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18 March 2019 / news

Termination of a retail lease on the basis of an urgent need for own use?

Concrete plans are required

Real Estate Quarterly - July 2018

The tenant of retail or catering space (article 7:290 of the Dutch Civil Code) enjoys rather a strong security of tenure. The tenant is, for example, in principle entitled to a lease term of at least 5 + 5 years. But even after the expiry of these terms, the landlord cannot terminate the lease just like that. The law only provides for a limited number of possible grounds for giving notice of termination. Both after the first and the second term of 5 years, the landlord may terminate the lease on the ground that it “urgently needs the leased space for its own use”. The sale of the retail space does not fall within that scope, but renovation that cannot be carried out without termination of the lease does. In that case, there should, however, be adequate urgent reasons for renovation. Financial interests may be regarded as urgent too. After 10 years, the landlord may also give notice of termination by relying on a general balancing of interests. The landlord must, however, be able to demonstrate with concrete plans that the space is urgently required for its own use. This has once again become clear from a recent decision of the 's-Hertogenbosch Court of Appeal.

In the decision, the landlord wanted to convert the leased space, a bar/restaurant, into a high-quality boutique hotel. Such a renovation can constitute as “own use” within the meaning of the law. In this case, however, the court of appeal concluded that the plans were still in too much of an exploratory phase. Thus, giving notice of termination was not possible.

To substantiate its argument, the landlord had submitted a number of documents, including a preliminary investigation by a contractor, a needs assessment of the situation in the market and a number of sketches made by a firm of architects. The court of appeal did not consider these documents sufficient to demonstrate the urgent need for own use. For example, the preliminary investigation was not specifically focused on the plans for the redevelopment of the leased space. Moreover, the documents showed that the landlord had no clear plans for the redevelopment: in particular, the needs assessment was based on a concept of a boutique hotel that was very different from the boutique hotel the owner claimed it wanted to realise. The leased space furthermore had a monumental status, resulting in extra strict requirements for obtaining a building permit. There was no evidence, however, that the municipality intended to cooperate in such a redevelopment.

The court of appeal, therefore, came to the conclusion that the landlord was still in an exploratory phase with regard to the redevelopment. The reliance on urgent own use was rejected. For the same reasons, the reliance on notice of termination on the basis of the balancing of interests failed. The interest of the tenant and the subtenant, who is a catering operator and who has made substantial investments, outweighs the interest of the landlord.

This decision shows once again that it will not automatically be possible, after expiry of the 10-year term, for a landlord to terminate a retail lease. In order to successfully rely on urgent own use, the landlord must have concrete and clear plans about what it wants to do with the leased space after termination of the lease. Such plans must be up-to-date and well-substantiated. In addition, it would be wise for the landlord to already make enquiries with the municipality whether obtaining the required permits is feasible, especially when it regards a monument.