Deregulation in the Czech Republic has eliminated non-market influences on rent for residential living. Going forward, the contractual rent agreed directly between the landlord and tenant will apply. In cases where an agreement is not made, the tenant is required to pay market rent, which is the standard rent applicable in the given area at the given time.
For any potential increase, the current Civil Code distinguishes between a tenancy entered into for a definite term and one entered into for an indefinite term and, at the same time, whether the parties have agreed on the rent or not.
If the parties have not agreed on a rent increase in the lease, the landlord may make a proposal to the tenant in writing. If the tenant disagrees, the landlord has the right to apply to the courts to determine the rent. If the rent has been agreed in the lease, the court may decide on the amount of rent only if the lease term is unlimited and, at the same time, if the circumstances under which the parties entered into the lease have substantially changed.
Agreement Above All
In line with the core idea of the new Civil Code – that people are free and best capable of arranging their affairs themselves – it holds that the parties may agree on the amount of rent. If a tenancy has been established despite the parties not stipulating the amount of rent, the tenant is required to pay an amount that is standard for a new tenancy in a similar apartment in the same place under similar contractual terms and conditions. To get an idea of what can be considered “standard in the place and time”, landlords may want to refer to price maps made available by the Ministry of Regional Development, hire authorized experts or compare rents in similar apartments in the neighborhood.
Landlords and tenants are free to agree on an annual rent increase or, vice versa, to freeze the rent. Therefore, the autonomous will of the parties prevails.
Landlords will certainly want to find out how the new Civil Code will deal with leases that do not include a rent increase clause. Landlords enjoy considerable protection in this case and the reason is fairly logical. Without protection, a landlord’s profit would decrease each year due to inflation. This is why the New Civil Code provides landlords with the opportunity of proposing a rent increase once every twelve months, which they must do in writing. The proposed increase and any other increase made within the last three years, however, must not exceed 20% of the current rent. At the same time, the increased rent must not exceed what is standard in the particular area.
If the tenant rejects the landlord’s proposal, the landlord may request the court to determine the rent. In that case, the court will choose the standard amount at the particular place and time according to when the landlord delivered the motion to the court. The 20% cap does not apply in this case, however. The court can decide to increase the rent even beyond what the landlord originally proposed. Tenants should therefore thoroughly consider whether or not to accept the proposal.
Simply put, the best advice to landlords and tenants alike next year is this: do your best to reach an agreement and find solutions that best suit both parties.