In case of systematic full non-payment of rent, land lease agreement is to be cancelled under Art. 141(1)(д) of Land Code of Ukraine, and in case of partial non-payment (underpayment) of rent - under Article 651(2) of Civil Code of Ukraine – SC GC

The grounds for termination of a land lease agreement in accordance with clause ‘д’ of part 1 of Article 141 of the Land Code of Ukraine is a systematic, that is, repeated (two or more cases) full non-payment of rent within the terms specified in the agreement. Instead, partial non-payment (underpayment) of the rent may be grounds for termination of the land lease agreement under part 2 of Article 651 of the Civil Code of Ukraine, if such a breach of the agreement is qualified as material.

These conclusions were made by the Grand Chamber of the Supreme Court.

The prosecutor on behalf of the state, represented by the village council, filed a lawsuit to terminate land lease agreements with a company based on clause ‘д’ of part 1 of Article 141 of the Land Code of Ukraine and part 2 of Article 651 of the Civil Code of Ukraine due to the company's systematic failure to pay rent, which, in the prosecutor's opinion, is a material breach of the lease agreements.

In dismissing the claim, the first instance and appellate courts noted that there were no grounds to terminate the lease agreements, as the materiality of the breach of the agreements and the existence of damage caused by this breach had not been proven. At the same time, the defendant paid all the debts, which proves its good faith intention to properly fulfil its contractual obligations and its interest in maintaining the lease agreements.

The Grand Chamber of the Supreme Court noted that the rules on the grounds for termination of the right to use a land plot, as defined in clause ‘д’ of part 1 of Article 141 of the Land Code of Ukraine (systematic non-payment of rent), and the provisions of part 2 of Art. 651 of the Civil Code of Ukraine, which stipulate that the agreement may be amended or terminated by a court decision at the request of one of the parties in case of a material breach of the agreement by the other party and in other cases established by the agreement or law, are not contradictory but rather complementary.

The grounds for termination of a land lease agreement pursuant to clause (д) of part 1 of Article 141 of the LC of Ukraine is systematic, i.e. repeated (two or more occasions), full non-payment of rent. In this case, this special legal provision is independent and sufficient, and there is no need to refer to the more general provision of part 2 of Article 651 of the Civil Code of Ukraine.

If there is a payment of rent in a lesser amount than stipulated by the terms of the land lease agreement, i.e. the lessee has committed a partial non-payment (underpayment) of rent, the rule of part 2 of Article 651 of the Civil Code of Ukraine applies - in case of a material breach of the agreement by the other party. If the court concludes that the lessee has materially breached the terms of the agreement and, as a result of the partial underpayment of rent, the lessor has been deprived of what it expected, the agreement should be terminated pursuant to part 2 of Article 651 of the Civil Code of Ukraine.

The fact that at the time of the case consideration the lessee had repaid the rent arrears does not affect the lessor's right to demand termination of the agreement both under part 2 of Article 651 of the Civil Code of Ukraine and under clause ‘д’ of part 1 of Article 141 of the Land Code of Ukraine.

For the above reasons, the SC GC agreed with the arguments of the cassation appeal that the mere fact of systematic violation of land lease agreements in the form of full non-payment of rent for 2019 and 2022 is a ground for termination of such agreements, regardless of whether the said debt was subsequently paid in full, in this case - after filing a lawsuit to terminate the said agreements.

Resolution of the Grand Chamber of the Supreme Court of 20 November 2024 in case No. 918/391/23 (proceedings No. 12-19гс24) - https://reyestr.court.gov.ua/Review/123602976.

This and other legal opinions of the Supreme Court are available in the Database of Legal Positions of the Supreme Court - https://lpd.court.gov.ua.