Country - Belgium
Commercial Leases
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A. SOURCES OF LEASE LAW
Applicable legislation
As regards office leases, no specific provisions have been enacted to govern this type of lease, as a result of which the general provisions of the Civil Code apply, including the rules concerning leases of real estate in general. Legal provisions on other specific items (tax, environment) may also apply to office leases.
When it comes to retail leases, the Civil Code contains a specific section (section II bis to chapter II, title VIII) on this type of lease agreement. Should this section not deal with certain matters, then the rules governing leases of real estate in general apply.
Finally, hotel leases are subject to the same regime as retail leases. We would also like to point out that this item, given the applicability of the same rules as is the case for retail leases, will not appear throughout the table as a separate item (except at the end).
Do any specific rules apply to commercial leases?
Yes, as stated above, retail leases are governed by a specific section of the Civil Code. The provisions of this section in principle have an imperative nature. This means that, when parties deviate from those specific provisions in their agreement, the provisions of this agreement violating said imperative rules will be voidable.
Since the provisions will only be voidable, they can be preserved by the party which the violated provision aimed to protect. Alternatively, this party can, after the fact, also ratify the violation, thus safeguarding the validity of the agreement.
Do different regimes apply to leases of commercial premises depending on the use of the premises by the lessee (offices, warehousing, industrial, retail)?
Yes, see the previous answers for a more detailed overview.
B. DURATION AND TERMINATION OF LEASES
Is there a minimum or maximum obligatory term?
The duration of office leases is subject to only a small number of legal rules. Several options thus exist. The lease can be for a definite or an indefinite period of time. When parties agree on a definite duration, the lease can be broken down into several periods, at the end of which the lease can be terminated. For instance, it is common to have so-called "3-6-9" office leases, a nine year lease, which can be terminated by the parties at the end of both the third and sixth year periods.
As for retail leases, the law provides that they have to be concluded for a definite term. Furthermore, the duration must be at least nine years (one of the imperative provisions mentioned above). Parties are free to agree upon a duration exceeding nine years.
It is noteworthy to mention that, in case the duration is more than nine years, the agreement has to be executed in the presence of a notary public, who will have the lease registered in the Mortgage Register.
Does the lessee have a right to renew the lease upon expiry of the initial contractual period?
If, at the expiration of an office lease with a definite duration, the lessee stays in the leased premises and the lessor implicitly or explicitly approves this, then, according to the Civil Code, a new lease agreement comes into existence, subject to the same conditions and with the same duration as the initial lease agreement.
The lessee's continued occupation does, of course, not have the consequences described above, if the lessor has served its lessee with a termination notice. Apart from this, parties can freely agree upon the possibility of prolonging the duration of the lease.
A very specific procedure applies to the renewal of retail leases. The lessee has the right, above all other persons, to ask for a renewal of the lease agreement in order to continue the same retail trade. This right is limited to three renewals.
In principle, such renewal extends the lease by another period of nine years, subject to the parties agreeing on a shorter period. In order to obtain a renewal, the lessee has to notify the lessor of its desire either by registered mail or by service by a bailiff. This has to be done, on penalty of forfeiture, between the 18th and the 15th month prior to the expiration of the term (i.e. at the expiration of the initial term of the lease, or at the expiration of the first or second renewal).
The notification has to contain certain items, including a clause whereby, if the lessor refuses to renew the lease, it has to notify the lessee of this refusal by the same means (i.e. also by registered letter of service by a bailiff) within three months or that it will otherwise be considered to have granted the renewal.
The grounds for refusal are limited and specified in the Civil Code: (i) the lessor - or to a certain extent members of his family - wants to occupy the leased premises itself; (ii) the lessor has received a higher offer by a third party and the current tenant does not match this offer; (iii) the lessor desires to give the premises a non-commercial use; (iv) the lessor wants to reconstruct the building or part of it; and (v) the lessee has seriously breached its obligations in the current lease.
Do lessees enjoy security of tenure (i.e. the right to remain in occupation after their lease expires)?
Lessees do not specifically enjoy security of tenure when it comes to office leases.
With respect to retail leases, we refer you to the above paragraph.
Do leases involve a lengthy procedure for the effective recovery of possession?
The length of time varies depending upon the circumstances but it usually takes several months.
Can government/local authorities require the compulsory termination of a lease?
Yes, local authorities have certain rights to acquire property on a compulsory basis and this includes property held under leases.
When this occurs, the lessee can claim damages from the lessor (unless excluded in the agreement) and the government.
Is there a preferential right of acquisition?
The law does not provide this kind of pre-emption rights.
The parties are of course free to contract as they wish. Nevertheless, pre-emption rights (i.e. rights of first offer for the lessor) are not common practice.
C. RENT AND COSTS
Are variable rental agreements common?
Parties are free to determine the amount of rent, the moment such rent is due and the method of payment.
Parties are free to set the amount and periodicity of rent due, as well as the method of paying the rent.
Variable rental agreements are not really common, except for certain types of retail leases (shopping centres, outlet malls), when a link is made to turnover.
Most common indexation
As regards office leases, parties most often agree to an indexation of the rent on the basis of an index of retail prices (excluding certain items such as tobacco). A specific article of the Civil Code contains the procedure which has to be complied with imperatively when parties have indeed agreed upon such indexation (article 1728 bis).
Retail leases can also be subject to indexation in accordance with the fluctuations of the health index, in which case article 1728 bis is again imperatively applicable. Retail leases also offer two additional mechanisms for rent revision. First, at the end of each three-year period, both parties can request the court to revise the amount of rent. The court can only do so when certain conditions are met:
- the market rental value of the leased premises has changed by at least 15%;
- as a result of new, objective circumstances which will have an impact for the next three years; and
- the claim was brought before the court during the last three months prior to the expiration of the relevant period.
This provision is of a compulsory nature. Secondly, upon renewal of the retail lease and in case of disagreement among the parties about the future rent, an action can be brought in court asking a court to decide in equity on the amount of rent owed.
Who usually pays the common expenses?
Most lease contracts contain a provision pursuant to which all costs and rental charges, including taxes with respect to the leased premises, are to be borne by the lessee. The lessee pays either a periodic fixed amount or a provisional amount, subject to adjustment upon the lessor's handing over the costs and charges effectively made.
Are there any other expenses connected with the lease?
No, except indirect taxes (see below).
Which indirect taxes are applicable?
The types of leases we discuss here are VAT exempt. Consequently, the lessor is unable to deduct input VAT. In case the lessor constructed the leased premises or acquired them subject to VAT, it will have to take this cost into account when determining the amount of rent it will require the lessee to pay.
In order to have the leases made enforceable against third parties, the lease agreement has to be registered, entailing a registration right of 0.2%, based upon the amount of rent it charges for the entire duration of the lease.
D. OBLIGATIONS OF LESSOR AND LESSEE
Who is responsible for the different works on the premises?
The lessor is obliged to deliver the leased premises to the lessee, to maintain the premises in a condition to serve for the use for which it was leased, unless agreed otherwise, and to provide peaceful enjoyment to the lessee for the duration of the lease.
With respect to maintenance, the only exceptions are the so-called maintenance works, which the law requires must be performed at the lessee's expense, i.e. small maintenance repairs. The law does not say what the maintenance repairs come to. As a result, case law provides the most guidance on the exact meaning of the phrase. All major repairs and the repairs necessitated by Acts of God remain at the lessor's expense.
Parties are free to deviate from the legal framework described above and can perfectly agree that all repairs will be borne by one party or the other.
The lessor may not alter the leased premises during the lease, unless agreed otherwise.
Can the lessee alter or improve the premises?
Parties are free to work out an arrangement with respect to alterations and improvements in their lease agreement.
In addition to the above and with respect to retail leases, the Commercial Lease Act states that the lessee can always undertake works that permanently change the structure of the leased premises, but that in such case:
- the works should be useful to the lessee's business;
- the works are only allowed for the business premises; and
- the cost of the works may not exceed three years' rent.
The Commercial Lease Act provides a specific procedure to be complied with when the lessee wishes to undertake the above mentioned works to the leased premises.
Furthermore, the Commercial Lease Act also contains a specific provision dealing with the regulation of the works at the end of the lease contract. However, the parties are also free to come up with their own arrangement regarding the issue of regulation.
On the other hand, with respect to works not permanently altering the destination of the leased premises, the Commercial Lease Act does not provide a specific arrangement, so that the provisions of the Civil Code governing leases of real estate in general apply.
What restrictions are there on the lessee's right to use the premises?
Lease agreements will generally specify the purpose of the leased premises. In such cases, the lessee is not allowed to use the premises for other activities. In order to avoid the applicability of specific legal rules (such as those applying to retail leases), leases frequently prohibit the use of the leased premises rendering said provisions applicable.
Office leases usually also contain a specific provision on the party responsible for obtaining the authorisations and permits needed in connection with the envisaged use of the leased premises by the lessee.
Is there a right to transfer the lease?
The lessee is entitled to transfer his office lease to a third party, provided this option has not been excluded or limited in the contract.
Retail leases are subject to the same rule, yet lessors usually make full use of the possibility to limit and even completely exclude the right to transfer the lease.
When the transfer of the lease is coupled with the transfer of the business, the law provides that the clause in the agreement excluding such a transfer is inapplicable.
However, this rule does not apply when the lessor or his family resides in part of the leased premises. The Commercial Lease Act provides a specific procedure which has to be followed, when the lessee makes use of the possibility provided for by law to transfer the lease together with the business, and the lease agreement excluded transfers as such.
(As mentioned above, the lease agreement cannot prohibit the transfer which is related to the transfer of the business specifically. However, the lessor has the right to oppose such simultaneous transfer on the basis of legal grounds, within 30 days following the notification by the lessee. The Commercial Lease Act mentions one specific legal ground for the lessor to oppose: the fact that the lessee has practised his business in the rented premises for less than two years, or has only obtained a renewal of the lease for less than two years. The lessee must appeal to the judge within 15 days of the opposition from the lessor on penalty of being barred.)
Is there a right to sub-let the premises?
The lessee is entitled to sub-lease his office lease to a third party, provided this option has not been excluded or limited in the contract.
Retail leases are subject to the same rule, yet lessors usually make full use of the possibility to limit and even completely exclude the right to sub-lease the premises.
Similar to the transfer of the lease (see supra), the law provides that when the sub-lease of the premises relates to the transfer of the business, the clause in the agreement excluding such a transfer is inapplicable. In such case the same rules as for the transfer of the lease together with the transfer of the business apply (see supra).
What are the usual guarantees?
The lessor can demand a guarantee for the lease, e.g. an amount to be blocked a bank account for the duration of the retail lease. The lessee is also required, according to article 1734 of the Civil Code, to sufficiently furnish the leased premises. The lessor is preferred on the proceeds of a forced sale of such furnishings, in case of arrears (for an amount of two years of rent in arrears, the current rent and the rent of the coming year, and possibly even for all future rent). This obligation cannot be imposed on a lessee that has provided another guarantee.
Are there any obligations with respect to environmental law?
The applicable obligations with respect to environmental law vary according to the region where the premises are located (Flemish, Brussels or Walloon region). A brief overview of the relevant rule is:
- Brussels region: if the termination of the lease leads to the cessation of polluting activities by the lessee the latter may be required to perform a preliminary soil investigation, possibly followed by a risk study and perhaps a soil clean-up.
- Flemish region: the execution of a lease may be considered as a transfer of land, in which case a soil certificate will have to be obtained. In the case of listed environmentally harmful activities a soil survey will have to be performed, possibly resulting in an additional survey and remediation. The same may apply at the end of the lease.
- Walloon region: if listed environmentally harmful activities are conducted then a preliminary soil investigation may have to be done at the moment of cessation of these activities, possibly leading to a risk study and clean-up.
E. PARTICULAR TYPES OF LEASE
Do office leases have any particular characteristics?
Throughout this table, a division between retail leases and office leases has been used, so that the specific characteristics of office leases, coinciding with the characteristics of real estate leases in general, have been dealt with.
Do retail leases have any particular characteristics?
Throughout this table, a division between retail leases and office leases has been used, so that the specific characteristics of retail leases have been dealt with.
Do hotel leases have any particular characteristics?
As already mentioned, the provisions regarding retail leases also often apply to hotel leases.
Parties can, however, agree upon a hotel management or hotel exploitation agreement, whereby an "operator" performs services relating to the exploitation and management of the hotel. Such hotel management agreement grants the lessor the income generated by the hotel business, minus the management fee to be paid to the operator. The lessor also remains the owner of the leased premises and may even own other assets used in connection with the exploitation of the hotel business.
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