Case: Penalty for Terminating a Lease Agreement – Now it’s Possible

Case Overview

• A fixed-term lease agreement was concluded between the parties.
• The agreement included the following clause: “Each party has the right to unilaterally terminate the agreement provided a penalty equal to N months’ rent is paid to the other party.”
• The landlord notified the tenant of the unilateral termination of the agreement without paying the penalty.
• The tenant did not accept the unilateral termination and refused to vacate the premises. Consequently, the landlord filed a lawsuit to evict the tenant.

Court’s Reasoning

• The landlord violated the terms of the agreement by notifying the tenant of the unilateral termination without paying the penalty.
• The landlord’s argument that the penalty clause was invalid under Article 169 of the Civil Code, as it penalizes a lawful action (unilateral termination of the agreement), was found to be unsubstantiated.
• The court agreed with the tenant’s argument that the clause ensures the parties’ faithful fulfillment of their obligations to lease the premises for a long-term period.
• The penalty clause for terminating the landlord’s obligation to lease property complies with legal requirements.

Court’s Decision

The court dismissed the landlord’s claim to evict the tenant from the premises due to the unilateral termination of the agreement. It upheld the tenant’s counterclaim, declaring the landlord’s unilateral termination of the lease agreement invalid.

The court effectively allowed the establishment of penalties for lawful actions—in this case, the right to unilaterally terminate a lease agreement.

Important Note

It’s crucial to distinguish unilateral termination of a contract from unilateral withdrawal. Although the phrases are similar, they refer to entirely different legal mechanisms:

1. Contract termination typically requires a court decision.
2. Unilateral withdrawal simply requires notifying the other party.

Pay attention to the grounds for contract termination to avoid becoming trapped in difficult situations.

Pay attention to the grounds for contract termination to avoid becoming trapped in difficult situations.

Additionally, we propose a draft unilateral withdrawal clause you can adapt for your agreements:

“Each party has the right to unilaterally withdraw from the agreement by sending written notice to the other party at least 90 (ninety) calendar days before the planned termination date, provided a payment (termination fee) equal to 3 (three) months’ rent (as applicable on the notice date) is made to the other party before sending the notice. Payment of this amount serves as a non-specified method of securing obligations under Article 310 of the Civil Code. Failure to pay this amount and/or partial payment invalidates the party’s right to withdraw from the agreement.“

Authors: Ilya Astashov, Aliaksandr Antonau

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