In our Belgian Real Estate & Retail Newsletters we inform you of the latest legal developments. In this edition: following the Flemish and Walloon regions, the Brussels region now introduces a short-term retail lease decree to allow landlords and tenants to conclude a maximum-one-year retail lease that falls outside the scope of the federal Retail Lease Act.
In Belgium, retail leases are governed by the federal 1951 Retail Lease Act. Tenancy law was a federal competence for many years, but from 1 July 2014, the legislative competence on, among others, retail leases, was transferred to the regional level (i.e. to the Flemish, Walloon and Brussels regions). To date, none of the three regions have abolished the federal Retail Lease Act; this means that this Act remains in force in each of the three regions, pending derogating legislation to be adopted on the regional level (if any). The Retail Lease Act contains mandatory provisions such as a minimum lease term of nine years, and the tenant's right to ask for three lease renewals of nine years each.
This long-term commitment discourages certain entrepreneurs from starting a retail business. Furthermore, certain landlords are reluctant as a result of the predominantly pro-tenant regime of the Retail Lease Act.So in order to meet the needs of pop-up retailers and their landlords, each of the three Belgian regions have now introduced a "short-term retail lease" decree. These regional decrees are similar (but not identical) and each reflect the same idea, i.e. they offer the possibility of a maximum-one-year retail lease that falls outside the scope of the federal Retail Lease Act.
New Brussels Decree enters into force on 19 May 2019
The Brussels region adopted its short-term retail lease decree on 25 April 2019 (Ordonnantie betreffende de handelshuur van korte duur, Ordonnance relative au bail commercial de courte durÃ©e). In recent years, Belgium's two other regions have adopted similar legislation: the Flemish region in 2016 (Decree of 17 June 2016 on the short term lease for retail and craftsmen) and the Walloon Region in 2018 (Decree of 15 March 2018 on the short-term retail lease and modifying the Civil Code).
The Brussels Decree provides a legal framework for the following type of written lease:
(i) the lease relates to a part or the entirety of immovable property located in the Brussels region;
(ii) the property is taken in lease essentially for the operation of a retail or craftsmen activity by the tenant;
(iii) there is a direct contact between the tenant and the public; and
(iv) the lease term is equal to or less than one year ("short-term lease").
Other features of the Brussels Decree are (in brief):
a. Duration and termination
The short-term lease automatically terminates upon its expiry, without the need for a termination notice to be given by either side. The tenant is not entitled to a tacit lease extension, nor does the tenant have the right to request a lease renewal.
The tenant is entitled to terminate the short-term lease for convenience at any time. To that effect, the tenant has to give one month's notice to the landlord by means of a registered letter or a bailiff deed.
Parties can jointly terminate the short-term lease for convenience at any time, provided that such termination is documented in writing.
b. Lease extension
Subject to the parties' consent, the short-term lease can be extended several times under the same conditions, provided that the aggregate duration does not exceed one year.
If, following such extension(s), the aggregate duration exceeds one year, the short-term lease will fall within the scope of the Retail Lease Act. This means that the lease has a nine-year term, counting as of the start date of the initial short-term lease.
c. Ingoing and outgoing schedule of condition
Parties are legally obligated to establish an ingoing and outgoing schedule of condition (there is no such obligation under the Flemish or Walloon Decree). Such schedules of condition can be drawn up by the parties themselves or by a jointly appointed expert.
d. Lease guarantee
If the landlord requires the tenant to provide a guarantee aimed at guaranteeing the tenant's compliance with the lease, such guarantee cannot exceed an amount equal to one month's rent. There is no specific lease guarantee limit under the Flemish Decree, nor under the Walloon Decree.
The taxes on the leased premises are deemed to be included in the rent, unless agreed otherwise in writing between the parties.
Unless agreed otherwise in writing, the tenant has the right to carry out works that are useful for its business, provided that such works do not adversely impact the safety, cleanliness or esthetic value of the leased premises. Prior to the execution of the tenant's contemplated works, the tenant must inform the landlord by registered letter about such works; the landlord has ten working days to oppose such works, failing which the landlord is deemed to have given its consent.
At the end of the lease, the landlord is entitled to claim the reinstatement of the leased premises to their initial state, unless agreed otherwise. If the landlord decides to maintain the works executed by the tenant (and the landlord therefore does not claim reinstatement), no indemnity is due by the landlord for the works taken over.
g. Sub-letting and assignment
Assignment of a short-term lease is prohibited. Sub-letting is subject to the landlord's written consent (while the Flemish Decree simply prohibits sub-letting).
A new owner/landlord of the leased premises is obligated to comply with the short-term lease and therefore cannot expel the tenant, provided that the lease is registered with the competent registration office.
Certain provisions of the Brussels Decree clearly are "mandatory", meaning that parties cannot validly deviate from them by contract (e.g. the stipulation that the lease duration cannot exceed one year). Other provisions are clearly mere "default provisions" providing for a given standard in the absence of a derogating contractual provision (e.g. the stipulation that taxes are deemed to be included in the rent). Unfortunately, however, the Brussels Decree also contains stipulations for which it is unclear if they are mandatory or not (e.g.the stipulations on the ingoing and outgoing schedule and on the landlord's possibility to obligate the tenant to provide for insurance coverage during the tenant's works).
The Brussels Decree applies to short-term leases that are concluded on 19 May 2019 or later.
The Brussels region follows the example of the Flemish and Walloon regions and now has its own "short-term lease" legislation, entering into force on 19 May 2019. Although these three regional statutory frameworks are similar, they are not identical.
All of the three legislations allow parties to conclude a maximum-one-year retail lease outside the scope of the Belgian Retail Lease Act. These regional legal instruments are ideal for pop-up stores and form a welcome addition to the federal Retail Lease Act.