In its ruling on case no. 32 Cdo 4470/2010 of 28 November 2012, the Supreme Court addressed the issue of leasing another party’s property and the lessor’s resulting obligation to surrender unjustified enrichment or compensate the owner of said property.

In the case in question, a construction company (contractor) had built residential units for a municipality (client) that were to have been let to municipal residents. In the contract for work, the parties agreed on reserved ownership, which meant that the contractor would remain the owner of the residential units until they had been paid in full. However, the residential units were progressively handed over to the client during the course of construction and the client began to let these units.

Because the contractor was the owner of these residential units according to the contract for work, the contractor filed a lawsuit against the client seeking the surrender of unjustified enrichment in the form of unlawfully collected rent.

In its ruling, the Supreme Court concluded that although the client had not become the owner of the residential units on their handover, but was only the holder of these properties, it nevertheless had the right to use the units in accordance with their usual purpose, to receive their fruits and benefits and this free of charge, unless the parties had agreed otherwise.

Therefore, unless agreed otherwise in the contract for work, the client has the right to let residential units without being their owner. Yet the owner of the units, i.e. the contractor, has no claim against the client for compensation or the surrender of unjustified enrichment, as the client let the units in accordance with the contract for work.

The court also concluded that the contractor would not have been able to seek the surrender of unjustified enrichment even if the client had not been entitled to use the residential units and had let them unlawfully, but that it would have had to sue the concrete tenant(s) who enriched themselves at the owner’s expense by living in the residential units without paying the owner rent directly.

Two conclusions can therefore be drawn from the above Supreme Court ruling:

1) Clients have the right to let turned over property, even if the contract for work includes a reserved ownership clause and clients are therefore not the owners of these properties. Contractors do not have the right to subsequently seek compensation or the surrender of unjustified enrichment from clients on the grounds of the letting of their properties.

It is therefore recommended that contractors contractually cover the use of properties in the period from their handover to the client to the payment of the purchase price and transfer of ownership to the client.

2) If a third party unlawfully lets another party’s property, the owner of the property cannot seek the surrender of unjustified enrichment from the unauthorised lessor, but only from the tenant(s) using the property. A lawsuit filed against the lessor would be rejected by the court and the owner of the property would have to pay the lessor the costs of proceedings.

For more information, please contact our office’s partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz ; tel.: +420604242241.