On 1 September 2016, the Flemish Decree of 17 June 2016 on the short-term lease of premises for commercial and artisanal purposes ("Vlaams Decreet houdende huur van korte duur voor handel en ambacht") entered into force. It should be noted that commercial leases fall under the authority of the regions, and a short-term commercial lease currently only exists in Flanders.
Definition
Pop-up shops, i.e. those intended to have a temporary term of existence (generally only a few months), are a relatively recent and popular phenomenon. This type of business allows entrepreneurs to test a concept for a certain period of time, before making substantial investments. It also allows landlords to fill vacant premises and is thus a win-win deal for both parties.
Legal uncertainty
For several years, there has been uncertainty about the tenancy rules applicable to pop-up businesses. The Act of 30 April 1951 (hereinafter the "Commercial Lease Act") states that commercial leases must have a minimum initial term of nine years, with the possibility to renew the agreement up to three times for another period of nine years. Needless to say, these provisions are incompatible with the short-term character of a pop-up business.
In order to get around the statutory minimum lease term, contracting parties had to resort to other mechanisms, such as precarious possession ("bezetting ter bede"), an occasional lease ("gelegenheidshuur"), a service agreement ("terbeschikkingstelling") or the conclusion of two back-to-back agreements. None of these alternatives resulted in sufficient security:
- Precarious possession can be terminated at any time by the landlord. Consequently, the occupier of the premises is in an insecure position. In addition, the agreement will likely be recharacterised as a commercial lease and will thus be subject to the (stringent) provisions of the Commercial Lease Act.
- Article 2(1) of the Commercial Lease Act allows application of the act to be waived for an occasional lease, i.e. one with a term of less than one year due to the nature or purpose of the property or its use. In order to determine whether an agreement should be considered an occasional lease, objective criteria must be taken into account, not simply the intentions of the parties. Depending on the facts, an occasional lease may be used for a pop-up business. However, there is always a risk of the agreement being recharacterised as a commercial lease, with the ensuing consequences for the term of the agreement.
- Using a service agreement for a pop-up shop is a stretch since such an agreement usually entails more than merely making commercial premises available to a merchant. Further, it remains unclear whether a service agreement falls under the Commercial Lease Act.
- Finally, the parties can conclude two back-to-back agreements: (i) a commercial lease agreement with a term of nine years and (ii) an agreement terminating the lease prior to expiry of its nine-year term before the justice of the peace or in the form of a notarial deed, in accordance with article 3 of the Commercial Lease Act.
It should be noted that these escape routes play an important role for the lease of commercial premises for a period of more than one year but less than nine years and for all commercial lease agreements in the Walloon and Brussels-Capital Regions.
A term of one year or less
A commercial lease agreement with a term of one year or less will automatically be subject to the provisions of the Pop-up Decree and will end automatically upon expiry of its agreed term. Note that the Decree is contradicting itself on this point, since article 2 determines "a term of one year or less" while article 3 states that "the lease term can not reach or exceed the period of one year". Extensions to the lease agreement are possible, provided the lease period does not exceed one year in total. Unlike under the Commercial Lease Act, the lessee does not have the right to renew the lease agreement.
Recharacterisation of the agreement
If the total lease period exceeds one year, the agreement will be recharacterised as a regular commercial lease and will thus be subject to the provisions of the Commercial Lease Act, meaning it will be deemed to have a minimum term of nine years.
Premature termination
The agreement can be terminated unilaterally by the lessee or by mutual consent of the parties. During the term of the agreement, the lessee can end the lease at any time by notifying the lessor by registered letter or service by bailiff, taking into account a notice period of one month. In the event of termination by mutual consent, the parties must express their consent in writing. As opposed to under the Commercial Lease Act, a notarial instrument or declaration in front of a justice of the peace is not required.
Renovations
Unless the parties have agreed otherwise, the lessee has the right to renovate the leased premises in order to render them (more) suitable for the pop-up business. The renovation costs cannot exceed one year's rent. The lessee is obliged to inform the owner of the intended renovation works. The lessor can request that the leased premises be restored to their original condition at the end of the lease or retain the renovations, in which case no compensation will be due.
Transfer of the lease agreement and subletting
As opposed to a regular commercial lease, where transfer of the lease agreement and subletting are permitted (unless the lease agreement expressly provides otherwise), transfer of the lease agreement and subletting are not allowed by the Pop-up Decree. However, according to the parliamentary preparations, contract parties can agree otherwise during the agreement.
Conclusion
The Pop-up Decree enhances legal certainty, at least in Flanders, by creating a statutory framework for pop-up businesses. Although the decree could be clearer as to the contents and wordings, it fills a gap in the law with regard to short-term commercial leases and reflects recent economic reality.
