Legal News [September 2022]: Who is liable for damage to non-residential premises?

We have prepared a selection of news from the Czech case law. It includes, for example, a case of interest for both lessors and lessees dealing with damage caused by water leakage into a low-level non-residential space. The case is a useful lesson within the definition of “ordinary maintenance” in a lease relationship as an incorrect understanding of it may have undesirable consequences for both parties. This and many more cases are summarised for you in September’s Legal News.

Corporate Law in practice

  • An earlier decision with ref. no. 23 Cdo 1061/2021 is worth reading, where the Supreme Court adhered to its previous case law conclusions related to the duty of care of a principal who entrusted a mandatary (as an expert in the field) with handling their business matters. The Court concluded that recipients of a subsidy breach their duty of care even in a procurement situation if they approve of tender documents prepared by the mandatary, which include an apparent breach of duty of care for the selection of contractors under the relevant operational programme and according to a guide for recipients. Even relying on the mandatary to handle the whole matter under a mandate agreement has its limits, namely in the form of duty of care.
  • You should not overlook the Supreme Court’s decision with ref. no. 27 Cdo 1018/2021 dealing with the requirement of authenticated signatures in a contract on the transfer of an equity investment (contracts concluded before 1 January 2021). The Supreme Court states that although Section 209 (2) of the Business Corporations Act establishes this requirement in relation to the effect of the contract on a company, it can be inferred that it is a requirement for the form of the contract as such. According to the Supreme Court, an opposing interpretation is untenable from the perspective of legal certainty (and the legislative changes with effect from 1 January 2021 correspond to this).
  • In another decision (29 Cdo 1099/2020), the Supreme Court also upheld its previous case law concerning the statutory executive’s due managerial care obligation even after on the declaration of bankruptcy over the company’s assets. Even if the right to dispose of the debtor’s assets passes to the insolvency administrator, the due managerial care is not removed.

From Real Estate Law

Consequences of an annulment of a general measure (specifically of a spatial plan) and impacts on the nature of land in a given area (i.e. whether or not it is land intended for development) are subject to a current Supreme Court decision with ref. no. 25 Cdo 2700/2020. The Court relies on annotated literature and on the Supreme Administrative Court’s decisions. In order to assess the consequences, it is important to distinguish whether an entirely new general measure has been adopted (e.g. the original development plan has been completely replaced by a new one) or whether the original measure has only been modified (“amended”). In the first case, the annulment does not lead to a reinstatement of the original measure and the area concerned is thus not subject to any spatial planning regulation (i.e. the character of the land is assessed as if the municipality did not have a development plan for this area). Conversely, if the measure led only to a change of the spatial plan, the original measure (the spatial plan) remains in force as a whole and the character of the land is assessed according to the original spatial plan after the annulment of the “amendment” measure. The above is relevant to the ability of the owner of the land (the character of which has changed) to seek damages.

Can a lessee of non-residential premises also be held liable for damage caused by water leaking into low-level non-residential premises? The Supreme Court is dealing with this matter in its decision ref. no. 25 Cdo 2342/2021. An affirmative answer may be given if the requirements of Section 2937 of the Civil Code are fulfilled. The Section states, ‘if the damage is caused an object on its own, the person who should have had supervision over the object shall compensate for the damage; if such person cannot otherwise be determined, the owner of the object shall be deemed responsible. Whoever proves that they did not neglect proper supervision shall be exempt from the obligation to compensate’. The lessee’s duty to carry out routine maintenance and minor repairs may also be considered as supervision.

The service provider’s obligation in connection with the use of apartments and non-residential premises in a house of apartments to provide the recipient of services with documents for billing advances for services rendered was handled by the Supreme Court within decision ref. no. 26 Cdo 3141/2021. Such an obligation of a service provider is not given by law; however, they must do so upon request of the recipient. The Supreme Court notes that the right of the recipient of services to be acquainted with the documents for billing, allocation and determination of the amount of advances cannot be understood formally. In this context, the Court deals with practical aspects of compliance with such a requirement; primarily the realistic opportunity to acquaint oneself with the documents, specifying the place where the documents are to be submitted, and the (non-)restriction of frequency of such an acquaintance with the documents in a way that exercise of the given right is not prevented. On the other hand, the recipient of services must not exercise the right of access to the documents for billing of services in a harassing manner, i.e. in a way that would restrict the service provider in their activities and incur disproportionate costs.

In an earlier decision ref. no. 26 Cdo 3115/2021, the Supreme Court dealt with the prerequisites for termination of a lease of business premises due to the redevelopment of the immovable property where the premises are located. In the opinion of the Supreme Court, the term “redeveloped” used by the legislator is to be interpreted as a redevelopment permanently restricting other use of premises for the agreed (intended) purpose in a situation where the lessor was not able (did not have to) anticipate such redevelopment when concluding the lease agreement. Mere repair of an immovable property cannot justify termination under this provision.   

Other interesting case law

  • We draw your attention to two recent decisions of the Supreme Court 21 Cdo 435/2022 and 21 Cdo 849/2022, according to which the application of recourse against senior employees is not as rare as it used to be; it even occurs in the state sector. In this particular case (21 Cdo 435/2022), the employer claimed damages caused by invalid termination of employment of several employees by the employer’s manager. The manager did so based on a decision on an organisational change, which was found completely purposeful and unlawful. The damage involved the employer’s obligation to pay salary compensation to the employees. The Supreme Court dealt with the statutory limitation of damages in case of negligence, specifically whether the limit of a 4.5-multiple should relate to the total damage incurred (i.e. the sum of the salary compensation) or to each individual salary compensation. Regarding the previous reasoning of the Constitutional Court, the Supreme Court inclined to the first, i.e. less favourable option for the employer. The application of recourse can still have negative consequences for employees, not only for financial but also for reputational reasons.
  • By its decision 29 ICdo 43/2021, the Supreme Court confirmed its relatively recent case law conclusion regarding subordinated claims as defined by Section 172 (2) of the Insolvency Act. The Court stated again that subordinate claims may include interest, default interest and default fee, i.e. accessories, or a contractual penalty arising from a late payment of a claim, even if these claims are public (in this specific case,  it was a claim arising from tax arrears).
  • In its decision 25 Cdo 2126/2020, the Supreme Court addresses the liability for injury caused by a fall from a tram island due to ice. The Supreme Court, taking into account the relevant legal provisions, where the island is not a road but a railway as defined by the Railway Act, and taking into account the existing case law and the circumstances of the case, where the negligence of the maintenance of the islet was not confirmed, upheld the conclusions of the lower courts that neither the City of Brno nor the Brno Public Transport Company is liable for the injury.
  • The Supreme Court has examined the issue of the liability of an attorney for material and non-material damage resulting from the concealment of the attorney’s erroneous actions in court proceedings in its most recent decision, 25 Cdo 1907/2021. The attorney’s error consisted in failing to appear at the court hearing and subsequently concealing this fact from the client and inadequately informing the client of the consequences of this error. In the opinion of the Supreme Court, a material loss may have occurred despite the fact that, according to the appellate court, the client would not have been successful in the first instance proceedings. Assuming that the above-mentioned misconduct on the part of the lawyer had not occurred, the client would most likely not have continued with further proceedings and would not have spent unnecessary funds on the appeal and appeal review proceedings. The Supreme Court further concluded in general terms that the lawyer’s breach of duty and deliberate concealment of this fact from the client could also have caused non-pecuniary damage.
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