The Importance of a Commercial Lease Agreement

A lease agreement for commercial premises or real property is one of the most significant contracts entered into by businesses operating in Poland. For foreign investors entering the Polish market – whether setting up an office, production facility, warehouse or retail unit – the terms of a commercial lease have a direct bearing on operating costs, operational flexibility and the legal stability of their activities.

Polish law does not provide a separate, comprehensive regulatory framework for commercial leasing. The legal basis is found in the Civil Code, which in Articles 659–692 regulates lease relationships in general terms, primarily through default rules that may be modified by contractual agreement. The absence of the protective provisions characteristic of residential tenancy law means that the principle of freedom of contract plays a dominant role in commercial relationships – the parties enjoy broad discretion in shaping the content of their legal relationship.

As a result, the quality and precision of a commercial lease agreement determines the practical allocation of risks between landlord and tenant. Carelessness in negotiating clauses on rent indexation, the scope of fit-out works, termination mechanisms or liability can lead to serious financial consequences, particularly in the case of long-term leases covering substantial floor areas.

This article discusses the key contractual clauses that should feature in every professionally drafted commercial lease agreement governed by Polish law, with particular attention to the perspective of foreign investors and the specific characteristics of the office, retail and logistics and warehouse markets.

Subject Matter of the Lease – Precision of Description as the Foundation of the Agreement

An accurate description of the leased premises is one of the most important elements of any commercial agreement. While this may seem self-evident, it frequently gives rise to disputes in practice, particularly in the case of complex commercial properties where the tenant uses not only a defined area of floor space but also shared infrastructure, car parks, storage areas and external grounds.

Area Description and Measurement

The agreement should unambiguously specify the area being leased and the method used to measure it. The Polish commercial market uses various floor area measurement standards – most commonly the BOMA (Building Owners and Managers Association) standard or the Polish PKRE standard – and the choice of method directly affects the rentable area for which the tenant is charged. The difference between net and gross area, the latter including a share of common parts of the building, can range from a few to over ten percent, which for large premises translates into material differences in monthly rent.

It is advisable for the agreement to include an up-to-date architectural plan of the leased premises with the boundaries of the rented area clearly marked, as well as an explicit indication of which common infrastructure elements (entrance lobbies, lifts, staircases, shared restrooms, car parks) fall within the scope of the agreement and on what terms the tenant is entitled to use them.

Common Areas and Rights to Use Shared Infrastructure

In multi-occupancy properties and office buildings, it is important to define precisely the scope of the tenant’s right to use shared areas and facilities. A properly drafted agreement should specify whether use of car parks, conference rooms, recreational areas or other shared infrastructure is included in the rent or charged separately, and if separately – on what basis.

Lease Term and Termination Provisions

The choice of lease term model is of fundamental importance both for the tenant’s business stability and for the asset value from the landlord’s perspective. The Polish Civil Code distinguishes between fixed-term leases and open-ended leases, each carrying different legal consequences as regards the right to terminate.

Fixed-Term Lease

A fixed-term lease provides both parties with stability – as a rule, neither party may terminate the agreement before the expiry of the term unless the agreement expressly provides for such a right or grounds arise entitling a party to terminate for good cause. From the tenant’s perspective, a long-term agreement guarantees locational stability and allows for the amortisation of capital expenditure incurred in fitting out the premises. The landlord, in turn, obtains predictable rental income, which is particularly significant from the perspective of mortgage financing of the property.

It is worth noting that under Article 661 § 1 of the Civil Code, a lease of real property concluded for a period exceeding ten years is deemed, upon expiry of that period, to have been concluded for an indefinite term. For agreements concluded between entrepreneurs – which is the rule in commercial leasing – this limit is thirty years, creating scope for long-term lease structures in the logistics and industrial sector.

Break Option Clauses

A break option clause, enabling one or both parties to terminate the agreement early, is an important negotiating tool, particularly from the perspective of tenants planning dynamic growth or business restructuring. Such clauses should precisely specify the date on which the right to terminate may be exercised, the required notice period (typically six to twelve months), any financial conditions attaching to the exercise of the break option (an early exit fee – break penalty) and the scope of obligations to restore the premises to their original condition.

Market practice has produced various models for structuring break options – from unilateral clauses (in favour of the tenant or the landlord alone) to mutual clauses, and from unconditional clauses to clauses conditional upon the satisfaction of specified requirements. Each model carries different negotiating and financial consequences requiring careful analysis in the context of each individual transaction.

Automatic Renewal Clauses

Many commercial agreements include an automatic renewal clause providing that, in the absence of notice given within a specified period before the expiry of the agreement, the lease automatically renews for a further fixed or indefinite period. Such clauses require particular attention from the tenant, as failure to give timely notice may result in an unintended commitment to a further multi-year lease obligation.

Rent, Indexation and Service Charges

The financial structure of a commercial lease agreement extends well beyond setting a base rent. In practice, tenants bear a range of additional financial obligations which, depending on how they are structured in the agreement, may materially increase the total cost of occupation relative to the nominally agreed rate.

Currency and Rent Rate

Rent for commercial premises in Poland may be denominated in Polish zloty or, particularly in the Class A office segment and the warehouse market, in euro. Denominating rent in a foreign currency while generating revenues in zloty creates currency risk for the tenant, which should be consciously factored into financial projections. Conversion of rent to zloty for payment purposes is typically made at the NBP exchange rate on the due date or at a rate agreed in the agreement.

Indexation Mechanism – HICP or CPI

Indexation clauses are one of the key elements of long-term commercial lease agreements. Their normative basis is provided by Article 358¹ § 2 of the Civil Code, which expressly permits a contractual stipulation that the amount of a monetary obligation is to be determined by reference to a measure of value other than money. The most commonly used mechanism is the indexation of rent to the HICP (Harmonised Index of Consumer Prices) published by Eurostat for the eurozone, or to the CPI published by the Central Statistical Office (GUS). In euro-denominated agreements, indexation to HICP is the market standard, while CPI is typically used in zloty-denominated agreements.

When negotiating indexation clauses, it is important to agree on several parameters: the base period to which the change in the index is referenced, the minimum threshold of change that justifies a rent adjustment, any cap on the increase in rent in a single cycle and the rounding method for the calculated amount. In conditions of elevated inflation, which the Polish economy has experienced in recent years, indexation clauses that contain no limiting mechanisms can lead to very substantial rent increases, which should be reflected in long-term financial projections.

Service Charges

Service charges – often referred to as service charge or operational costs – are a separate category of costs, customarily levied in addition to base rent. They cover costs associated with the maintenance and management of common areas, including energy costs in shared parts, cleaning, security, building management, building insurance, real property tax and a maintenance fund. The structure and level of these charges can vary significantly depending on the property and the standard of management.

A professionally drafted lease should contain a detailed schedule of the costs comprising the service charge, a mechanism for calculating and verifying their amount, and the tenant’s right to audit the underlying cost documentation. Clauses that allow the landlord unilaterally to expand the catalogue of costs rechargeable to the tenant should be treated with considerable caution.

Rent-Free Period and Tenant Incentives

During the commercialisation of new properties or in the course of negotiations with key tenants, the market has developed a range of financial instruments collectively referred to as tenant incentives. These include a rent-free period, being a period following handover of the premises during which the tenant is released from the obligation to pay rent or pays it at a reduced rate, a fit-out contribution by the landlord and reimbursement of relocation costs from the previous premises. The terms and scope of incentives are confidential and subject to individual negotiation, the outcome of which depends on market conditions, the tenant’s financial standing and its strategic importance to the property owner.

Fit-Out Works and Adaptation of the Premises

Fit-out works – the adaptation of the leased premises to the tenant’s individual requirements – represent one of the more complex aspects of commercial lease agreements, particularly in the case of large office and retail premises. Precise contractual regulation of this matter protects the interests of both parties and prevents costly disputes at the stage of handover or return of the premises.

Scope and Financing of Works

The agreement should unambiguously determine the technical condition in which the landlord delivers the premises to the tenant, and which party is responsible for the works necessary to bring the premises to a state ready for occupation. In the office market, several delivery standards are recognised: shell and core, developer finish, turnkey and plug and play.

Where the tenant carries out the fit-out works, the agreement should specify the requirements for obtaining the landlord’s consent to the design and contractor, the technical standards to which the works must conform, insurance obligations during construction, the method of financing and the terms for accounting for any financial contribution by the landlord. All works should be preceded by the preparation of detailed technical designs approved by both parties, which form an integral part of the agreement.

Condition of the Premises upon Return

One of the most frequent sources of disputes at the end of a commercial lease is the divergent expectations of the parties as to the condition in which the premises should be returned. The agreement should expressly determine whether the tenant is obliged to restore the premises to their original condition (stripping out the fit-out and removing all alterations), or whether the landlord accepts the premises together with the improvements made by the tenant – and if so, whether compensation is payable. In practice, clauses giving the landlord the right to choose between requiring reinstatement and retaining the improvements without any obligation to compensate the tenant are increasingly common.

Financial Security

Securing the landlord’s claims under a lease agreement is a matter requiring particular attention during contract negotiations. The security package should be balanced – on the one hand proportionate to the credit risk borne by the landlord, on the other sufficiently moderate so as not to impair the tenant’s liquidity.

Cash Deposit

The simplest form of security is a cash deposit, typically equivalent to one to three months’ gross rent. The deposit is paid by the tenant to the landlord at the time the agreement is concluded or the premises are handed over, and is held by the landlord throughout the lease term. The agreement should precisely specify the grounds and procedure for applying the deposit against the tenant’s arrears, as well as the deadline for its return after the lease ends (standardly within thirty or sixty days of the return of the premises and completion of its handover protocol).

Bank or Insurance Guarantee

An alternative to a cash deposit – or a supplement to it, used where the tenant’s credit risk is higher – is a bank or insurance guarantee. A demand guarantee (autonomous guarantee) entitles the landlord to receive payment on the basis of a demand alone, without the need to establish the merits of the claim in legal proceedings, making it a particularly effective security instrument from the landlord’s perspective. When negotiating this instrument, the tenant should ensure that the substantive conditions entitling the landlord to make a demand are defined precisely, and that a protective mechanism against abuse of the guarantee is in place.

Declaration of Submission to Enforcement

A widely used mechanism in Polish market practice is the tenant’s declaration of voluntary submission to enforcement, given by notarial deed under Article 777 § 1 points 4 or 5 of the Code of Civil Procedure. This instrument enables the landlord to conduct enforcement proceedings through a bailiff without the need for court proceedings, materially shortening the time and reducing the cost of recovering amounts due. The scope of obligations covered by the declaration and the maximum enforcement amount should be subject to negotiation, as an excessively broad declaration may create unacceptable risk for the tenant.

Subletting, Assignment and Change of Use

Restrictions on Subletting

The Civil Code provides in Article 668 that the tenant may sublet the premises or make them available for use by third parties free of charge only with the landlord’s consent, unless the agreement provides otherwise. In a typical commercial agreement, the subletting clause usually contains a prohibition on subletting without prior written consent of the landlord, or permits subletting only to entities affiliated with the tenant (companies within the same corporate group). For foreign investors planning flexible management of premises within their group, it is important to negotiate the right to sublet to affiliated entities without the need to obtain the landlord’s consent on each occasion.

Assignment of the Agreement

The assignment of rights and transfer of obligations under a lease to another entity (for example as a result of a group reorganisation, an M&A transaction or a change in location strategy) requires the landlord’s consent as a general rule. The agreement should specify the conditions on which such consent may be granted and any creditworthiness requirements applicable to the entity assuming the lease. Clauses providing for an absolute prohibition on assignment or an unlimited right of refusal by the landlord should be assessed critically from the perspective of future operational flexibility.

Change of Use

The agreement should clearly define the permissible scope of the tenant’s activities in the premises, as conducting activities inconsistent with the permitted use may constitute grounds for termination by the landlord. Precise specification of the permitted use is particularly important in the case of retail premises in shopping centres, where the tenant mix is managed by the property owner and a change in the tenant’s business profile may breach the landlord’s obligations to other tenants.

Liability, Insurance and Risk Management

Landlord’s Liability for Technical Condition

The landlord is obliged to deliver the premises to the tenant in a condition fit for the agreed use and to maintain them in that condition for the entire duration of the lease, as provided directly by Article 662 of the Civil Code. Commercial lease agreements typically define in detail the division of maintenance obligations between the parties, distinguishing between repairs to building infrastructure and main installations (falling on the landlord) and day-to-day maintenance and minor repairs within the premises (falling on the tenant).

An important issue is liability for failures of shared building installations affecting the tenant’s ability to use the premises. The statutory basis for claims to a reduction in rent is Article 664 of the Civil Code, which entitles the tenant to demand an appropriate reduction in rent for the period during which defects limit the suitability of the premises for their agreed use. In the event of a complete inability to use the premises for reasons attributable to the landlord, the tenant may additionally claim suspension of the rent payment obligation. A carefully drafted agreement should specify the procedure for reporting such events and provide for compensatory mechanisms going beyond the statutory minimum.

Insurance Obligations

The division of insurance obligations between landlord and tenant requires precise contractual regulation. As a rule, the landlord insures the building against construction and fire risks, while the tenant is required to insure its fit-out, its own capital expenditure on adaptation works and, frequently, third-party liability in connection with its business activities. The agreement should specify the minimum scope of insurance cover required of the tenant, the obligation to notify the landlord of the conclusion and renewal of insurance policies, and the consequences of the expiry of insurance cover.

Force Majeure

The force majeure clause should define the events recognised as force majeure, their impact on each party’s obligations, and the notification and damage-mitigation procedure. The COVID-19 pandemic underscored the importance of precise force majeure clauses in commercial lease agreements, particularly in the context of the mandatory restriction of business activities under administrative regulations. It must be emphasised, however, that the case law developed after 2020 took a restrictive approach in this area: the pandemic itself, and the administrative restrictions on business activities resulting from it, do not automatically release the tenant from the obligation to pay rent. Courts consistently held that the premises remained delivered and physically accessible, and that the commercial risk arising from the inability to conduct business falls, as a general rule, on the tenant. This makes it all the more important to negotiate an express contractual clause governing the allocation of risk in the event of an administrative prohibition or material restriction on the use of the premises.

Perspective of Foreign Investors

Foreign investors entering into commercial lease agreements in Poland encounter a number of specific issues, awareness of which is essential for effective management of transactional risk.

Form of Agreement and Notarial Requirements

Lease agreements for real property concluded for a fixed term exceeding one year should be made in writing, failing which the agreement is deemed to have been concluded for an indefinite term. Written form is therefore mandatory for all long-term commercial agreements. Registration of a lease agreement in the land and mortgage register is possible and desirable from the tenant’s perspective – a lease registered in the land and mortgage register is effective against a purchaser of the property, protecting the tenant in the event of a change of ownership of the building.

Real Property Tax and VAT

Commercial lease rent is, as a general rule, subject to value added tax at the standard rate of twenty-three percent. Tenants who are VAT taxpayers may deduct input tax on rent to the extent that the premises are used for taxable activities. Service charges are subject to the same tax treatment. Real property tax varies depending on the type of premises and the municipality – it is typically included in the service charge or recharged by the landlord to the tenant.

Dispute Resolution and Jurisdiction

The standard in agreements involving foreign entities is a clause choosing Polish law as the governing law and designating a Polish court as the competent forum for dispute resolution. An alternative is arbitration – whether before Polish arbitration courts (the Court of Arbitration at the Polish Chamber of Commerce) or before foreign arbitration courts or internationally recognised arbitration institutions. Arbitration may be appropriate in the case of complex, high-value transactions where the parties value the confidentiality of proceedings and procedural flexibility.

Real Property Due Diligence

Before entering into a long-term lease, particularly one covering large areas or strategic locations, foreign investors should carry out legal due diligence of the property, covering an examination of the legal title as disclosed in the land and mortgage register, verification of the landlord’s right to dispose of the property (freehold or perpetual usufruct), analysis of mortgage encumbrances and easements, verification of administrative decisions governing the permitted use of the building and analysis of any existing lease agreements covering the same premises.

Conclusions and Practical Recommendations

Negotiating and entering into commercial lease agreements in Poland requires a comprehensive legal approach that takes into account both the provisions of the Civil Code and the specific characteristics of the commercial real estate market and the individual risk profile of the tenant. The most important recommendations for foreign investors may be summarised in a few key principles.

Precision in describing the subject matter of the lease and all obligations of the parties is a prerequisite for the safe performance of the agreement – interpretative ambiguities are invariably more costly than the time spent on clarification during the negotiation stage. Indexation clauses and service charges should be negotiated with reference to long-term financial projections, since it is precisely these elements – rather than the base rent rate – that most frequently generate unforeseen costs. The scope of security must be proportionate to the actual credit risk and should not unduly burden the tenant’s liquidity.

From a risk management perspective, it is particularly important to regulate precisely the issues of fit-out works and the condition of the premises upon return, clauses on subletting and assignment, and compensatory mechanisms in the event of the inability to use the premises. For entities within corporate groups, ensuring operational flexibility in the context of internal reorganisations without requiring the landlord’s consent for each transaction is critical.

Effective legal protection of the tenant requires the support of a legal adviser with specialist knowledge of Polish commercial real estate law and transactional experience in the local market. Experience in working with foreign investors translates into the ability to identify risks specific to the Polish legal order which standard contractual templates used by foreign clients may not address.

ABOUT ATL LAW

ATL Law is a law firm specialising in comprehensive legal services for foreign investors on the Polish market. We provide multilingual advisory services in the areas of real estate law, tax law, corporate law and employment law. We have extensive experience in negotiating and reviewing commercial lease agreements, real property due diligence and structuring transactions in the office, retail and logistics markets. We support our clients at every stage of the leasing process – from reviewing offer terms and negotiating agreements through to resolving disputes arising during the lease relationship.

Contact: office@atl-law.pl