If the property you leased is in a zone that prohibits your line of business, you can terminate the contract early without paying the future unaccrued rent, without prejudice to the proportional rent for actual occupancy and penalties already accrued. So ruled the Supreme Court in Docket No. 59,593-2024, First Chamber, based on article 1932 of the Civil Code: the legal incompatibility of the property with the agreed use is sufficient grounds to terminate the lease, and the landlord cannot charge rent for the unoccupied period.
The point is no small matter for any company that leases warehouses, premises, or land for a specific line of business. The zoning restriction does not have to be new: even if it existed before signing the contract, the tenant can still invoke it if, during the lease term, a negative municipal response is obtained that prevents carrying out the agreed line of business.
What happened
In August 2022, a lease was entered into over a property in the municipality of Macul for a monthly rent of $2,850,000, with the exclusive purpose of a specific commercial line of business.
In December 2022, the Municipality of Macul issued Feasibility Report No. 394/22, classifying that line of business as having an impact similar to industrial and declaring it prohibited in the ZM-2A zone where the property is located. The tenant communicated the early termination in February 2023 and returned the property on March 10, 2023, having paid the rent through February of that year.
The landlord sued for the rent from March to July 2023, household utility consumption, and a penalty for the delay in the September 2022 rent. The tenant raised the defense of unperformed contract, invoking article 1932 of the Civil Code, and filed a counterclaim for consequential damages.
The Santiago Court of Appeals partially upheld the landlord's position, ordering payment of the March to July 2023 rent and the penalty. The Supreme Court invalidated that judgment on its own motion for the omission of factual and legal considerations, under article 775 of the Code of Civil Procedure, and in its replacement judgment partially reversed the first-instance ruling.
The decision rule is clear: article 1932 of the Civil Code grants the tenant the right to terminate the contract when the property cannot be used for the agreed purpose, regardless of whether the landlord knew of the restriction when contracting. The zoning limitation is a legal quality of the property, not a material defect, and it is enough that it prevents the agreed use.
Consequently, the Court jointly and severally condemned the tenant and its guarantor to pay $919,354 for the ten days of proportional occupancy in March 2023 and the penalty for eleven days of delay in the September 2022 rent, rejecting the claim for rent from March to July 2023 and for household utilities.
What it may mean for your company
This ruling has an impact on both sides of the lease.
If you are a landlord, the risk is that zoning incompatibility —even if it predates the contract and even if the tenant signed a clause receiving the property "to full satisfaction"— does not protect you from early termination. The Supreme Court was explicit: that clause does not release the landlord from liability for the legal unsuitability of the property. The tenant can leave without paying the future rent.
The same reasoning applies to clauses that transfer to the tenant the obligation to obtain municipal permits and authorizations. In this case, it was precisely during that process that the negative response from the Municipality of Macul was obtained. The Court did not consider that this clause altered the landlord's liability for the suitability of the property.
If you are a tenant, the ruling opens an exit route that does not depend on the landlord having known of the restriction when contracting nor on the restriction being recent. It is enough to prove that zoning prevents the line of business agreed in the contract. There is another relevant angle: the tenant's prior knowledge of the unsuitability does have an effect, but only on the right to reimbursement and compensation under articles 1933 and 1934 of the Civil Code, not on whether termination applies. That is, you can terminate the contract even if you could have known of the restriction before signing.
The gray area is here: if the tenant's line of business was not the one expressly agreed in the contract, or if zoning only partially restricts the use, the analysis changes. Article 1932 requires that the impediment be over the "use for which the thing was leased," which requires reviewing precisely the property's purpose clause. In those cases, the application of the criterion could be more debatable, because it will depend on how the agreed use was contractually defined.
Do your lease contracts precisely define the property's purpose and what happens if the authority declares it incompatible? A review of the purpose, receipt, and permit clauses shows you how much they really protect you before the counterparty invokes article 1932. Schedule a review of your lease contracts.
What you can do
If you have lease contracts in force in which the property is leased for a specific line of business, there are three concrete actions:
- Verify the zoning of the leased property in the territorial planning instrument of the relevant municipality and cross-reference it with the line of business stated in the contract. The incompatibility may be latent even if no one has invoked it yet.
- Review the purpose, property-receipt, and permit-obligation clauses in the contracts in force. If those clauses are not drafted precisely, the level of protection they offer is lower than it seems, both for the landlord and for the tenant.
- Incorporate into future lease contracts an express clause for zoning feasibility verification prior to signing, with defined effects in case the authority issues a negative report during the contract term.
If any of these points raises questions about your current or future leases, a 30-minute diagnostic session is enough to size up your gaps. Schedule here.
If you need to review your lease contracts in light of this ruling or assess whether a zoning restriction affects an ongoing lease, schedule a meeting with our team.
This content is informational and does not constitute legal advice for a specific case.