Publication date: 2 April 2019
The lease of a shop can be terminated by the landlord due to urgent personal use. Then, the lessor himself or persons or companies associated with him must exploit the retail space and benefit from this. Renovation can also be a ground for urgent personal use. At the request of the lessee, a compensation must be paid for his relocation upon termination of the lease.
Does your competitor rent retail space in a prime location? Then you can try to buy that property and start a shop yourself by terminating the lease because of urgent personal use. But when is it a matter of personal use? And when is personal use urgent?
The legal principle is that both the tenant and the lessor can terminate the lease of retail space at the end of the fixed term or – if the lease is for an indefinite period – at any time. In both cases a notice period of at least 1 year applies. After notice of termination by the landlord the lease only ends if the tenant agrees or the court so determines. The lessor must base his notice of termination on one or more (statutory) grounds for termination, for example urgent personal use.
It is personal use if the lessor serves his own interests with the intended use. This may be the case, for instance, when the lessor or a direct family member is going to run a shop in the rented property or is going to dwell in the rented property. In case of legal entities it is not only about shareholding or control, but all circumstances of the case are important, such as the company relationship and the aim of the lessor under the articles of association. If the lessor is a director/major shareholder of the company to which he wishes to give the leased property for use, he will thereby serve his own interests.
The personal interest must not be a solely financial interest such as another lessee willing to pay a higher rent or sale of the rented property. The intended personal use must also be realistic and feasible.
Financial interests may play a role in the question whether the intended personal use is urgently required. If the lessor can achieve a higher return by exploiting the rented property himself instead of letting it, this may be sufficient to assume urgency. A general business economic interest may also be sufficient, even if the urgency has arisen by the lessor himself and/or if there are alternatives for the lessor to achieve the same goal.
A (major) renovation which is not possible without the termination of the lease, will be a special form of urgent personal use. Think of a changed location and function of the rented property, or long-term renovation due to which the rented retail space has to be closed for a long time. In order to benefit from this ground for termination, the lessor must make a reasonable case for his renovation plans but is not required to have all permits yet. A bill has been pending (since 2011) to limit landlords’ right to invoke renovation as a ground for termination and to require that the interests of the lessee are also taken into account in the termination decision. It remains to be seen whether or not this bill will become a law.
A company buying a property for termination on the grounds of urgent personal use followed by own exploitation must take into account that during the first rental period a waiting period of 3 years must be observed before the rent can be terminated on the grounds of urgent personal use.
Regardless of the ground on which a rental agreement for retail space ends, the lessee (and the competent sub-lessee) may claim compensation in court for removal and furnishing costs. This concerns the actual costs associated with the removal that must then actually take place. As it concerns a compensation, the total costs will not be reimbursed.
If the lessor runs a business that is similar to the one of the departing lessee, the lessee can also claim a compensation for the accumulated goodwill he loses to the lessor.
Finally, the lessee can also claim compensation if it turns out that the lessor did not have the intention to put the rented property into personal use. This will be assumed if the lessor waits longer than a year after the end of the lease to put the rented property into personal use, but it may also be the case if the lessor only runs a shop himself in the rented property for a very short period of time or sells the rented property in order to have the renovation carried out by the buyer.
Do you need a plan of action for terminating the lease due to urgent private use? Or do you want to defend yourself against the termination of the lease of your shop? Please contact us:
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