The lease agreement (popular in Bulgaria also as rental contract) is one of the most common types of contracts. This is a legally binding document which involves obligations for both parties that enter it. The landlord (or the lessor) engages to grant to the tenant (or the lessee) the right to use the property for a specified term, and the lessee obliges to pay regularly the agreed rental price. It is important to point out that the lease agreement does not transfer any ownership rights. The property is leased by the legal owner only for a temporary use against a rent price agreed by the parties. The lessee becomes only an occupant of the property and not an owner. After expiry of the agreed term of the lease agreement or in the event of its termination before the expiry date, the lessee is obliged to return the property to the lessor in the condition it was at the time of signing the agreement, the usual wear and tear being taken into consideration, of course.
In principal, the parties are free to determine the contents and the stipulations of the agreement freely, at their own discretion. However, according to Bulgarian legislation, there are some basics, which must be included in every lease agreement, no matter whether it is a tenant agreement or a commercial lease agreement. They are as follows:
- Subject of the agreement (a detailed description of the leased property)
- Rental price (it could be weekly, monthly or yearly rent), way and terms of payment
- Term of the agreement and way of termination
- Rights and obligations of the lessor and lessee; inclusive of various specific engagements applicable for Commercial lease agreements
One of the most frequently asked questions regarding validity of lease agreements in Bulgaria and their compliance with Bulgarian legislation is whether they should be signed before notary (verified by a Public notary) or not. In most cases Law does not require a notary form for a lease contract to be considered valid. Actually, even an oral agreement is acceptable by Bulgarian legislation. But the simple written form is preferred as it is easier to be proved and protects the rights of both parties. Verification of signatures by a public notary is recommended in case of commercial lease agreement or in case of lease of large premises at a higher value as it gives stronger legal protection for both lessor and lessee, for example any of the parties can obtain a writ of execution against the default party for damages and lost earnings.
It should be also noted that cash payments for amounts over 10 000 Bulgarian levs are prohibited in Bulgaria so rentals above that price can be paid only by bank transfer.
Additionally, according to Bulgarian legislation, landlords are obliged to declare their rental income and pay 10 % tax on rental profits.
It is strongly recommended a delivery acceptance certificate to be signed on the date the lessee enters the property, this certificate includes a detailed description of the available furniture and equipment as well as its condition.
Before entering into an agreement, it should be checked whether the lessor has the legal right to lease the said property. This right is unquestionable in cases where the lessor is the owner of the title. But there are cases, in which the lessor is a co-owner or only administrator of the property. In such cases the lessor is entitled to sign agreements with a maximum term of three years. A similar case is when signing a commercial lease agreement with a company. Bulgarian court practice accepts that the CEO/manager of a trading company can sign a lease agreement on behalf of the company for a maximum term of three years. For longer term contracts, an explicit decision taken by the general meeting of shareholders is necessary. There are exceptions from the rule, of course, for example in case the leased property is jointly owned in a matrimony. In such case any of the spouses is entitled to lease the property for up to 10 years.
Commonly, lease agreements in Bulgaria are concluded for a term of one year. There are several reasons for that. Firstly, that gives an option after expiry of the agreed term the clauses to be re-negotiated (for example adjusting the price to current market conditions). Apart from the above consideration, by contracting for a maximum term of one year, another legal requirement is avoided. Lease contracts in Bulgaria concluded for a term more than a year must be registered with the Property register of Bulgarian Registry Agency. The registration can be made by any of the parties or by an authorized attorney. The procedure, however, is not very simple, a number of documents are required and the contract itself must be in a notary form which involves additional expenses for both parties. On the other hand, the registration of the contract is an excellent instrument for protecting the rights of the lessee and it is in lessee’s best interest to register the lease agreement despite of the additional costs involved. In case the leased property is sold or transferred to a third person during the operation of the lease agreement and the latter is duly registered in the property register, the new owner is obliged to comply with the agreement and enters into the rights and obligations of the landlord. If the new owner does not comply with the registered lease contract, he owes compensation to the tenants.
In Bulgaria, it is a common practice utility bills not to be included in the lease price and to be paid separately by the lessee. Sometimes this may incur problems to the lessor in the event of incorrect lessees who does not fulfill their obligation to pay utility bills on time. That is why lessors usually require a deposit (one- month rent for example) as a guarantee against non-payment. Another option is to transfer registration of utility meters into the name of the lessee but this is more complicated and is recommended only in cases of lease of large commercial premises as shops, offices or production workshops.
Lease agreements can be terminated at any time by mutual consent of the parties. They are also terminated with the expiry of the agreed term of operation. The parties should know, however, that if they continue to fulfill their rights and obligations after the expiry date, it is considered that the agreement is transformed into a termless one. Termless agreements can be suspended unilaterally only by at least a one month written notice.
If you are a party of a lease agreement in Bulgaria or you are about to enter into such an agreement and you need legal assistance for its negotiating, signing, registration with Bulgarian Property Register or termination, as well as in case you already have issues under such agreement and you need legal representation, please feel free to contact our property lawyers who can ensure maximum protection of your rights.