New rules in the Walloon Region and their substantial consequences for franchise and commercial lease agreements: do you comply with them?
New rules in Wallonia
Since the transfer of the legislative competence for commercial leases from the federal to the regional level, the Walloon legislator has already made use of its new competence by amending the Act of 30 April 1951 on commercial leases (Commercial Lease Act) in several aspects.
Amongst the changes in question, those introduced by the “Programme Regional Act” of 17 July 2018 are of crucial importance for franchise agreements in the Walloon Region.
More specifically, the Regional Act adds the following two paragraphs to Article 1 of the Commercial Lease Act:
- § (2) This paragraph also applies fully to leases concluded within the framework of a commercial partnership contract as defined in Article I.11, 2°, of the Code of Economic Law of 28 February 2013.
- § (3) Any clause which foresees that the rented premises can only be operated under a particular trade name, shall be deemed unwritten.
It is these Walloon particularities, which are clearly unknown to practitioners despite their entry into force a year ago, that this article will briefly discuss.
Enlargement of the material scope of the Commercial Lease Act
The Commercial Lease Act now also applies “to leases concluded within the framework of a commercial partnership contract” within the meaning of the Code of Economic Law.
As a reminder, these are agreements in which one of the parties grants the other the right to use, when selling products or providing services, a commercial formula in one or more forms (namely a common sign, a common trade name, a transfer of know-how, commercial or technical assistance).
In other words, the franchise agreement – but also certain other types of distribution agreements – are covered by this definition.
As a result, commercial lease agreements that are “ancillary” to franchise agreements, i.e. where the franchisor is also the landlord, will now be autonomous from the franchise agreement and therefore only regulated by the Commercial Lease Act. This is contrary to the previous situation, which gave rise to many legal uncertainties.
The Walloon legislator’s objective is that the lease agreement should not be affected by the end of the franchise agreement. In general, all the provisions of the Commercial Lease Act – and its legendary rigorousness – will therefore apply to this particular relationship, which the landlord-franchisor and tenant-franchisee must not lose sight of.
In practice, this means that the lessor cannot terminate the commercial lease agreement. The only way to terminate the contractual relationship with the tenant is to refuse the requested renewal, which can only happen in cases strictly limited by the Commercial Lease Act. If not, the landlord may be required to pay the tenant eviction damages of up to three years’ rent.
However, the tenant must also comply with the strict terms set by the Commercial Lease Act regarding the timeframe and the form with which to request a lease renewal. If these terms are not complied with, then the tenant loses his/her right to obtain a renewal of the commercial lease agreement.
Clauses requiring the exclusive use of a trade name are deemed unwritten
It is now expressly prohibited to provide for a clause requiring the tenant to operate the leased premises exclusively under a specific trade name. It should be noted, however, that this prohibition not only applies to commercial leases entered into under commercial partnership agreements, but also to any commercial lease agreement that contains such a clause.
In practice, in the absence of a valid post-contractual non-competition clause in the franchise agreement, this should allow the ex-franchisee to continue using the commercial premises, even if the franchise agreement has been terminated in one way or another.
Brief comments and reflections
One of the first shortcomings of the Regional Act is its silence on the temporal effect of the above-mentioned amendments. The Regional Act does not contain any transitional provision. According to the case law of the Court of Cassation (Cour de Cassation/Hof van Cassatie), in contractual matters, the old law continues to apply, unless the new law is public policy or mandatory or expressly provides for its application to existing agreements.
In the present case, it can be argued on the basis of the parliamentary report and the mandatory nature of many of the rules of the Commercial Lease Act, that these provisions are mandatory in favour of the tenant.
As a consequence of this interpretation, it cannot be ruled out that a tenant may raise the invalidity of a clause requiring him/her to operate the leased premises exclusively under a specific brand or will claim eviction damages, even if the contract dates from before 18 October 2018. It will be interesting to see how this question will be handled in practice by the courts.
In any case, this new regulation will apply to all leases signed on or after 18 October 2018, but also to leases renewed on or after that date, with the latter constituting new contracts in their own right.
Counterproductive effect in certain situations
While the amendments a priori protect the franchisee-tenant, we note that the reform does not solve all the problems that the tenant may encounter, particularly when a valid post-contractual non-competition clause has been provided for in the franchise agreement. In this case, just as the franchisee who leases the commercial premises to a third party, the ex-franchisee may not operate any activities in the rented premises that fall within the scope of the non-competition clause.
The tenant’s situation then raises questions about if his/her lease agreement remains in force but he/she will not be able to operate activities similar to the one covered by the franchise contract. In addition, even in the absence of a non-competition clause, a change of activity could require the landlord’s prior agreement. Without such a prior agreement from the landlord, the lessee could be accused of gross negligence, unless he/she could possibly demonstrate the landlord’s bad faith/abuse of rights. The situation of the ex-franchisee will therefore sometimes end up being uncomfortable.
Inapplicability to short-term leases
Based on the analysis of the structure of the Commercial Lease Act, it should also be noted that the above-mentioned amendments do not apply to leases concluded for a one-year period or less (except, in the case where the tenant remains in the premises at the end of the agreed period without opposition from the landlord, so that he/she occupies them for a total duration of more than one year).
The scale tips more (too much?) towards the franchisee tenant
The goal pursued by the Walloon legislator is very clear: the aim of the Regional Act is to protect the franchisee-tenant.
Nevertheless, the Council of State was quite critical in its advisory opinion on the preliminary draft of the Regional Act. In its view, the new changes only seem to privilege the interests of tenant-franchisees instead of those of landlord-franchisors, which could constitute a violation of the principle of proportionality.
The Walloon legislator did not really respond to these criticisms, and insisted merely on the legal certainty that the Regional Act would provide.
Conclusion: it is necessary to adapt the contracts used in Wallonia
The regionalisation of the Commercial Lease Act has direct and vital consequences for commercial partnership contracts and, consequently, for franchise contracts.
In this respect, the Walloon legislator clearly wanted to protect the franchisee: not only can he/she continue to operate the commercial premises after the end of the franchise agreement, but he/she will also be entitled, contrary to what was the case, to eviction damages if the franchisor also decides to terminate the lease agreement.
The main actors will have to be careful that the contracts they generally use in the Walloon Region take these new provisions into account, not to mention that they will also have to handle both separate regimes of the franchise agreement and the commercial lease agreement in a consistent and prudent manner.
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