Security for a commercial lease: security deposit, bank guarantee and Article 777
A standard feature of a commercial lease agreement in Poland is an obligation on the tenant to provide agreed security within a specified period, usually before the premises are handed over. In particular, the lease may require the tenant to:
- pay the landlord a security deposit or provide a bank guarantee in the form attached to the lease;
- deliver a notarial deed containing a voluntary submission to enforcement under Article 777 of the Polish Code of Civil Procedure, for example in relation to the obligation to vacate and return the premises and specified monetary obligations.
If the main agreement refers to a form of security contained in an appendix, agreeing only the amount of the security is not enough. Both parties should also consider the conditions for drawing on the security, its validity period, the liabilities it covers and the procedure for topping it up, reducing it or releasing it.
For example, a security deposit may equal one month’s rent, but it may also cover several months’ rent and service charges, which can require the tenant to commit significant funds before it starts using the premises. In the case of a bank guarantee, relevant issues may include the issuing bank, the guarantee period and whether the guarantee secures rent only or also service charges and other amounts due under the lease.
Similarly, a declaration of voluntary submission to enforcement may cover different tenant obligations. The wording of the relevant appendix should therefore be consistent with the main lease agreement, and the scope of the security should be verified before the lease is signed and before the tenant incurs the costs of establishing it.
Fit-out works as an appendix to a commercial lease agreement
On the commercial real estate market, premises rarely meet a particular tenant’s requirements without further works. It is therefore standard practice to carry out fit-out works, meaning the preparation and individual adaptation of the space for the tenant’s intended business.
A tenant may, for example, require an open-plan office or a layout divided into separate rooms by partition walls. The scope of the works also depends on the type of business to be operated from the premises. Retail units, service premises, gyms or entertainment venues may require modifications to electrical and telecommunications systems, fire alarm and voice evacuation systems, sanitary installations, air conditioning and ventilation. Fit-out may also include demolition works, installation of joinery and doors, flooring, painting, wall coverings and lighting.
Adaptation works may be carried out by the landlord before handover or by the tenant after the premises have been delivered. Regardless of the chosen model, the appendix should define the scope of fit-out works, the parties’ responsibilities, the required standard of workmanship and the timetable as precisely as possible. The rules governing the settlement of tenant improvements in commercial premises should also be regulated separately.
The appendix should also specify technical parameters, materials, colours, types of equipment and fixtures, and the procedure for approving changes. In our experience, the more precisely the adaptation works are described, the lower the risk that the parties will later interpret the agreed standard differently.
Changing adaptation works after they have already been completed can be expensive. For more complex projects, the appendix should therefore be reviewed not only from a legal but also from a technical perspective. It is also worth coordinating the lease appendix with a separate fit-out contract where such an agreement is entered into.
Technical standard and basic specification of the premises
There is no single universal standard for office, retail or service premises on the commercial real estate market. The specification may cover the technical condition of the premises, installations, finishes and any equipment made available to the tenant.
An appendix describing the standard of the commercial premises should address, in particular, items such as carpeting or other flooring, ceilings, wall finishes, doors, bathrooms where located within the premises, the type of partition walls, air conditioning, ventilation and any other elements relevant to the tenant’s business.
Merely stating the number of particular items may be insufficient. Instead of stating, for example, that the premises will contain four sets of doors, the parties may specify their type, material, finish, height, technical parameters or manufacturer. Similarly, for painting works it is useful to define the surface preparation standard, colour scheme and scope of works.
The more precisely the standard of the premises is described in the appendix, the easier it will be to determine whether the premises have been prepared in accordance with the lease and whether there are grounds to report defects, refuse acceptance of particular works or require remedial works.
Service charges in an appendix to a commercial lease agreement
Service charges in a commercial lease agreement are one of the most important cost components of commercial leasing. There is no single universal list of service charges. In practice, their scope should be defined precisely in the lease or in an appendix. They usually cover the costs of the day-to-day operation, maintenance, management and servicing of the building and its common areas.
Service charges may include, in particular:
- real estate tax and, where applicable, charges associated with the legal title to the land,
- property management and administration costs,
- utilities consumed for the operation of the building and common areas, including water, heating, ventilation, air conditioning and electricity,
- maintenance and repair costs relating to the building, common areas, car parks and surrounding areas,
- maintenance, servicing, inspections and repairs of equipment and installations serving the building,
- cleaning costs for the building, common areas, car parks and surrounding areas,
- heating, ventilation and cooling costs for tenants’ premises, depending on the agreed settlement model,
- sewage disposal costs,
- fire safety and fire monitoring costs.
From the landlord’s perspective, it may be advantageous for the list of service charges to be open-ended, for example by using the words “including in particular”. This allows the landlord to include costs that could not reasonably have been predicted when a long-term lease was entered into.
From the tenant’s perspective, a more precise and closed list of costs is generally safer, together with clear rules for budgeting, settlement and verification. In practice, the tenant should also review excluded service charge items, the treatment of capital expenditure, any cap on cost increases and the tenant’s right to audit or verify service charge settlements.
What other commercial lease appendices should be reviewed?
Depending on the type of property and lease structure, a commercial lease may include other appendices, such as a floor plan and premises plan, handover protocol, extract from the Polish land and mortgage register, technical documentation and forms of required statements. For premises in a shopping centre or retail park, the shopping centre rules may also be a particularly important appendix.
The importance of an appendix should not be assessed solely by its title. Even a technical document may affect the leased area, the tenant’s obligations, permitted use of the premises, costs or the ability to conduct a particular business. Before signing the lease, the parties should also check that every appendix referred to in the agreement has actually been attached and that each document is the final version agreed between them.
Commercial lease agreement appendices in Poland: summary
Appendices to a commercial lease agreement in Poland should be negotiated with the same care as the main agreement. They frequently determine the parameters of lease security, the standard of the premises, the scope and timetable of fit-out works, the list of service charges and the technical rules governing use of the space.
Defining the parties’ obligations precisely at the negotiation stage helps reduce the risk of disputes during the lease term. Particular attention should be paid to consistency between the appendices and the main agreement, including terminology, amounts, deadlines, procedures and the consequences of failing to perform particular obligations.
How we can help with a commercial lease agreement in Poland
Verdict Partners advises landlords and tenants on the preparation, review and negotiation of commercial lease agreements in Poland and their appendices. In particular, we can assist with:
- reviewing and negotiating the entire commercial lease agreement together with all appendices before signature;
- reviewing lease security instruments, including security deposits, bank guarantees and Article 777 declarations;
- reviewing fit-out and premises-standard appendices and checking their consistency with the handover timetable;
- regulating the settlement of tenant improvements after the lease ends or in the event of early termination;
- reviewing the list of service charges and the rules for budgeting, settlement and audit;
- reviewing shopping centre rules and technical appendices for their impact on the tenant’s operations and the parties’ obligations;
- assisting in disputes between landlords and tenants concerning performance of the lease, costs, fit-out works, security instruments or termination.
FAQ
If the lease provides that specified appendices form an integral part of the agreement, their content helps define the parties’ rights and obligations. Before signing, the parties should therefore review not only the main agreement but also every appendix to which it refers.
Appendices dealing with lease security, fit-out works, the standard and equipment of the premises and service charges are usually particularly important. Depending on the transaction, a premises plan, handover protocol, building or shopping centre rules, or technical documentation may be equally significant.
Yes. The fact that a landlord uses a standard form does not mean that its wording cannot be negotiated. From a commercial perspective, particular attention should be paid to provisions affecting costs, liability, work schedules, the standard of the premises and the tenant’s ability to operate its business.
The inconsistency should preferably be removed before the documents are signed. The lease may contain a precedence clause stating that the main agreement or a specified appendix prevails, but such a clause should not replace careful drafting. Inconsistencies increase the risk of an interpretation dispute during performance of the lease.
This is risky, particularly where the document to be agreed later will regulate material financial or technical matters or the scope of works. If an appendix cannot be finalised before signature, the main agreement should at least set out a clear procedure, deadline and criteria for agreeing it later, together with the consequences if the parties fail to reach agreement.
Yes. Appendices may specify the condition in which the premises must be returned, the tenant’s obligation to remove improvements, the method of settling security instruments and deadlines for particular actions. They should therefore be reviewed together with the provisions governing termination of a commercial lease agreement in Poland and the return of the premises.
