Originating from the law of 30 June 1926, the French law on retail lease agreements influenced Belgium, which then drafted its own regulation on 30 April 1951. Being the exception to the rule in Europe, the Belgian and French laws on retail lease agreements answer to the same logic and are built on the same principles.
However, each law has evolved in order to adapt to the needs of its country and to the requirements of its substantive law. Consequently, although they have many similarities, it is fundamental not to consider them as equivalent since the differences are significant.
The foreign investor must necessarily adapt to and take into account the specific characteristics of the law on retail lease agreements of the country in which he wishes to invest and not reason according to his own law. A restrictive and non-exhaustive overview has been given below in order to give an initial insight into the major differences between the French and Belgian laws on retail lease agreements.
Scope
First off all, French and Belgian property investors should be aware of the fact that Belgian and French laws on retail lease agreements do not concern the same types of leases in the two countries.
The scope of the French law on retail lease agreements is much broader and concerns, amongst others, leases on buildings in which a business is operated by a retail trader, office leases, warehouse leases and leases on educational institutions.
By contrast, the scope of Belgian law on retail lease agreements is more restricted: in fact, it only concerns leases on a building which is primarily dedicated to the operation of a retail business or to the activity of an artisan who is in direct contact with the public. Consequently, in Belgium, office leases and warehouse leases do not enter into the scope of the legislation on retail lease agreements and are governed by Belgian general law on lease agreements.
Notwithstanding the above, in Belgium as in France, the parties can freely decide to submit certain leases to the law on retail lease agreements (and in particular for Belgium, the office leases or warehouse leases). However, it should be noted that parties who wish to apply the law on retail lease agreements to a lease which, in principle, is not subject to such law, must specify clearly this joint intention; simply stating that it is a "retail lease agreement" does not result in the application of the law on retail lease agreements.
Duration and formalities
The point that most highlights the differences between the French and Belgian laws is that of the duration of the lease and of its adjustments. While both laws agree on the minimum and maximum durations of the retail lease agreement (9 years and 99 years respectively), they remain opposed on the practical modalities of their implementation.
- Registration of the lease agreement
Both laws stipulate that, beyond a certain duration, lease agreements must be concluded by notarial deed and published in the land registry (in France) or recorded in the mortgage registry (in Belgium).
However, the duration in question differs depending on whether the building is located in Belgium or in France. Therefore, the French must ensure that they register the retail lease agreement with regard to a Belgian building upon the conclusion of the contract (given that the Belgian law on retail lease agreements stipulates that any lease agreement concluded for a duration exceeding or equal to nine years must be registered). Considering that this formality is ad validitatem, the failure to register the lease agreement shall result in the unenforceability thereof against third parties.
With regard to the Belgians, they must equally register the commercial lease agreement concluded on their building located in France, but only if such lease agreement has been concluded or extended for a term exceeding or equal to twelve years, which makes the registration of the lease agreement much less frequent than in Belgium.
In practice, the commercial lease agreement in Belgium is systematically registered whilst it is possible not to register a commercial lease agreement in France (if the lease is concluded for a duration of less than twelve years and renewed for the same duration).
- The right to termination offered to the parties
While the Belgian law and the French law both acknowledge a right to early termination for each party at the expiry of each three-year period, they differ on the following points:
- Belgian law regulates more the right to early termination by the lessee than French law does. Mandatory in nature, the right to early termination offered to the Belgian lessee cannot be the subject of any adjustment that would restrict the rights of the party in question. In other words, the lessee can never waive its right or make it less favourable. By contrast, any contractual modification enabling the lessee to exercise its right to termination more easily is permitted.
Therefore, this system is substantially more protective than that of the French law, which authorises the lessee to derogate from what is provided by law, even to its disadvantage. It will therefore be possible for the lessee to waive its right to early termination, which is strictly impossible in Belgium. Belgian investors, who are lessees of retail lease agreements in France, should consequently read their contract thoroughly in order to identify whether their right to early termination is subject to restrictions.
- Unlike Belgian law, French law recognises ipso jure the right to early termination in favour of the lessor. In the wording of the legislation, no mention of any formality to be completed is made in order for the lessor to benefit from this right. However, in Belgian law, the lease agreement must imperatively contain an express provision authorising the lessor to benefit from the right to early termination. The absence of such a provision shall result in the lessee only being able to benefit from this right and terminate the lease agreement early. Consequently, it is advisable for any French lessor concluding a retail lease agreement in Belgium to ensure that it expressly stipulates this right in the lease agreement, otherwise it will not be able to benefit from it.
- Expiry of the lease
The most significant difference between the French and Belgian laws is related to the approach and the assimilation by each legal system of the concepts of "renewal" and "tacit extension". Two situations may occur:
- In the event the parties give notice in proper and due form: if one of the parties gives notice with an offer or request for renewal, the lease agreement is renewed once the lessee and the lessor agree on the conditions of renewal. However, the renewal of a lease agreement is perceived differently by the two laws.
Under French law, the renewed lease agreement is a new lease agreement, even when it is concluded under the same conditions as the old lease agreement. By contrast, under Belgian law, legal doctrine considers that the renewed lease agreement is neither a new lease agreement, nor an extension of the old lease agreement.
- In the event the parties do not give any notice: the future status of the lease agreement, once the expiry date thereof has passed without any notice being given, is also perceived differently by the two laws. Under French law, the lease agreement is tacitly extended for an indefinite duration; under Belgian law, a new lease agreement is concluded tacitly for an indefinite duration. In other words, in the event of absence of any notice, French law considers that the parties retain the same lease agreement whilst Belgian law considers that it is a new lease agreement.
In general, it is very surprising to see that both laws are unanimous on the very principle of renewal or tacit extension but completely opposed on the legal nature of each concept. Therefore, Belgian and French investors must exercise great caution at the expiry of the lease and take into account the specific characteristics of each law.
Conditions of the lease agreement
The analysis of the French and Belgian provisions applicable to retail lease agreements reveals notable differences in the conditions of the lease agreement, both with regard to the financial aspects and the aspects relating to the distribution of charges and works as well as the inventory of fixtures.
- Three-yearly rent revision
French law provides for a legal mechanism in which the rent will be revised at the expiry of every three-year term which, following the request from the lessor or the lessee, will be applied without having recourse to the courts, on the basis of an index applying to rents. By contrast, the mechanism in Belgium is judicial: the party seeking to obtain an adjustment of the rent is obliged to do so before a court (which rules ex aequo et bono on the basis of several objective facts), on the condition also that the applicant establishes that, due to new circumstances, the normal rental value of the leased building is greater than or less than at least 15% of the rent stipulated in the lease agreement.
- Rental guarantee
In Belgium, no mandatory provisions for the form and/or duration of the rental guarantee exist. In practice, the amount varies between three and six months of rent and the lessor can demand a bank guarantee payable on first demand, a standard bank guarantee or blocked funds. In France, although the principle is the same as in Belgium, there are certain stipulations providing a framework for the practical terms of the rental guarantee. For example, it is stipulated that, if the rent is payable in arrears, the rental guarantee cannot exceed two months of rent, under penalty of generating interest in favour of the lessee.
- Charges and works
The rules applicable to charges and maintenance and repair works were similar in both countries before the entry into force of the Act of 18 June 2014, known as the "Pinel" Act, namely that the distribution of charges and works between the lessor and the lessee can be freely determined between the parties. In France, since the entry into force of the Pinel Act, the lease agreement must contain the exact list of the charges and works as well as their formula for distribution between the parties. It should be clarified that French lessors can no longer allocate to lessees major renovation works in the sense of Article 606 of the French Civil Code, contrary to their Belgian counterparts.
- Inventory of fixtures
The same observation as that relating to charges and works can be made for the inventory of fixtures: there is no obligation to draw up an in-going inventory of fixtures in Belgium, as was the case in France before the entry into force of the Pinel Act. Since the latter’s entry into force, it is now mandatory to draw up an in-going inventory of fixtures in France, whereas in Belgium this remains a simple possibility for the parties.
Conclusion
Each of the two countries has its own legislative arsenal concerning retail lease agreements and the differences encountered have a tendency to become more accentuated as case law develops. Therefore, economic operators should pay particular attention thereto, with it being specified that currently in Belgium, federal competence relating to lease agreements (including retail lease agreements) has been transferred to the regions. The reader will not be unaware that this transfer of competence is likely to increase the identified differences in the future.
Kar Yan Wan, Associate, Brussels, karyan.wan@cms-db.com
Damien Marquet, Associate, Paris, damien.marquet@cms-fl.com
