Why the new regulations for short-term commercial leases?
The Special Act on the Sixth State Reform, among other things, transferred federal competence for commercial leases to the three regions. In the meantime, the federal commercial lease act of 1951 (“CLA”) continues to apply until the regions take the necessary legislative initiatives. The new rules for “pop-up” leases is the first part of the overall review of the commercial lease legislation.
Before the new regulations, it was often necessary for parties to resort to entering into a precarious occupation (“bezetting ter bede/occupation précaire”) in order to put a commercial space at the disposal of an occupant for a shorter period of time and to avoid the mandatory rules of the CLA in that respect, i.e. at least 9 years (with a termination possibility for the tenant at the end of each 3-year period). In addition, the retail market was increasingly confronted with entrepreneurs who wanted to test their concept for a short period of time without immediately agreeing to a commitment to rent for a period of nine years. On the other hand, landlords wanted more flexibility to temporarily fill in a commercial space. This stimulated our regional regulators to come up with new rules for short-term commercial leases.
The essence of the new "pop-up" scheme in Brussels
The provisions of the Ordinance shall apply to the lease of immovable property or parts of immovable property which, by agreement in writing between the parties, are principally used for retail or craft activities, where there is direct contact between the tenant and the general public and where the lease is expressly concluded for a period of maximum one year or less.
Leases concluded in accordance with this ordinance shall automatically terminate on their expiry date, without prior notice and without the tenant being entitled to a tacit renewal of the lease agreement. However, the lease may be extended under the same conditions, provided that the total duration of the rental does not exceed one year. The lease expires by operation of law one year after the entry into force of the first agreement, unless agreed in writing by the parties. If it exceeds this period, it is subject to the CLA, and is deemed to have been entered into for a period of nine years as from the date on which the original short-term pop-up lease entered into force.
The tenant may terminate the current lease at any time, provided that he cancels the lease one month in advance by means of a bailiff's writ or by registered letter. The advance notice shall take effect on the first day of the month following the service of the bailiff’s writ or the registered letter. Timing therefore remains important here. In addition, the parties may terminate the current lease at any time, provided that their agreement is recorded in writing.
In the event of a contractual termination of the lease, or in the event of its premature termination, the tenant shall not be entitled to any compensation, unless otherwise agreed between parties.
The taxes applicable to the rented property are deemed to be included in the rental price, unless agreed otherwise in writing between parties. The costs of the utilities of the rented property are for the account of the tenant.
Unless otherwise agreed in the lease, the tenant may carry out any conversion works of the rented property that is useful to his business, provided that this does not compromise the safety, cleanliness or aesthetic value of the building. It should be noted that, unlike provided for in the Flemish and Walloon rules for pop-up leases, there is no one-year ceiling on the costs in relation to such works.
The tenant must inform the lessor by registered letter of any decision to carry out works before the start of these works. As in the Walloon Region, the landlord has a period of ten working days in which to oppose it on legitimate grounds. Failing this, he is deemed to have given his approval for the execution of these works. In the event of work being carried out without the aforementioned conditions being met, or without agreement, permission or compliance, the lessor may cause the work to be stopped. It is then up to the lessor to clarify in writing how the rented property must be restored to its original state in the event of suspension of the work. The lessor can either before or during the execution of the works, demand that the tenant insures his own liability, as well as that of the lessor and the owner, both towards third parties and towards each other, for the works undertaken by the tenant. If the tenant, at the first request of the lessor, does not provide proof of the existence of an adequate insurance coverage and of the payment of the premium for it, the landlord has the right once again to have the works stopped. The cessation of work can only be lifted when proof of the insurance and of the payment of the premium is provided.
When renovations are carried out at the expense of the tenant, the landlord may, unless otherwise agreed, demand the repair in its original state at the tenant's departure. If he maintains the reconstruction work carried out in this way, he shall not owe any compensation.
Transfer of a pop-up lease and any subletting are prohibited at all times. Subletting however is possible subject to a written agreement (as in the Walloon Region, but in contrary to the Flemish Region). If the leased property is transferred free of charge or for a consideration, the acquirer must comply with the obligations of the lease insofar it has a certain date.
Some of the particularities of the new Brussels regulations are as follows:
- If the landlord requires a guarantee from the tenant to ensure compliance with his obligations, the amount of that guarantee may not exceed one month's rent. The other regions have not decided on this and thus did not cap the amount of the guarantee.
- The state or condition of the property must be known to both parties. The parties or an expert of their choice (at shared costs) will draw up an incoming and outgoing survey. Again, this is a unique provision for Brussels, but it does not provide for a specific sanction if the survey is not drawn up so the general lease rules apply in this respect.
What is next ?
It is clear that the new rules for the popup lease are a dry run for a bigger exercise, i.e. the full regionalization of the CLA which would lead us to three (hopefully not too) different rules for commercial leases. The first preparatory steps are being made and it is still to be seen whether or not the three regions will maintain a similar set of rules. To be continued after the elections of 26 May 2019.
Please do not hesitate to get in touch if there are questions and comments in relation to the new pop-up lease rules.