Supreme Court Judgment No. 4655/2566: What’s Wrong with This Long-Term Rental Practice and How to Avoid It

Summary

In summary, the faults of the case are clear. The contract was signed for a total of 90 years in one go, with all rent paid upfront, and a fixed rental fee that ignored future market changes. The involvement of a foreign party only added to the concerns that this was not a genuine rental agreement. Instead, it looked like a way to hide a sale of the land. Supreme Court Judgment No. 4655/2566 and Civil and Commercial Code Section 540 both show that such long-term fixed leases are not acceptable.

A better rental agreement is one that limits the term to 30 years, with rent paid regularly and adjusted as needed to match market conditions. This type of contract is fairer and more flexible, ensuring that both the landlord and the tenant benefit from any changes in the property’s value. By following these guidelines, both parties can avoid the traps of outdated and rigid agreements and create a deal that truly reflects the economic realities of the property market.

In today’s property market, signing a long-term lease might seem like a good idea for stability. However, when you see a contract that covers 90 years—by combining three 30-year periods—it raises many red flags. A recent case, Supreme Court Judgment No. 4655/2566, clearly shows how such an arrangement is full of problems and does not work as a normal rental agreement. Instead, it looks more like a hidden sale of the land rather than a true lease. Here, we explain what went wrong in the case and offer a better way to structure a rental contract.

One of the biggest faults in the case is that the parties signed a contract for 90 years all on the same day. In a typical rental agreement, a 30-year lease is already considered a long term, and that is usually the maximum acceptable period. By signing for three consecutive 30-year periods, the agreement locks in terms for nearly a century. This is dangerous because economic conditions, property values, and local developments change a lot over time. A 90-year term leaves no room to adjust the rent when the market changes, making the contract impractical and unfair.

Another major issue is that the defendant paid the entire rental fee for the 90-year period upfront. In a real lease, rent is normally paid on a monthly or yearly basis. This regular payment schedule allows both the landlord and the tenant to adjust the rent over time if necessary. Paying everything in one lump sum removes that flexibility. It makes it difficult to reflect changes in the property’s value or the economic conditions in the future. Instead of being a living, changing agreement, the contract becomes fixed and rigid, which can hurt both parties.

The rental fee in the case was also set in a way that did not take future market conditions into account. When the rental rate is fixed for 90 years, it ignores the fact that factors like inflation, improvements in the area, or changes in land use can greatly affect property values. With a fixed rate, the rent could eventually be much lower than what the property is worth, or in some cases, too high compared to the market. This imbalance is a clear sign that the agreement was not made in good faith as a rental contract but was intended to mask a sale of the property.

Furthermore, the involvement of a foreign party in the lease added more suspicion. When a foreigner is part of a long-term land agreement, it sometimes suggests that the contract is trying to avoid local rules or hide the true nature of the transaction. In this case, the foreign involvement made it more likely for the court to see the lease as a disguise for a sale. The court believed that the long-term fixed lease was not really about renting the land for its proper economic value. Instead, it looked like a way to transfer ownership without following the normal procedures of a sale.

Another important point is that a good rental agreement should be beneficial to the landowner in the long run. A genuine lease should reflect the property’s market value and allow the landlord to benefit from any future increases in that value. However, a 90-year fixed lease does not do this. With the rent set in stone, the landlord loses the chance to adjust to market improvements. This means that over time, the landlord might end up earning much less than what the property could generate if the rent were regularly reviewed and updated.

The law in this area is clear. Civil and Commercial Code Section 540 states that “Real estate – you shall not lease it for a term exceeding thirty years; if you have contracted for a term longer than that, it shall be reduced to thirty years.” This rule is in place to protect both landlords and tenants from entering into agreements that become outdated and unbalanced over time. The idea is to ensure that leases remain fair and responsive to current economic conditions. The case in Supreme Court Judgment No. 4655/2566 clearly violated this rule by attempting to secure a 90-year lease. The court ruled that the extra terms beyond 30 years were void because they were designed to bypass the law.

So, what is the best practice for a rental agreement? The ideal contract should have a maximum term of 30 years. Within that period, rent should be paid either monthly or yearly. This arrangement makes it easier for both parties to adjust the rent based on current market conditions and economic factors. Regular reviews and adjustments ensure that the rent remains fair for both the landlord and the tenant. Also, setting the rental fee higher than the current land price shows that the payment is for true renting and not a hidden sale of the property. It proves that both parties are entering the deal with a clear understanding of the property’s economic value.