Our articles usually focus more about buying and selling real estate, but we also periodically receive requests to work on lease agreements. And a few weeks ago, we received an intriguing client inquiry:
Does a residential lease contract automatically renew if the Tenant remains in the property, continues to pay rent, and is not asked to leave? Has the Landlord implicitly agreed to extend the lease under the same terms?
To provide some context, our client had been renting an apartment on a multi-year lease. The expiration date on the contract had lapsed a few months before he contacted us, but the client and his Landlord were in the process of negotiating terms to extend the lease. So, our client continued residing in the apartment and paying rent. But now, after several months of negotiations, the parties had yet to reach an agreement on a couple of key terms of the new lease.
So, during our review of the Landlord’s latest proposed terms, the client asked, “Isn’t there an argument that the original lease conditions have automatically been extended at this point?”
Automatic Renewal of a Residential Lease Contract
So, if a residential lease contract expires, but the Tenant stays on the premises and continues paying the rent without being asked to leave, does it mean that the Landlord has agreed to extend the lease under the same terms?
There is a technical argument that the answer is “YES”. But it isn’t without some ambiguity. And practically speaking, it generally isn’t a very useful argument (at least in my opinion).
Conceptually, the legal term is tácita reconducción, which loosely translates to “unspoken renewal”. Here is what Panamanian Landlord-Tenant law says about it:
- In principle, if the lease has been made for a certain period of time, it ends on the predetermined day.
- However, if upon expiration of the lease contract the Tenant remains on the leased property for 15 days with the consent of the Landlord, it is understood that there is an automatic renewal of the contract based on the same conditions as the original contract – except for the time period of the contract (the “Term“).
- The Term of the renewed contract is determined based on whether the original contract quantifies the rent by year, semester, month, day, etc.
What that Means?
Ok – so let’s unpack this.
First, we should note that the law provides that the contract not “extended” – it is “renewed”. I know that sounds like a distinction without any practical difference. But it means that there is a new contract. And this is relevant because the new contract has a new Term that is determined by the frequency of stipulated rent payments.
For example – let´s say you leased an apartment for 3 years, and the contract provides for annual rent payments of $12,000 per year. In that case, the argument would be that while the Term of your old contract was 3 years, the Term of the new contract would be for just 1 year. And all the other conditions of the old contract would arguably remain the same in the new contract.
But most residential lease contracts in Panama provide for monthly rent payments. So it is more likely that your old lease would reference regular rent payments of $1,000 per month. In that case, the argument would be that the term of the new contract would be for just 1 month. Practically speaking, this probably isn’t very helpful for a Tenant who wants to continue with the 3-year lease.
Sounds pretty clear… So, where is the Ambiguity?
But what if your 3-year lease contract provided that the rent will be $12,000 per year payable in 12 monthly payments of $1,000? If such a contract is automatically renewed by tácita reconducción, then is the new contract Term for 1 year or for just 1 month?
Also, the law includes some reference to the consent of the Landlord. Let’s go back to the example of my client to think about how that probably usually plays out in real life:
The expiration date on a lease expires. The Tenant remains in the home or apartment and keeps paying rent, because there are ongoing discussions with the Landlord about extending the lease under new conditions. The Landlord didn’t explicitly consent to allowing the Tenant to remain on the property. Perhaps the Landlord has implicitly consented by not asking the Tenant to vacate. But if we are looking to the Landlord’s actions to infer her intentions, then the fact that she is negotiating for various new conditions makes it pretty clear that her intention is not to renew the contract based on the old conditions.
So, it doesn’t really seem like this situation is in line with the spirit of the law providing for an automatic renewal of the contract under all of the original conditions.
And, anyway, as we already saw – most residential leases are drafted to provide for monthly rent payments (without mention of an annual rent amount). So, practically speaking, in most cases, the argument for automatic renewal would really only justify a 1-month renewal.
All of this makes for an interesting academic exercise. But perhaps you can see why I say that the argument for tácita reconducción usually isn’t of much practical use. That is probably why you don’t see Tenants making this argument very often.
Bottom Line?
If a residential lease contract expires, but the Tenant continues to stay on the premises and pays the rent without the Landlord asking them to leave, there is a legal argument that the contract automatically renews.
However, as most residential lease contracts are typically drafted, this argument would likely only result in the Tenant gaining an additional month. This assumption is made under the condition that a judge upholds it, despite other considerations and context, such as the Landlord’s expressed intention.
Oh, and your Landlord is not going to be very happy, which is going to make for an uncomfortable month.
Do you have questions about the nuances of Landlord-Tenant law in Panama? Be sure to check out the other real estate articles our blog. And you can also write to me at info@theindependentlawyer.com.
