Voluntary submission to enforcement in a commercial lease agreement – article 777 of the Polish Code Of Civil Procedure

Voluntary submission to enforcement as security for a commercial lease agreement

Apart from a security deposit in a commercial lease agreement, it is common practice in the commercial real estate market in Poland to secure the landlord’s interests by means of a notarial deed containing the tenant’s voluntary submission to enforcement. Another frequently used mechanism to secure the landlord’s interests is also a bank guarantee in a commercial lease agreement.

Using this form of security addresses one of the key shortcomings of the Polish judicial system, namely the length of court proceedings, especially in commercial cases.

If the landlord does not have a deed of voluntary submission to enforcement, then in order to recover receivables from the tenant, the landlord must initiate, conduct and finally win court proceedings, and then commence enforcement proceedings conducted by a bailiff, which may also be lengthy. Similarly, if the tenant does not vacate the leased premises, it is necessary to conduct court proceedings and then have the tenant evicted by a bailiff, which may take even several years.

By using the security described in this article, the landlord may limit its contact with the court only to so-called clause proceedings, which consist of court actions aimed at granting an enforcement clause to the tenant’s statement of submission to enforcement. Under the applicable provisions, this should take the court 3 days.

Moreover, in the case of enforcement based on a notarial deed of voluntary submission to enforcement by the tenant, which has been provided with an enforcement clause, the tenant is in practice deprived of the possibility of prolonging court proceedings. The court grants the enforcement clause upon the landlord’s application, without the tenant’s participation, i.e. without a traditional court trial.

In practice, this means that the tenant is informed that an enforcement clause has been granted to the notarial deed only when enforcement proceedings are initiated by the bailiff at the landlord’s request.

Article 777 of the Polish Code of Civil Procedure – what can the tenant’s notarial deed secure?

Pursuant to the provisions of the Polish Code of Civil Procedure, the tenant may voluntarily submit to enforcement in respect of:

• the obligation to pay a monetary amount to the landlord under Article 777 § 1 point 5 of the Polish Code of Civil Procedure,
• the obligation to hand over an item, i.e. the premises or real estate, to the landlord under Article 777 § 1 point 4 of the Polish Code of Civil Procedure.

What exactly, therefore, is secured by the debtor’s statement of voluntary submission to enforcement?

Enforcement of rent and other monetary receivables

On the basis of a statement of voluntary submission to enforcement, the landlord may enforce the tenant’s receivables arising from unpaid rent.

There is also no doubt that, on the basis of such a document, it is possible to enforce other monetary receivables due to the landlord from the tenant under the lease agreement, such as unpaid individual charges or contractual penalties imposed on the tenant in connection with the non-performance of obligations arising from the lease agreement.

The landlord may also enforce interest due on principal amounts on this basis. In such a case, it is in the landlord’s interest for the notarial deed to contain a precise provision concerning interest and to indicate the type of interest and the period for which it will be calculated, at least by specifying the initial date.

Given that the rent may be specified in a currency other than the Polish zloty, the obligation to pay a monetary amount specified in the notarial deed may also be expressed in a foreign currency. In such a situation, the court grants an enforcement clause to the notarial deed with an obligation imposed on the bailiff to convert the enforced amount into Polish currency in accordance with the rules set out in Article 783 § 1 of the Polish Code of Civil Procedure.

Article 777 of the Polish Code of Civil Procedure and the tenant’s obligation to hand over the premises

If the notarial deed of voluntary submission to enforcement has been properly drafted, then if the tenant refuses to vacate the premises or hand them over to the landlord within the time limit resulting from the lease agreement, the landlord has the right to enforce the vacation of the premises on the basis of the notarial deed.

This also applies where the commercial lease agreement has been terminated before the date specified in the lease agreement. In such a case, not only the content of the notarial deed of voluntary submission to enforcement is important, but also the proper termination of the commercial lease agreement.

In practice, after obtaining an enforcement clause on the notarial deed, the landlord refers the case to a court bailiff. The bailiff then takes action on the basis of Article 1046 § 1 of the Polish Code of Civil Procedure.

Under this provision, if the debtor is obliged to hand over real estate or vacate premises, the court bailiff competent for the district where the property is located calls on the debtor to voluntarily perform this obligation within a time limit set according to the circumstances. After the ineffective expiry of that time limit, the bailiff performs the actions necessary to place the creditor, i.e. the landlord, in possession of the premises.

Importantly, bailiff enforcement may also concern the handover of part of real estate or a component part of another real estate property, whether land or building property.

What should a notarial deed of voluntary submission to enforcement contain?

In practice, a deed of voluntary submission to enforcement by the tenant constitutes an appendix to the commercial lease agreement. It is therefore in the landlord’s interest that the handover of the premises to the tenant should be conditional upon the delivery of the deed of voluntary submission to enforcement at least one day before the handover of the premises.

The landlord should also secure each day of delay on the tenant’s part in delivering the document with a contractual penalty and reserve the right to terminate the lease agreement if the deed is not delivered.

It is in the landlord’s interest for the document to be drafted in such a way that all formal requirements are met. The formal requirements for a notarial deed are set out in the Polish Notarial Law, but in Article 777 of the Polish Code of Civil Procedure the legislator introduced additional requirements determining whether the landlord may rely on the tenant’s deed of voluntary submission to enforcement.

The notarial deed should therefore contain:

• identification of the debtor and the creditor,
• the debtor’s statement of submission to enforcement in respect of a specific obligation,
• specification of the subject matter of the debtor’s performance, including the legal basis, in accordance with Article 777 § 1 point 4 of the Polish Code of Civil Procedure or Article 777 § 1 point 5 of the Polish Code of Civil Procedure,
• specification of the monetary obligation, either expressly stated or determined by means of an indexation clause in the commercial lease agreement,
• specification of the time limit within which the creditor may apply for an enforcement clause to be granted to the notarial deed.

Enforcement regime in a commercial lease agreement

The notarial deed should primarily refer to a specific lease agreement and precisely and unambiguously define the matters indicated above, so as to exclude the need for any interpretation by the court granting the enforcement clause.

For example, the phrase “under pain of enforcement” in the notarial deed should be considered insufficient in this respect. The proper approach is to use the statutory phrase “submits to enforcement” (see: A. Marciniak, K. Piasecki, Code of Civil Procedure, Volume III, commentary to Article 777 of the Polish Code of Civil Procedure).

The date of conclusion of the lease agreement, its subject matter and scope should also be indicated. In addition, specific provisions of the lease agreement concerning all payments on the tenant’s side should be cited, such as the amount of rent, service charges, contractual penalties provided for in the lease agreement, together with the deadlines by which they are payable.

The conditions under which the obligation to hand over the premises arises should also be specified.

If these matters are specified precisely, the court will grant an enforcement clause to the notarial deed in full, i.e. it will also cover those amounts which were not yet due at the date when the enforcement clause was granted. On the basis of this enforcement title, the landlord will be able to enforce rent in subsequent months, up to the effective eviction of the tenant.

Enforcement clause on a notarial deed under article 777 of the Polish Code Of Civil Procedure

At the beginning of this article, it was indicated that the landlord’s only contact with the court would be the initiation of so-called clause proceedings.

In practice, these proceedings consist solely of the court taking steps aimed at granting an enforcement clause. Importantly, in proceedings for granting an enforcement clause to a notarial deed, the court is limited to examining procedural matters.

The court therefore examines whether the conditions for granting an enforcement clause under Article 777 of the Polish Code of Civil Procedure have been met, namely:

• whether the landlord has paid the application fee,
• whether the deed of voluntary submission to enforcement was executed in the form of a notarial deed,
• whether all monetary amounts claimed by the landlord have been properly specified,
• whether the event has occurred from which the landlord may apply for the enforcement clause,
• whether the notarial deed specifies the deadline by which the landlord may apply to the court for an enforcement clause.

If the application for an enforcement clause meets all the above requirements, the court is obliged to conduct the clause proceedings.

In proceedings for granting an enforcement clause, the court does not examine the factual circumstances of the case, but limits itself to examining the existence of documents confirming the occurrence of relevant events. In these proceedings, the court therefore determines whether there are formal conditions, in the form of documents, to grant them an enforcement clause. One such condition is the existence of a valid enforcement title.

This approach has been confirmed in numerous court rulings.

For example, in the resolution of the Supreme Court of 7 March 2008 (III CZP 155/2007), the Court expressed the view that the scope of the court’s cognition when granting an enforcement clause to a notarial deed is limited to procedural issues, i.e. examining the existence of procedural prerequisites, determining whether a given deed meets the statutory requirements for a particular type of enforcement title, determining whether the deed, due to its content, is suitable for enforcement, and determining whether the event on which the enforceability of the enforcement title depends has occurred.

The Supreme Court noted that accepting a different view as to the nature and character of clause proceedings would transform them into supervisory proceedings aimed at examining the correctness of the creation of the enforcement title and its merits, or even the legality of the debtor’s statement. Such an assessment would go beyond the scope of the court’s cognition in clause proceedings.

Pursuant to Article 781¹ of the Polish Code of Civil Procedure, the court is obliged to consider the application for an enforcement clause immediately, no later than within 3 days from the date of its receipt. In practice, however, this may take somewhat longer.

Voluntary submission to enforcement by the tenant – summary

Undoubtedly, due to the possibility of using it quickly and the relatively limited formal requirements, from the landlord’s perspective every commercial lease agreement should be secured by a deed of voluntary submission to enforcement by the tenant.

This applies both to the obligation to pay monetary amounts due to the landlord and to the obligation to return the premises by the tenant.

However, the applicable provisions require the notarial deed to meet the conditions described in this article in order for the court to grant it an enforcement clause. It is therefore important that the content of the deed comply with the statutory requirements, be precise and not raise interpretative doubts for the court.