Investments in the leased property, the right to request the improvement of the space

It is necessary to distinguish whether the landlord consented to the alterations made by the tenant to the property or not. The tenant has a legal right to request compensation for the value added to the leased property after the lease ends under § 667, para. 1 of Act No. 40/1964 Coll. of the Civil Code: “The tenant may only make changes to the property with the landlord’s consent. The tenant can request reimbursement for costs associated with the changes only if the landlord has committed to reimburse them. Unless the contract specifies otherwise, the tenant may only request reimbursement after the lease ends, deducting depreciation due to the use of the property during the lease period. If the landlord consented to the changes but did not commit to reimburse the costs, the tenant may request compensation for the value added to the property after the lease ends.” This provision applies also to lease agreements under the Commercial Property Lease Act.

Since this is a dispositive provision, the parties may adjust their rights differently within the lease agreement. For the tenant to request compensation for the increased value of the property after the lease ends, it is necessary that the tenant did not waive the right to compensation for the investments made, such as in the lease agreement itself. One way to settle investments made by the tenant is by providing reduced rent or agreeing on a lease term long enough for the tenant to recoup their investment in the leased property.

If the landlord does not reimburse the value added to the property after the lease ends, the tenant may turn to court. However, the tenant is only entitled to compensation for the actual increase in value of the leased property. The increase in value does not mean the total amount of invested funds but rather the actual improvement in the property. “Determining such compensation, as well as depreciation, is not simple, and if the parties cannot reach an agreement, the only option is to turn to an expert for professional assessment and calculation of the added value. A change to the property does not always lead to an increase in value, so some costs may fall entirely on the tenant” (Judgment No. 28 Dco 897/2008).

According to the judgment of the Supreme Court of the Czech Republic, Case No. 26 Cdo 4384/2013: “If the tenant seeks to settle the investments made to alter the leased property, even though the tenant voluntarily agreed to make the alterations at their own expense and without expecting a return of the financial costs, the tenant cannot reasonably expect that the amount claimed will be reimbursed by the landlord… (See also the judgment of the Supreme Court of the Czech Republic, Case No. 28 Cdo 3497/2006).”

If the tenant made alterations to the leased property without the landlord’s consent, they are obligated, after the lease ends, to restore the property to its original condition at their own expense.

However, it would not be fair to demand that the tenant “destroy” the improved property and return it to its previous condition. Therefore, the provision regarding returning the property to its original condition does not apply to alterations made to the leased property that have become a permanent part of the property, and removing them would necessarily cause significant damage to the property at unreasonable costs for the tenant (Judgment of the Supreme Court of the Czech Republic, May 30, 2007, Case No. 28 Cdo 1222/2007). In this case, it is necessary to distinguish between minor alterations that can be returned to their original state and investments that led to a significant increase in the value of the property with the landlord’s consent.