may demand either to take over the new tenant’s rights or compensation for your losses (CK 6.482(4)).

When the lease ends, the premises are returned in the condition in which they were received, allowing for normal wear and tear, or in the condition agreed in the lease (CK 6.499(1)). If they are returned late, the landlord can claim rent for the whole period of delay and its losses (CK 6.499(2)).

What company liquidation changes

When a company decides to liquidate, the landlord’s position is often: the lease will end only when the company has been fully liquidated. Liquidation is indeed not a ground the law gives the tenant for ending the lease (CK 6.498), and a legal entity ceases to exist only when it is removed from the register (CK 2.95(3)). So we start by reading the lease itself: does it contain a termination ground, a notice period and a penalty?

After that, four liquidation rules matter:

• A company in liquidation may enter only into transactions connected with winding up its activity or those provided for in the liquidation decision (CK 2.111). An agreement to end the lease is exactly that.
• A company in liquidation must first settle with its creditors (Article 73(13) of the Law on Companies of the Republic of Lithuania (ABĮ)). The landlord’s claims are no exception: they are satisfied together with the other third-ranking claims (CK 2.113(1)(4)).
• If court disputes arise over the company’s debts, its assets cannot be distributed to shareholders until the court resolves them (ABĮ 73(15)). A claim by the landlord can make liquidation much longer, although the liquidator must complete the procedure within one year, with the option of extending it by one more year (CK 2.110(3)).
• Shareholders cannot resolve to liquidate an insolvent company (ABĮ 73(3)). Liquidation through insolvency follows the procedure of the Law on Insolvency of Legal Entities (ABĮ 73(4)).

The last rule shapes the negotiation. In one case the landlord refused to end the lease by agreement and demanded the full contractual penalty. We advised meeting the landlord and explaining the real position: the company could not pay the whole penalty, so the only option left would be insolvency. In insolvency proceedings the landlord would most likely recover only a small part of its claim. So the landlord was offered compensation below the penalty but above what it would realistically receive in insolvency proceedings. That calculation is worth doing before the first conversation. Such a deal works only if the company can still pay its other creditors in full. If funds are insufficient, claims of the same rank are paid proportionally (CK 2.113(2)).

One more practical point: if the company’s registered office is at the leased premises, ending the lease also means dealing with the address. Whose consent that needs is covered in Registered office address: whose consent is needed. Where to start with the liquidation as a whole is covered in Starting a UAB liquidation.

How to start

Send us the lease with all its annexes and your correspondence with the landlord. Tell us briefly what you want to achieve: sign a new lease, change the terms or leave early. We will assess your position and prepare comments on the lease or a letter to the landlord.

Phone +370 5 212 1506, email info@linden.lt

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