Residential Lease Agreement: Rights, Obligations and Taxes

Under a lease agreement, the landlord undertakes to give the tenant an item for temporary use, and the tenant undertakes to pay a specified price for it (Art. 228 of the Obligations and Contracts Act). The law does not require notarial form, but a written agreement is the only reliable way to prove what you have agreed.

A lease agreement cannot be concluded for more than ten years, unless it is a commercial transaction. Persons who may only perform acts of ordinary management cannot conclude one for more than three years; if the term is longer, the agreement is valid for ten or three years respectively (Art. 229 of the Obligations and Contracts Act).

A good agreement answers in advance the questions that otherwise become a cause for dispute:

• The parties, the exact address and a description of the property and its furnishings.
• The monthly rent in euro, the term and the method of payment.
• Who pays the utilities, the condominium fees and the internet.
• The amount of the deposit and the conditions for its return.
• The term of the agreement and the notice period for termination.
• Whether pets, subletting and changes to the home are permitted.

Unless otherwise agreed, the landlord is obliged to hand over the home in a condition that is suitable for the use for which it was rented. If it is not in such a condition, the tenant may demand repair, a proportionate reduction of the rent or termination of the agreement (Art. 230 of the Obligations and Contracts Act).

Minor repairs related to ordinary use – the law gives examples such as soiled walls, corroded taps and locks, and blocked chimneys – are at the tenant's expense. Repairs of all other damage that was not caused through the tenant's fault are at the landlord's expense (Art. 231 of the Obligations and Contracts Act).

The tenant must return the item and is liable for damage caused during use, including by members of their household. Unless proven otherwise, the item is presumed to have been accepted in good condition (Art. 233 of the Obligations and Contracts Act). That is why a handover protocol with photos at move-in and move-out protects both parties.

The provisions of the Obligations and Contracts Act on leases do not regulate the deposit – its amount and the conditions for withholding and returning it are determined entirely by the agreement. Describe clearly within what period after move-out the deposit is returned and what deductions are permissible.

Unless otherwise agreed, the tenant may sublet parts of the home without the landlord's consent, but remains liable under the agreement (Art. 234 of the Obligations and Contracts Act). If you do not want this, include a prohibition in the agreement.

If, after the term expires, the tenant continues to use the home with the landlord's knowledge and without objection, the agreement is considered extended for an indefinite term (Art. 236 of the Obligations and Contracts Act). In the case of an agreement with no fixed term, either party may withdraw by giving the other one month's notice (Art. 238 of the Obligations and Contracts Act).

If the property is sold, the lease agreement remains in force with respect to the buyer if it is entered in the Property Register – which is why, for a long-term lease, the tenant has an interest in having the agreement registered. An agreement with a certain date is binding on the buyer until the agreed term, but for no more than one year from the transfer (Art. 237 of the Obligations and Contracts Act).

Rental income is taxable. According to the Personal Income Tax Act, the taxable income is determined by reducing the rent received by 10 percent in statutorily recognised expenses (Art. 31 of the Personal Income Tax Act), and the tax on the annual tax base is 10 percent (Art. 48 of the Personal Income Tax Act). The income is declared in the annual tax return, which is filed by 30 April of the following year.

However, the tax is not paid only once a year. The landlord owes an advance tax during the year (Art. 44 of the Personal Income Tax Act). When the tenant is an individual, the landlord pays the advance tax themselves by the end of the month following the quarter in which the rent was received (Art. 67, para. 1 of the Personal Income Tax Act); no advance tax is paid on income from the fourth quarter (Art. 67, para. 2). When the tenant is a business or a self-insured person, they determine and withhold the tax when paying the rent (Art. 44, para. 4 of the Personal Income Tax Act). The advance tax paid is deducted in the annual settlement.

Example with a hypothetical amount: with rent of 600 euro per month, the annual income is 7,200 euro. After 10 percent expenses, the taxable income is 6,480 euro and the tax is 648 euro, before any other possible deductions and reliefs.

• Obligations and Contracts Act (Art. 228–239)
• National Revenue Agency – Personal income tax (advance and annual tax)
• National Revenue Agency – Personal Income Tax Act (Art. 31, 44, 48, 67)

This article is not legal or tax advice. The information is general and current as of the publication date; in the event of a dispute or a more complex agreement, consult a lawyer.