Bulgaria: decision of the Supreme Court regarding termination of a lease agreement because of an economic adverse change

By Dimitar Vlaevsky

In its decision (No. 24/2nd commercial department) of 12 September 2013, the Supreme Cassation Court of Bulgaria comprehensively expressed its opinion on the substantive legal aspects of the economic adverse change clause and ruled on the termination of a lease agreement on this ground. According to the decision, a fundamental change of the circumstances could lead to early termination of an agreement if such change was not caused by any of the parties and neither of them was able to predict it at signing, as well as if further force and effect of the agreement are contrary to the principles of justice and the bona fide rules. The decision is of major importance, since it marks the first time that a long-term lease agreement has been terminated by court ruling due to an economic adverse change.

The Bulgarian Supreme Cassation Court (the Supreme Court) dealt with a case in which the plaintiff (the lessee) and the respondent (the lessor) had in April 2007 signed a lease agreement for a 34m2-sized shop located in a shopping mall in Varna (the second-largest city in Bulgaria, situated at the Black Sea). The term of the lease agreement was set for 10 years. Until the summer of 2008, the leased shop had sufficient turnover. However, due to the global financial crisis, the turnover of the shop decreased rapidly. Thus, the shop’s turnover for the entire year 2008 was €13,000 (£10,700), compared with a total €6,000 for just the two months of November and December 2007. Given that the agreed monthly rent of the leased shop was €2,100, the lessee requested a decrease in the rent. The negotiations with the lessor failed and the lessee was forced to close the shop (with the rent agreement still being valid and effective).

Subsequently, the lessee brought an action against the lessor and sought the court to terminate the lease agreement on the grounds of an economic adverse change…

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