Regarding the Termination of a Land Lease Agreement (Grand Chamber of the Supreme Court, Case No. 918/391/23 of November 20, 2024)

Case Background:
The Prosecutor, acting in the interests of the state represented by the Council, filed a claim with the Commercial Court of Rivne Region against a Limited Liability Company (LLC), requesting the following:

• to terminate the land lease agreements concluded between the Council and the LLC;
• to oblige the LLC to return the land plots to the Council in a condition not worse than when they were initially leased.

The Prosecutor argued that between 2018 and 2022, the LLC violated its contractual obligations by failing to fully pay rent for the land. The Council and the LLC requested that the court dismiss the Prosecutor’s claim.

By its ruling of September 26, 2023, upheld by the decision of the North-Western Commercial Court of Appeal on December 20, 2023, the Commercial Court of Rivne Region dismissed the claim.

The court of first instance, whose conclusions were supported by the appellate court, held that in determining whether grounds exist for the termination of land lease agreements, the courts must assess the regularity and materiality of the breach, as well as the will (intent) of the contracting parties.

The courts noted that the LLC’s payment of rent by the time of the trial demonstrated a good-faith intention to properly fulfill its obligations under the lease agreements and its interest in maintaining the lease relationship with the plaintiff.

Taking into account also the Council’s objections to the claim, the courts emphasized that the Prosecutor had failed to prove a violation of state interests, and that terminating the land leases would result in more negative consequences (loss of rental income) and cause significant damage to the Council.

Decision of the Grand Chamber of the Supreme Court:
By its ruling of November 20, 2024, in case No. 918/391/23, the Grand Chamber of the Supreme Court resolved the following key legal issues:

• how general and special norms correlate in resolving disputes over the termination of land lease agreements;
• in which cases a land lease may be terminated by the court under subparagraph “d” of part one of Article 141 of the Land Code of Ukraine (hereinafter – LCU), and when – under part two of Article 651 of the Civil Code of Ukraine (hereinafter – CCU);
• what legal significance the repayment of rent arrears after filing a claim for termination of a land lease has when the claim is based on systematic non-payment of rent.

In its decision, the Grand Chamber of the Supreme Court emphasized the following:

1. The provisions governing the grounds for termination of the right to use land, defined in subparagraph “d” of part one of Article 141 of the LCU (systematic non-payment of rent), and the rules of part two of Article 651 of the CCU, which provide that a contract may be amended or terminated by a court at the request of one party in the event of a material breach by the other party or in other cases established by contract or law, do not contradict each other but rather complement one another.

2. As for the conditions for termination, the ground for terminating a land lease under subparagraph “d” of part one of Article 141 of the LCU is systematic—meaning repeated (two or more instances)—complete non-payment of rent. This special legal norm is independent and sufficient, so there is no need to invoke the more general norm of part two of Article 651 of the CCU, which provides an additional (to the main) ground for termination.

3. The fact that the tenant repaid rent arrears by the time the case was heard does not deprive the landlord of the right to seek termination of the contract, either under part two of Article 651 of the CCU (in cases of partial non-payment where such breach is deemed material) or under subparagraph “d” of part one of Article 141 of the LCU (in cases of systematic, i.e. two or more instances of, complete non-payment of rent).

4. In the context of part two of Article 651 of the CCU, systematic non-payment may demonstrate the tenant’s unreliability and the landlord’s justified lack of confidence in proper future performance, and this conclusion is not negated by later repayment of the debt. Under subparagraph “d” of part one of Article 141 of the LCU, the issue concerns the fact of systematic complete non-payment, which occurred in the past, so the basis for filing (and satisfying) the claim continues to exist.

Taking all arguments into account, the Grand Chamber of the Supreme Court upheld the Prosecutor’s cassation appeal, thus ruling to terminate the land lease agreements.

Therefore, in case No. 918/391/23, it is clearly stated that the ground for terminating a land lease under subparagraph “d” of part one of Article 141 of the LCU is systematic, meaning repeated (two or more instances), complete non-payment of rent within the period specified in the agreement. In contrast, partial non-payment (underpayment) of rent may serve as a ground for termination under part two of Article 651 of the CCU, if such a breach is deemed material.

Vladyslav Lukianenko, Attorney at Verity Group
Ihor Sofyna, Partner, Attorney at Verity Group