From which point does a lease become a commercial lease and what are the consequences?

Central question: what does the Commercial Lease Law say?

Although jurisdiction has been regionalised for a while now, the basic legislation regulating commercial leases is still the Commercial Lease Law of 30 April 1951, which has since celebrated its 73rd anniversary. 

Commercial rent, according to this Commercial Lease Law, is described as follows:

A lease is therefore a commercial lease if there is:

• a lease (i.e. not a purchase , leasing, ....);
• for a property or part of a property (i.e. not a boat, bus or converted van);
• (mainly) used for the operation of retail or craft activity with direct contact with the public; 
  • note: it must be an effective exploitation, intentions to exploit alone are not sufficient!

Think here of a lease of (part of) a building for a bakery, clothes shop, but also catering establishment or travel agency.

The effective use of the premises is therefore essential, namely operating a commercial activity that requires contact with the clientele.

Commercial activities without direct contact with the customer are therefore not covered. For example, a lease agreement for the address where a company's registered office is located without having direct contact with customers there will therefore not be covered by the Commercial Lease Law.

Activities that are not commercial in nature are obviously also not covered by this law, such as, for example, the liberal professions: doctors, lawyers, etc.

Can you avoid the Commercial Lease Law?

As soon as the above conditions are met, the lease will be subject to the rules of the Commercial Lease Law. Even if the lease has a different title. So there is no point in naming the lease as ‘common lease’ or ‘residential lease’ to escape the rules.

If the tenancy falls under the scope, you will not be able to escape even by including a clause expressly declaring the Commercial Lease Law inapplicable.

So: if the Commercial Lease Law is applicable, it will serve as the basis for assessing your lease.

Consequences: the Commercial Lease Law is mandatory, but what exactly does that mean?

Although the Commercial Lease Law is not of public policy, it is of mandatory law, so breaches of the law are relatively void. 

The party protected by the law in the contract can seek annulment of clauses in the contract that deviate from the statutory provisions to their advantage. Giving wider protection is allowed, less wide protection will be void.

Since the Commercial Leases Law mainly protects the tenant, he will often be the one who can seek annulment. Especially to attack clauses that are not in line with the Commercial Leases Law itself, such as e.g. a clause that allows the landlord to terminate the lease faster or with fewer formalities, or excludes the legal regulation on commercial lease renewal. 

Note that the Commercial Lease Law also gives the landlord certain protection! This is mainly in terms of the protection of his property rights, an example of this being the possibilities to refuse the commercial lease renewal in certain cases.

If you are presented with a contract that deviates from the Commercial Lease Law, it is best to check carefully whether these deviations are permitted. And what are the possible consequences for your role as tenant or landlord due to these deviations.

Consequences on the duration of the commercial lease

One of the main consequences of the application of the Commercial Lease Law is the duration of the lease.

Indeed, the commercial lease (subject to the pop-up lease exception - see below) cannot be shorter than nine years. Even if the agreement states a shorter duration, such as, say, six years, it will be extended to nine years by operation of law. This clause is made for the benefit of the tenant who thus gets greater security and stability to establish and expand his business there.

Contracts of more than nine years are possible, but they are subject to special conditions. For example, these leases will have to be notarised.

So can't you terminate the lease before the expiry of 9 years?

Of course you can, at least most of the time anyway.

Thus, as a tenant, you can terminate the agreement every three years by registered letter or bailiff's writ. This notice must be sent to the landlord at least six months before the three-year expiry date.

However, you can also terminate the agreement every three years as a landlord, but you must allow for a period of one year before the three-year expiry date. In addition, three additional conditions must be met, namely:

• it must be a written lease;
• as the landlord, you must occupy the premises for trade yourself or have the trade conducted by one of the persons specified in the law;
• the possibility of termination must be expressly included in the current commercial lease.

However, amicable termination between the parties is also possible. This is best done by authentic deed, notarised or by declaration before the Justice of the Peace. Arranging the amicable termination in another way is not opposable to the parties and can therefore always be revoked.

Right to rent renewal

Furthermore, as a tenant, you are entitled to three lease renewals of the commercial lease. The commercial lease can thus last 36 years (an initial period of nine years and then three lease renewals of also nine years each). 

As a tenant, you are entitled to this renewal above all other persons. If you wish to exercise your right to renewal, you must notify the landlord by registered letter or bailiff's writ. The notice must be given at the earliest eighteen months, and at the latest fifteen months, before the end of the current lease. This notice must state, under penalty of nullity, the conditions under which the tenant is willing to enter into a new lease.

Beware: the landlord is not obliged to allow the lease renewal or accept the new terms. He can refuse them, as long as it is reasoned. In certain cases, the landlord will also owe an eviction fee. If the landlord fails to respond within three months, after the tenant's request, the landlord is presumed to have agreed. In other words, the adage ‘silence is consent’ applies here.

If the tenant does not wish to avail of the lease renewal, the lease will automatically terminate upon expiry of the expiry date. 

If the tenant does not apply for the lease renewal, but still continues to occupy the rental property, then the lease is tacitly continued for an indefinite term with a special termination clause. 

What happens after 36 years?  It is best to negotiate in time to possibly enter into a new commercial lease, with or without new terms. Since after three renewals, you lose the protection of the Commercial Lease Law, regarding additional renewals. 
 

Rent and indexation

The monthly rent can only be adjusted under well-defined circumstances and indexation of the rent is expressly regulated.

Every three years, and within the last three months of the current three-year term, the tenant or the landlord may apply to the Justice of the Peace for a rent review. Rent review is only possible if one can prove that, due to new circumstances, the rental value of the building is higher or lower by 15% than the rent initially included in the agreement or determined at the last review. 

By ‘new circumstances’, one understands an objective change in the existing situation that is independent of the will of the parties and relates to the rental value of the property. Thus, a reduction in the tenant's income will not suffice to obtain a renewal.

Indexation, on the other hand, is possible only if expressly provided for in the commercial lease. 

Formal requirements

A commercial lease is best drawn up in writing. An oral lease is also possible in principle, but a written lease offers more security for both parties. Both in terms of commencement, price, other conditions, etc.

The law also allows certain things only if they are expressly agreed in writing, such as the above-mentioned interim termination by the lessor.

Registration of the commercial lease is done within four months of its conclusion at the local legal security office of the FOD Finance. Both parties can be fined for non-compliance with this obligation! Usually, the landlord will take care of the registration.