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Commercial space in a hotel: Don’t get trapped in a commercial lease

25/01/2019
Commercial space in a hotel: Don’t get trapped in a commercial lease
Photo: MrPhotoMania/Shutterstock.com

The ground floor of many hotels provides room for retail space that can be let to businesses complimentary to the hotel: jewellery, car renting, floral shop, (luxury) clothing, etc. A flourishing store contributes to the success and standing of the hotel, but a malfunctioning one has the opposite effect. Even though hotel managers take due care to select the right tenant problems can pop up along the road. Given the importance for the hotel owner or operator to keep control over the hotel premises at all times, it is desirable to maintain control over the leased premises during the lease term, as well as being able to terminate immediately a tenant. If the agreement is not subject to the Commercial Lease Act, the hotel manager’s life can become a lot easier…  

A short recap - The Commercial Lease Act

In Belgium, the Commercial Lease Act of 30 April 1951[1] applies to premises which the tenant primarily uses for the purpose of retail or craft activities in direct contact with the public. It is of mandatory law and provides for several protection mechanisms that are mostly in favour of the retail tenant. For example: the minimum term of 9 years, the preferential renewal rights, the right to transfer the lease agreement together with the business, the right to carry out alterations to the premises, the limited termination rights of the landlord, etc.

The application of these rules is often not desirable:

  • Leases may have an intuitu personae character by which the identity of the tenant is determinative (e.g. a pastry chef, chocolatier, jewellery designer). Although a transfer of the lease agreement together with the business may have an impact on the quality of the end product, it might be difficult for the landlord to object to such a transfer.
  • The interior design of the hotel is diligently conceived as it sets the standard of the hotel, its look and feel, and the customer experience it aims to provide. Although certain limitations apply, the tenant’s right to carry out alterations with a value of up to three years’ rent can cause unwelcome results.
  • The limited termination rights in favour of the landlord can also create problems, for instance if the tenant’s way of doing business is not in line with that of the hotel, if the tenant’s business is in decay, etc.
  • The hotel’s business could be disturbed by an unbridled advertising strategy of the tenant.

What can be done to exclude the application of the Commercial Lease Act?

To avoid the application of the Commercial Lease Act, you should avoid its scope of application. The rationale behind the Commercial Lease Act is to protect the tenant’s goodwill, and in particular its customers. Consequently, if the tenant is prevented from attracting its own customers (i.e. distinct from the guests of the hotel), the Commercial Lease Act does not apply.

Whether the tenant is able to attract customers outside the clientele of the hotel requires a factual assessment.

The following elements may indicate that no distinct customer base exists:

  • the tenant has a non-exclusive use of the store area;
  • there is a direct access from the hotel to the store, and preferably there is no separate access from the street side ;
  • the tenant may not freely determine its opening hours but they are imposed – in a limited way – by the hotel (manager);
  • the tenant is not free to determine the price of its products;
  • the tenant is not free to determine the range of its products;
  • the hotel (manager) is involved in the advertising strategy of the store;
  • the explicit exclusion of the Commercial Lease Act, in combination with (some of) the above measures.

Of course not all these measures should be incorporated in the lease agreement. However, the more are included, the more it is evident that the Commercial Lease Act is not to apply.

Be aware, whereas a carefully drafted agreement is the essential start, the factual use of the premises should always be monitored and where necessary the hotel (manager) should immediately step in to safeguard the landlord’s rights.

 

[1] Due to the 6th State Reform, commercial lease law became the competence of the three different Regions. Therefore, the Federal act will be replaced by regional regulations in the near future.

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