Pop-up leases in Belgium

Real Estate Gazette Belgium
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In an effort to fill inner city retail vacancies, the Flemish Region in Belgium enacted the Decree of 17 June 2016 on the short-term lease of premises for commercial and artisanal purposes (known as “pop-up leases”), which came into force on 1 September 2016.

Legal framework

Since 1951, commercial leases in Belgium have been governed by the Commercial Lease Act. One of the main principles of this Act is that commercial leases must have a term of at least nine years. Although there is provision for a tenant to terminate the agreement at the end of each three-year term, it has been argued that such a long-term commitment discourages entrepreneurs from starting retail businesses, which has led to an increasing number of retail vacancies in shopping areas.

Following the Sixth State Reform in Belgium that was approved in 2013, the three Regions in Belgium (namely, the Flemish Region, the Walloon Region and Brussels) have each been empowered to enact new rules governing lease agreements relating to a tenant’s principal residence, commercial lease agreements and lease agreements relating to agricultural real estate.

It was against this background that the Flemish (Dutch-speaking) Region enacted the Decree of 17 June 2016, which has become known as the Flemish Pop-up Decree. Pop-up leases have been expressly excluded from the scope of the Commercial Lease Act.

Under this Decree, commercial lease agreements for premises that are located in the Flemish Region can now be entered into for a period of less than one year (“pop-up leases”), irrespective of whether or not the tenant is the owner of the commercial business.

The aim of the Flemish Pop-up Decree is to encourage entrepreneurs to start up a new retail business with minimal risk but also to provide comfort to landlords that such a temporary lease agreement will not unexpectedly be reclassified as a standard nine-year commercial lease, subject to the protective provisions of the Commercial Lease Act.

All the provisions of the Flemish Pop-up Decree are mandatory unless expressly stated otherwise.

Principal terms of the Flemish Pop-up Decree

Duration and termination (Articles 2-6)

Article 2 of the Flemish Pop-up Decree states that it applies to agreements with a term equal or shorter than one year. Unfortunately, however, Article 3 states that the duration of a pop-up lease must be shorter than one year.

A pop-up lease will automatically terminate on the agreed end-date without any required notice and it cannot be tacitly renewed.

Contracting parties can agree in writing to renew their pop-up lease one or more times under the same conditions, provided that the total term does not exceed one year. If, as a result of successive renewals, the total term becomes longer than one year, the agreement will automatically be classified as a standard commercial lease (and thus subject to the Commercial Lease Act) with a term of nine years commencing on the starting date of the pop-up lease.

The tenant can terminate a pop-up lease at any time with one month’s written notice, given to the landlord by registered letter or by a notice served by a bailiff. The landlord does not have this early termination right and such a right cannot be contractually agreed. The parties can terminate the pop-up lease early by mutual consent provided that this is confirmed in writing. Unlike termination by mutual consent of a standard commercial lease agreement subject to the Commercial Lease Act, early termination of a pop-up lease does not require to be notarized.

In case of early termination of a pop-up lease, whether by mutual consent or at the tenant’s instigation, the tenant will not be entitled to compensation, unless agreed otherwise. Since the Flemish Pop-up Decree does not expressly mention compensation in case of a normal termination of a pop-up lease at the end of the agreed term, it can be assumed that no such compensation is available.

Rent

The Flemish Pop-up Decree does not contain any express provisions on rent. As a result, parties are free to agree on the applicable rent and the payment method.

Since the term of the pop-up lease must be equal to or less than one year, the standard rules concerning annual indexation and revision of rent do not apply.

Expenses and taxes (Article 8)

Unless otherwise agreed, all taxes that apply to the leased premises (such as property tax, communal taxes, registration duties, etc) are considered to be included in the rent.

The utility costs (heating, electricity, water, etc) related to the leased premises are always to be paid by the tenant.

Renovation works (Articles 9-12)

Article 9 of the Flemish Pop-up Decree provides that, unless otherwise agreed, the tenant is permitted to perform renovation works which:

  • Are useful to the tenant’s business
  • Do not affect the health and safety, or the aesthetical value of the rented premises
  • Do not cost more than one year’s rent

A tenant who wishes to carry out renovation works simply has to notify the landlord in writing before the start of the renovationns. The landlord has a right of access to the site to inspect the works being undertaken and may require the tenant to take out additional insurance.

Article 10 of the Flemish Pop-up Decree provides that if works have been carried out without the landlord’s consent or without complying with consent given, the landlord has a right to demand that the renovation works are stopped. However, given that Article 9 of the Flemish Pop-up Decree only obliges the tenant to notify the landlord and does not require his consent, in practice, Article 10 will be unenforceable.

If the renovation works were financed by the tenant, the landlord can request their removal at the end of the pop-up lease, unless otherwise agreed. If the landlord decides to keep the property as is, however, he is not required to pay any compensation.

Assignment and subletting (Article 13)

The Flemish Pop-up Decree provides that assignment of a pop-up lease and sub-letting of premises leased under a popup lease are strictly forbidden. However, as this is a clause that benefits the landlord and the Flemish Pop-up Decree was principally drafted to protect tenants, it is assumed that the contracting parties will be allowed to contract out of this restriction, despite the fact that this is not expressly stated.

Registration

In exactly the same way as standard commercial lease agreements must be registered, so too must pop-up leases. Unless otherwise agreed, it is the landlord that is responsible for doing so.

Sale of the leased premises (Article 14)

A new owner of commercial premises cannot evict a pop-up tenant, “except for the application of Article 4”. The reference to Article 4 of the Flemish Pop-up Decree is unclear, however. With regard to termination, Article 4 simply provides that pop-up leases will automatically terminate on their end-date. Thus the reference to Article 4 in Article 14 dealing with eviction does not seem relevant. It may be questioned whether the Flemish legislator intended in fact to refer to Article 6, which provides that the landlord and the tenant can at any time mutually agree to an early termination of a pop-up lease.

Disputes (Article 15)

Disputes concerning pop-up leases fall exclusively under the jurisdiction of the Justice of the Peace of the location of the leased premises, in the same way as standard commercial leases.

Conclusion

The Flemish Pop-up Decree is a commendable attempt to resolve the growing problem of inner city retail vacancies in Flanders, and to re-stimulate retail activity by enacting a separate set of rules for short-term commercial leases of up to one year.

However, although the Flemish Pop-up Decree seems clear and straightforward at first sight, it does contain a number of inconsistencies and will therefore require clarification and amendment in the near future either by the legislator or by case law.

It remains to be seen whether and to what extent the Walloon Region and Brussels will follow the example of Flanders in enacting separate legislation for short-term commercial leases.