Authorization to extend the term of a lease agreement

On September 15, 2004, Tribunal "G" of the Court of Appeals on Civil Matters ruled in favor of assisting a joint presentation of two companies (future lessor and lessee of a real estate property located in the center of the City of Buenos Aires), granting authorization to execute a lease agreement for the term of thirty years. The Court gave its authorization, understanding that in that particular case the application of article 1505 of the Argentine Civil Code unreasonably limited the constitutional rights to work and practice permitted industry (article 28 of the Argentine Constitution).

The authorization requested had been denied by the judge in the original proceeding. In his decision the trial judge found that the application of article 1505 prevailed and the parties were limited to a ten year lease.The judge stated that courts could not rule against current laws in force and they could not ignore existing laws to create one which they believed would be more appropriate to the facts in question.The lower court held that the substitution of laws is a power reserved to Congress.

The lower court also rejected the petitioner’s unconstitutionality argument because it was based on the theoretical, general and abstract characteristics of alleged damages that might be produced.Additionally, the judge stated, a declaration of unconstitutionality of a law should be limited to extreme cases because this alternative is the last resort in the Argentine legal system.

Article 1505 of the Argentine Civil Code states that the maximum term of a lease agreement is ten years, and that lease agreements entered into for longer terms will be deemed terminated once the term of ten years has expired. Court precedents have interpreted this term limitation to be mandatory (of "public order"), therefore, parties are unable to negotiate around it.

In this case, the litigants claimed that they needed a longer term than the one stated by the law to recover the investments they intended to make in the leased property. They argued that none of the reasons found in the commentary to article 1505 for maintaining a ten year limit were applicable to their project.They also argued that the importance of the project, the present conditions of the property to be leased, and the violation of the constitutional rights that would be involved were a sufficient basis for judical authorization for the thirty year lease.

The parties held meetings with the state’s attorney in which the scope and the seriousness of the project, the analysis of depreciation and the recovery of the necessary investments were presented and explained. They also presented the text of the agreement over which the authorization was requested.

Eventually, with the approval of the state’s attorney, the court interpreted that the petition was fair. The court stated that in this particular case, the reasons elaborated by the legislator to impose a limit in the maximum term were not applicable. It also stated, among other arguments, that the benefit that was not obtained due to the lack of disposal of the use of the leased property for a long term was compensated with other clear advantages for society.

In this way, the court authorized the agreement presented by the parties, allowing them to execute a lease agreement for a thirty year term.