December 3, 2021

What to look out for when establishing a right of use?

Can one get free lunch in case of an established right of use? The right of use has been known since Roman times. However, sometimes it turns out that the expectations of those concluding a contract for the establishment of a right of use differ from the case law views, especially as regards the rights and obligations of the parties.

What meaning does the phrase “gratuitous establishment/preserving a right of use” contain? While the question may seem quite straightforward at first glance, the answer can make a big difference in determining the user’s rights and obligations. In particular, the question is most relevant in determining who is responsible for paying the costs related to the use, including taxes and  other fees related to the property.        

There is conflicting case law, where some of the courts (including  the SCC in a 2009 decision) hold that an agreement to establish gratuitous right of use excludes the obligations that the user has under Art. 57 of the Ownership Act (OA), namely the payment of taxes and costs related to the use of the immovable property. It is assumed that gratuitousness refers both to the assignment of the right of use itself (conclusion of an agreement) and to the user’s statutory obligations in connection with the exercise of the right.  In these cases, insofar as the parties have agreed on a gratuitous establishment of the right of use, the user has the right to use the property gratuitously, i.e. without the user having to pay the costs related to the use, including taxes and other fees, to insure the  property and to pay the insurance premiums.

Other courts hold that a limited right in rem is by definition gratuitous, meaning  that no consideration is due for use as a contractual equivalent. However, the user is obliged to comply with all  obligations imposed on the latter by law in this capacity – to pay the costs  related to the use, including taxes and other fees (utilities – electricity, water, condominium expenses, etc.), maintain the property in the condition in which the user has  accepted it, insure it at its own expense in favour of the owner and pay the insurance premiums in accordance with the provision of Art. 57 of OA. According  to the courts, these obligations derive from mandatory rules of law and  cannot be interpreted at the level of private arrangements. The mandatory nature of these obligations binds the user, and the latter is obliged to comply with them. In this sense is also one of the latest SCC decision from this year, stating that whether the right of use was established for a consideration or gratuitously, the user has the obligations under Art. 57 of OA for the  payment of the expenses related to the use of the property.  

Notwithstanding the thesis adopted in the SCC’s decision, in all cases it is recommended that the parties to a contract for the establishment of a right of use include in the contract a detailed description of the agreements reached between them, including who is to pay the taxes and fees related to the use of the property. This would protect their rights and interests and help avoid possible disputes.

 

Nikolay Kolev
Associate

Nikolay is a hard-working, attentive, and responsive lawyer playing a central role in DPC stellar real estate and construction team. He is also active in the areas of contract law, commercial law, and public procurement.

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