The B2B Act of 4 April 2019 (“B2B Act”) introduced a new set of mandatory rules intended to secure that B2B relations do not include unfair or abusive terms (the “B2B Fair Contract Rules”).
The B2B Fair Contract Rules entered into force on 1 December 2020 and will only apply to contracts concluded after that date. However, one should bear in mind that any amendment made, however minor, after 1 December 2020 will cause the total agreement to fall into the scope of the B2B Act.
Our previous newsflashes have already shown that these B2B Fair Contract Rules significantly impact several contract types in various sectors. This newsflash will specifically focus on the impact of these rules on the Real Estate sector.
I. Material scope of the B2B Fair Contract Rules
In principle, all contracts between companies are within the scope of the B2B Fair Contract Rules. The scope of these rules includes, without being limited to, (share) purchase agreements, agreements establishing rights in rem, lease agreements and construction agreements, but also the general conditions of an agreement and the house rules of an apartment complex.
Two types of contracts are excluded from the scope of the B2B Fair Contract Rules: (i) financial services agreements (for a more detailed approach, we refer to the newsflash of 23 February 2021) and (ii) public procurement agreements (as these are already governed by specific public regulations) as well as agreements further resulting therefrom.
However, it is to be questioned why the Belgian legislator also excluded “agreements further resulting therefrom” since such contracts can qualify as mere private contracts. For example, contracts concluded between a construction developer, to whom the public procurement was granted, and other subcontractors will also be excluded from the scope.
II. Which Real Estate clauses are under pressure ?
A. General rule : significant imbalance between the rights and obligations of the contracting parties
The general rule has the effect of a catch-all provision and applies to each clause of an agreement concluded between companies that conceals a significant imbalance between the rights and obligations of the contracting parties. If such an imbalance is found to exist, the clause concerned will be held unlawful.
This general rule opens the door for interpretation and offers a wide margin of appreciation to the judge. This is why certain objectives and legal criteria (e.g. the circumstance of the conclusion of the agreement, or the commercial practices…) have to be taken into account when assessing the unlawful character of the clause concerned.
It should be noted here that the parliamentary documents refer to a judicial imbalance and not an economic imbalance. However, it is not clear what is to be understood by ‘judicial balance’. , this catch-all provision excludes the clauses relating to the actual object of an agreement and the balance between a price and the corresponding goods/services of the agreement (the so-called “core provisions”) as long as these clauses are formulated in a sufficiently transparent manner.
This transparency condition has a twofold function. On the one hand, it sees to the completeness of a contract. For example, if a lease agreement of an apartment refers to the applicable house rules, it is important that the tenant has acknowledged these rules so that they can be considered part of the lease contract.
On the other hand, the transparency rule implies substantive control, meaning that contractual clauses need to be clear and understandable. Consequently, the purchaser of a property will not be able to invoke an excessively high price that significantly affects the balance between the parties if the price clause was worded in clear, readily understandable terms.
B. Black list with unfair clauses
Aside from the above general principle, the B2B Fair Contract Rules also list four clauses that are unlawful in all circumstances, the so-called black list. These blacklisted clauses are subject to nullity. However, the parliamentary documents require a strict and restrictive interpretation of these clauses.
This newsflash will tackle two clauses, being (i) clauses containing a waiver of any recourse in the case of a dispute and (ii) irrefutable knowledge or acceptance clauses, which both have a significant impact on the Real Estate sector (see also our newsflash of 27 November 2020 for a complete overview of the four blacklisted clauses).
One of the clauses that are considered to be unlawful under the B2B Fair Contract Rules is the waiver of any recourse in the case of a dispute. For example, where a construction contract states that “the works agreed between the contractor and the subcontractor shall be executed in any circumstances including in the event of a dispute”, a total waiver of any possible recourse for the subcontractor has been implemented. Such a clause can possibly be declared null and void.
In that respect, there is no harm in inserting arbitration clauses in lease agreements for example since such clauses do not waive access to justice. Also, conditions precedent set down in (share) purchase agreements cannot be linked to blacklisted clauses as judicial review a posteriori is still possible.
Another type of clause that has been tackled by the B2B blacklist of unfair clauses is the irrefutable knowledge and acceptance clause. An example can be given in the context of a lease agreement that includes the following clause:
“The leased premises are in a perfect state of maintenance and are perfectly known to the lessee for having visited and examined them completely. The lessee does not request any further description of them.”
In principle, the lessor and the lessee are obliged to establish a contradictory inventory of fixtures for the premises subject to the lease agreement. If no such inventory of fixtures has been established, there will be no proof that the lessee has actually visited the premises. Therefore, the above clause might be qualified as an unlawful clause where the lessee irrefutably accepts that the premises are in a perfect state of maintenance.
C. Grey zone in the form of a grey list
The B2B Fair Contract Rules have also inserted a grey list that consists of nine clauses that are presumed to be unlawful. However, this presumption is refutable if one can prove that the clause concerned does not create a significant imbalance between the rights and obligations of the contracting parties.
In order to give a practical insight on the impact of this grey list in the Real Estate sector, this article will focus on two types of clauses on the grey list, being (i) clauses containing a unilateral modification right and (ii) clauses regarding the duration of the agreement (you can find a detailed overview of the nine greylisted clauses in our newsflash of 27 November 2020).
(i) Clauses containing a unilateral modification right
A clause is presumed to be unlawful where one party has the right to unilaterally modify the price, the conditions or the essential characteristics of the agreement unless this right can be justified by a valid reason. This means that the unilateral right to modify may not merely depend on the discretion of one party.
In some construction contracts, the contractor is granted a right to unilaterally modify the unit prices. The parliamentary documents state that if the unilateral modification is merely based on the discretionary will of one of the parties, this modification will be considered “unreasonably onerous” for the other party. This unilateral right to modify unit prices in construction contracts can, however, be objectively justified by for example variations in the pricing of raw materials. It is recommended to detail any such grounds in the contract. The more detailed their description, the better.
Another example of common practice is a standard indexation clause in a lease agreement where the lessor has the unilateral right to adapt the rent in line with the annual index as provided for in article 1728bis of the Belgian Civil Code. As the index is based on mandatory prescribed rules, this clause will not be considered as a unilateral right to adapt the rent of the lease agreement without any margin of discretion in favour of the lessor. In this case, the index clause will not be considered unlawful because it is substantiated with objective means.
Regarding the above, it is important to specify a valid reason for this unilateral right based on objective criteria. Which criteria can be considered “objective”? One can think of political, economic, social and cultural criteria or reasons (e.g. a permit requirement or the funding of a reorganisation), but it will also depend on what future case-law accepts as an objective criterion. As indicated above, it is important that the reason and the corresponding objective criteria are mentioned in the contract in a clear and understandable manner.
(ii) Clauses regarding the duration of the contract
Regarding the duration of a contract, it is crucial to implement a notice period that can be viewed as “reasonable”. However, the B2B Fair Contract Rules do not overrule other regulations regarding compliance with a mandatory notice period.
In commercial lease agreements for example, the law on lease agreements of 10 April 1951 prescribes a mandatory notice period of 6 months. This means that, in the event of a commercial lease between two companies, the lessee must be accorded a notice period of 6 months every three years. This is a mandatory provision and therefore cannot be qualified as “unreasonable”.
What is important is that a reasonable notice period should be considered in the event of a renewal or tacit extension of an agreement. As stated earlier, even a tacit renewal or extension after 1 December 2020 will ensure that the total agreement will be covered by the B2B Fair Contract Rules even if the contract was concluded before this date. From this perspective, it is highly advisable to implement a reasonable notice period for both parties in case of a tacit renewal or extension.
Lease agreements often include tacit extension clauses or the renewal of the agreement unless one of the parties has given prior written notice opposing renewal or extension. One must be attentive that a reasonable period of time is given during which one of the parties is able to oppose the tacit renewal or extension of the lease contract.
The qualification of “reasonable” depends on the actual circumstances of the lease contract (i.e. duration, location, specific conditions etc.). It is important to be aware that either a too short or a too long notice period can be held “unreasonable”.
IV. Five step action plan
Hence, the impact of the B2B Fair Contract Rules on the Real Estate sector is significant.
The below five-step action plan can help you review your existing real estate contracts and draft new real estate contracts:
STEP 1: Review the clauses of your existing real estate contracts by testing them against the B2B Fair Contract Rules for conformity. Check if your contracts contain:
a clause that is part of the black and/or grey list; and/or
a clause that creates a significant imbalance between the rights and obligations of the contracting parties.
STEP 2: If you have found such clauses, modify them or remove them from the contract to avoid them being declared null and void in the future when discussions may arise. We certainly advise you to do so if the contract is amended, renewed or extended, as the B2B Fair Contract Rules will be applicable to the existing contract after such amendment, renewal or extension.
STEP 3: In new contracts, insert new boilerplate clauses and standard conditions in accordance with the B2B Fair Contract Rules.
STEP 4: Always use understandable and unambiguous wording in your agreements and their amendments, renewals and extensions.
STEP 5: Contact your PwC Legal Team if you need assistance with any of the above steps.
François de Montpellier, Partner, PwC Legal
Fran Claes, Senior Managing Associate, PwC Legal
Katrien Antonis, Senior Associate, PwC Legal
