Commentary on the General Provisions on Property Lease Agreements under Paragraph 3 of Chapter 29, “Property Lease (Rental) Agreement,” of the Civil Code of the Republic of Kazakhstan
3.1. Definition of a Property Lease (Rental) Agreement
The definition of a property lease (rental) agreement is set out in Article 540 of the Civil Code of the Republic of Kazakhstan (hereinafter referred to as the “Civil Code”), which provides: “Under a property lease (rental) agreement, the lessor undertakes to provide the lessee with property for temporary possession and use in exchange for payment” (Paragraph 1 of Article 540 of the Civil Code).
Thus, the Civil Code establishes two principal powers of the lessee in relation to the property transferred to them: possession and use. The procedure for using leased property is established by Article 550 of the Civil Code. According to this article, the lessee is obliged to use the property in accordance with the terms of the agreement or, if such terms have not been specified in the agreement, in accordance with the intended purpose of the property.
In the cases and according to the procedure established by the Civil Code, the lessee is entitled to dispose of the leased property (Paragraph 2 of Article 540 of the Civil Code).
The general limits on the lessee’s right to dispose of leased property are established in Article 551 of the Civil Code. Specific provisions governing the disposal of leased property are also contained in the Civil Code in relation to different types of lease agreements. For example, Article 578 concerns the lease of an enterprise, while Article 591 concerns the lease of vehicles.
3.2. Subject Matter of a Property Lease Agreement
The subject matter of a property lease agreement may consist of non-consumable items, as well as land-use rights, subsoil-use rights, and other rights in rem, unless otherwise provided by legislative acts (Paragraphs 1 and 2 of Article 541 of the Civil Code).
Article 541 of the Civil Code is subject to broad interpretation. This means that the range of property that may constitute the subject matter of a property lease can be extremely extensive and diverse.
The Civil Code allows for legislative restrictions on categories of property that may not be leased or may be leased only subject to certain limitations. It also permits the establishment of specific legislative rules governing the lease of particular types of property (Paragraphs 3 and 4 of Article 541 of the Civil Code).
For example, securities and natural resources cannot constitute the subject matter of a leasing agreement (Article 566 of the Civil Code).
3.3. Essential Terms of a Property Lease Agreement
As a general rule, the only essential term of a property lease agreement is the subject matter of the agreement, namely, the property or rights in rem to be transferred to the lessee under the agreement.
If the agreement does not contain information identifying the property to be leased, the term concerning the subject matter is considered not to have been agreed upon by the parties, and the agreement is deemed not to have been concluded (Article 542 of the Civil Code).
The Civil Code establishes additional essential terms for certain types of agreements. For example, an agreement for the lease of buildings or structures must specify the amount of rent (Paragraph 1 of Article 583 of the Civil Code), while a leasing agreement must contain an extensive list of essential terms (Article 567 of the Civil Code).
3.4. Form of a Property Lease Agreement
The form of a property lease agreement is governed by Article 544 of the Civil Code.
Under this article, a property lease agreement concluded for a term exceeding one year must be made in writing. The same requirement applies regardless of the term of the agreement if at least one of the parties is a legal entity.
A property lease agreement concluded between individuals for a term of up to one year may be made orally.
A lease agreement concerning immovable property is subject to state registration unless otherwise provided by law.
A property lease agreement providing for the subsequent transfer of ownership of the leased property to the lessee must be concluded in the form prescribed for a sale and purchase agreement involving that property.
3.5. Term of the Agreement
As a general rule, the Civil Code permits property lease agreements to be concluded for any term (Paragraph 1 of Article 545 of the Civil Code).
At the same time, legislative acts may establish maximum terms for certain types of property leases and particular categories of property.
If the term specified in an agreement exceeds the maximum permitted term, the agreement is deemed to have been concluded for the maximum term permitted by law (Paragraph 3 of Article 545 of the Civil Code).
If a property lease agreement is concluded without specifying a term, it is deemed to have been concluded for an indefinite period.
Either party may terminate such an agreement at any time by notifying the other party three months in advance in the case of immovable property and one month in advance in the case of other property, unless otherwise provided by legislative acts or the agreement (Paragraph 2 of Article 545 of the Civil Code).
For example, the Civil Code provides the lessee with a preferential right to conclude an agreement for a new term and establishes the procedure and conditions under which this right may be exercised.
Furthermore, Article 558 of the Civil Code establishes the conditions and procedure for the renewal of a property lease agreement. If the lessee continues to use the property after the expiry of the agreement and the lessor raises no objection, the agreement is deemed to have been renewed on the same terms for an indefinite period.
3.6. Payment under the Agreement
The Civil Code regulates the terms of payment under property lease agreements in considerable detail.
Nevertheless, payment-related matters, including payment deadlines, forms of payment, and the procedure for changing the amount payable, are largely left to the agreement of the parties.
The parties may provide for a combination of different forms of payment for the use of property (Paragraphs 1 and 2 of Article 546 of the Civil Code).
At the same time, the Civil Code imposes certain restrictions on payment methods in specific cases. For example, under a rental agreement for consumer goods, payment must be made in fixed amounts (Article 599 of the Civil Code).
In addition to default rules that allow the parties to agree otherwise, the Civil Code contains certain mandatory provisions concerning payment.
For example, the amount payable may be revised at the request of either party if centrally established prices and tariffs change.
If, due to circumstances for which the lessee is not responsible, the conditions of use stipulated in the agreement or the condition of the property deteriorate substantially, the lessee is entitled to demand a corresponding reduction in rent, unless otherwise provided by legislative acts.
Unless otherwise provided by the agreement, if the lessee substantially breaches the deadlines for making payments for the use of the property, the lessor is entitled to demand advance payment within a period specified by the lessor. However, such advance payment may not exceed two consecutive payment periods (Paragraphs 4–6 of Article 547 of the Civil Code).
3.7. Delivery of Property to the Lessee
The lessor is obliged to provide the lessee with property in a condition that complies with the terms of the agreement and the intended purpose of the property (Paragraph 1 of Article 547 of the Civil Code).
Unless otherwise provided by the agreement, the property must be leased together with all its accessories and related documents, such as a technical passport, quality certificate, and other relevant documentation (Paragraph 2 of Article 547 of the Civil Code).
If the lessor fails to deliver the leased property to the lessee within the period specified in the agreement or, if no such period is specified, within a reasonable period, the lessee is entitled to demand delivery of the property in accordance with Article 355 of the Civil Code or to demand termination of the agreement.
3.8. Liability for Defects in Leased Property
The lessor is liable for defects in the leased property that wholly or partially prevent its use, even if the lessor was unaware of those defects when the agreement was concluded (the first part of Paragraph 1 of Article 548 of the Civil Code).
However, the lessor is not liable for defects in the leased property that the lessor disclosed when concluding the agreement or that were previously known to the lessee (Paragraph 4 of Article 548 of the Civil Code).
Article 548 of the Civil Code establishes the rights of the lessee when property with defects is transferred to them. The lessee is entitled to choose which of the applicable remedies to exercise. In addition, the lessee may claim compensation for any portion of the losses that remains uncompensated.
3.9. Limits on the Right to Dispose of Leased Property
The general rule established in Paragraph 1 of Article 551 of the Civil Code is that the lessee may exercise a relatively broad right to dispose of leased property with the lessor’s consent.
However, in cases specifically established by legislative acts, the lessee’s powers to dispose of leased property may be expanded or restricted.
For example, the lessee’s powers may be expanded in the case of a lease of an enterprise (Article 578 of the Civil Code) or restricted in the case of a consumer rental agreement (Paragraph 2 of Article 600 of the Civil Code).
In the cases mentioned above, except where the lease is transferred to another lessee (reassignment of the lease), the original lessee remains liable to the lessor under the agreement (Paragraph 1 of Article 551 of the Civil Code).
3.10. Third-Party Rights and Changes in the Parties to the Agreement
The Civil Code regulates third-party rights in respect of property offered for lease, including easements, pledge rights, and other rights.
Such rights are neither terminated nor modified as a result of the transfer of the property under a lease agreement (Article 549 of the Civil Code).
If the parties to a property lease agreement change, the agreement remains in force (Article 559 of the Civil Code).
The rights of a sublessee under a sublease agreement derive from the rights of the principal lessee.
Early termination of the property lease agreement results in the termination of the sublease agreement concluded pursuant to it, unless otherwise provided by the property lease agreement (Article 560 of the Civil Code).
3.11. Obligations Relating to the Maintenance of Leased Property
The Civil Code establishes the parties’ obligations concerning the maintenance of leased property.
As a general rule, the lessor is obliged to carry out major repairs to the leased property at the lessor’s own expense. The lessor must also carry out repairs made urgently necessary by circumstances for which the lessee is not responsible.
Different provisions may be established by legislative acts or by the agreement (Paragraphs 1 and 2 of Article 552 of the Civil Code).
Failure by the lessor to fulfil the obligation to carry out major repairs entails the consequences specified in Paragraph 3 of Article 552 of the Civil Code. The lessee has the right to choose which of the applicable remedies to exercise.
In turn, the lessee is obliged to use the property in accordance with the terms of the agreement or, if such terms have not been specified, in accordance with the intended purpose of the property.
The lessee is also obliged to maintain the property in good working condition, carry out routine repairs at the lessee’s own expense, and bear the costs of maintaining the property, unless otherwise provided by legislation or the agreement (Article 553 of the Civil Code).
3.12. Improvements to Leased Property
Article 555 of the Civil Code governs improvements made to leased property and preserves the principles previously established under the Civil Code of the Kazakh SSR.
Two circumstances are of primary importance in determining the legal consequences of improvements:
- Whether the improvements are separable or inseparable.
- Whether the lessor consented to the improvements.
If the improvements are separable, they belong to the lessee, unless otherwise provided by the agreement.
Inseparable improvements become the property of the lessor in all cases. However, if the lessor consented to the improvements and the agreement does not provide otherwise, the lessee is entitled to reimbursement of their cost.
If such consent was not given, the cost of inseparable improvements is not reimbursed, unless otherwise provided by legislative acts or the agreement.
3.13. Amendment and Termination of a Property Lease Agreement
Article 556 of the Civil Code regulates in considerable detail the procedure for amending and terminating a property lease agreement at the request of either party.
Under this article, a property lease agreement may be amended or terminated early through judicial proceedings at the request of either party in the cases provided for by the Civil Code, other legislative acts, or the agreement (Paragraph 1 of Article 556 of the Civil Code).
Article 556 specifies the circumstances in which the agreement may be terminated at the request of the lessor (Paragraph 2) and at the request of the lessee (Paragraph 3).
In accordance with the general principles of civil law, Paragraph 2 of Article 401 of the Civil Code, which establishes grounds for amending and terminating agreements at the request of either party, does not apply to property lease agreements. This is because Article 556 of the Civil Code constitutes a special provision in relation to Article 401 and therefore governs the relevant lease relationships.
3.14. Transfer of Leased Property into the Lessee’s Ownership
The Civil Code provides for the possibility of transferring leased property into the ownership of the lessee.
For this purpose, the property lease agreement or an additional agreement between the parties must stipulate that the leased property will become the property of the lessee and specify the conditions under which ownership will be transferred.
Legislative acts may establish circumstances in which the purchase of leased property is prohibited (Article 562 of the Civil Code).
3.15. Protection of the Lessee’s Rights
Article 563 of the Civil Code introduces a provision specifically addressing the protection of the lessee’s rights.
Under this article, the lessee’s rights in relation to the leased property are protected to the same extent as ownership rights.
The lessee is entitled to bring legal claims and otherwise protect the rights belonging to them in their own name (Paragraphs 1 and 3 of Article 563 of the Civil Code).
Related Legal Materials
Commentaries on the Civil Code. The Criminal Procedure Code. The Criminal Code. Regulatory Resolutions of the Supreme Court. Criminal legislation. Regulatory legal acts of the Republic of Kazakhstan.
This commentary was prepared within the framework of the scientific and practical research programme of the Private Law Research Centre of Kazakh State Law University.
Head of the Working Group responsible for drafting the Civil Code of the Republic of Kazakhstan, Corresponding Member of the Academy of Sciences of the Republic of Kazakhstan, Professor – M.K. Suleimenov.
Deputy Head, Professor – Yu.G. Basin.
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