On of the form of Real Estate Lease Agreements

 

In recent years, a legal issue has gained significance in the judicial practice of Azerbaijan: in what form must a lease or rental agreement be concluded when an individual leases out real estate they own? Is it sufficient for such an agreement to be executed in simple written form, or is notarization mandatory? What is the difference between these forms?

 

Due to the lack of a unified approach to this matter, it was brought before the Constitutional Court at the request of the Baku Court of Appeal. By its decision dated 11 June 2025, titled “On the Interpretation in Systemic Interconnection of Articles 144, 146, 329, 675 and 700 of the Civil Code of the Republic of Azerbaijan based on the Request of the Baku Court of Appeal”, the Constitutional Court sought to clarify the issue and provide guidance to the courts.

 

The case originated from a claim in which the plaintiff, based on a simple written lease agreement for a non-residential property, demanded payment from the defendant. While the court of first instance partially upheld the claim, the defendant filed an appeal. The appellate court concluded that the legislation did not clearly regulate the form in which lease or rental agreements for immovable property held in ownership should be concluded. Consequently, the Baku Court of Appeal referred the matter to the Constitutional Court for interpretation of the relevant provisions of the Civil Code from a constitutional standpoint.

 

The Constitutional Court explained that the issue is not limited solely to the form of the agreement. It directly concerns fundamental categories of civil law, such as the distinction between property and obligation rights, the essence of ownership rights, freedom of contract, and the legal grounds for the use of property.

 

The Civil Code of the Republic of Azerbaijan grants the parties the freedom to determine the form of a contract. Unless a specific case is provided by law, a contract may be concluded orally, in simple written form, or in notarized form. However, certain types of contracts — for example, those involving the sale of real estate, mortgages, pledges, etc. — are subject to special form requirements, including notarization and state registration.

 

The Court emphasized that property rights are absolute rights that are enforceable against everyone. It is for this reason that, with respect to immovable property, property rights are recorded in a public register maintained by the state in order to ensure the awareness of third parties and to protect the rights of property holders. Accordingly, transactions that give rise to property rights over immovable assets must be notarized and subject to state registration.

 

By contrast, rights arising from contracts are relative rights and may be asserted only between the parties to the obligation. Such claims entitle the creditor to demand performance of a contractual obligation from the debtor.

 

It is noteworthy that, although the Constitutional Court did not specifically refer to it, Article 13.9.3 of the Law of the Republic of Azerbaijan “On the State Register of Real Estate” provides that restrictions on ownership and other property rights include servitude, mortgage, usufruct, trust management, lease, use, leasing, seizure of property, claims on real estate, and other encumbrances.

 

Based on the Court’s interpretation, one can conclude that for lease relations over immovable property to have the legal force of a property right (i.e., a restriction on the lessor’s ownership right), notarization — and, for lease terms exceeding 11 months, state registration — is required. In the absence of these, lease agreements executed in simple written form do not constitute property rights but give rise to obligation (contractual) rights. Such lease rights entitle the lessee to assert claims only against the lessor, but do not have the legal effect of a limited property right and, therefore, cannot be enforced against third parties.

 

Without issuing a separate ruling with additional commentary, the Court concluded that such disputes may be adjudicated based on existing civil legislation. It terminated the proceedings, issuing instead an explanatory resolution.