Commercial lease: revision
Commercial lease: revision
November 2021 – The law on commercial leases allows both the lessor and the lessee to request a revision of the rent when the circumstances justify it. A case was brought before the Justice of the Peace in Antwerp which illustrates the limits of this right.
Article 6 of the Commercial Leases Act
The right to request a rent review is contained in article 6 of the Commercial Tenancies Act. This section reads as follows:
"At the end of each three-year period, the parties shall have the right to apply to the Justice of the Peace for a review of the rent, provided that they establish that, as a result of new circumstances, the normal rental value of the rented property is at least 15 p.c. higher or lower than the rent stipulated in the lease or fixed at the time of the last review.
The judge shall rule in equity and shall not take into account the favourable or unfavourable performance resulting from the sole fact of the lessee.
The action may only be brought during the last three months of the current three-year period. The revised rent shall be effective from the first day of the following three-year period, the old rent remaining provisionally payable until the final decision”.
The main elements are as follows:
both parties can request a review;
there must be new circumstances;
the normal rental value as a result of new developments is 15% higher or lower than the rent stipulated in the lease;
a revision must be requested every three years.
The facts about the Groenplaats in Antwerp
X (landlord) and Y (tenant) have a commercial lease agreement. At some point they agree to renovate the building and agree on the amount each will contribute to the cost of the renovation work. After the renovation (in 2015), they enter into a new commercial lease agreement for 27 years, starting on 1 December 2015. The monthly rent is 4 000 euros.
On the third anniversary of the contract, X requests a review of the rent, as provided for in Article 6 of the Commercial Leases Act. X believes that the monthly rent should now be 8 500 euros. X therefore asks the judge to impose this amount as the new rent or at least to appoint an expert.
X invokes the existence of new circumstances:
the redevelopment of the Groenplaats was approved in December 2016;
the redevelopment of the Scheldt quays started in August 2017;
the Leien and Operaplein, etc. should be completed in December 2018;
a low-emission zone was introduced in Antwerp from 1 February 2017.
But what does the judge think?
Mandatory law
A first point that the judge clarified is that Article 6 of the Commercial Tenancy Act is mandatory law. This means that the parties cannot agree to deviate from it. Y's lawyer argued that the contract itself already provided that a new rent could be agreed after fifteen years and that Article 6 would then no longer apply. But this argument was rejected by the judge.
Basis of calculation
A second point concerns the calculation of the 15% and more specifically the reference value (i.e. the basis on which the 15% is calculated).
The judge clarifies that the reference value with which the current rental value is to be compared is not the rent agreed upon at the time the lease agreement takes effect, but the normal rental value at the time the lease agreement takes effect.
In principle, the agreed rent can be considered to be equal to the normal rental value. In this case, however, the lessee contests this principle. Y claims that he made substantial investments in 2014, so that the building has increased in value, and that in exchange the parties entered into a lease agreement for a period of twenty-seven years at a rent of 4 000 euros per month.
X formally denies this.
The judge first considers that X (the lessor) must prove that the normal rental value at the time of the conclusion of the lease agreement in 2015 was equal to the rent stipulated in the lease. X is the plaintiff and claims that the rental value has increased by more than 15%. X must therefore prove what the reference value was. The judge cannot clearly infer from the correspondence that there was an agreement that Y should pay less rent because of renovation works. However, X fails to prove what the reference value would be, so the first condition (15% increase) is not fulfilled.
New circumstances
However, the judge goes even further. X allegedly claims that the building should yield a much higher rent because its situation has improved significantly due to various works. Do these works constitute new circumstances? According to the judge, new circumstances are "objective circumstances that have a lasting influence on the rental value of a commercial property, but which were not available at the time the rent was fixed and which have occurred since then, so that they could not be taken into account when the rent was fixed".
The new circumstances must not be unforeseeable, but they must be of a lasting nature. This means that they will probably influence the rental value of the property for a period of at least three years.
The judge also considers that: for a circumstance to be considered a new circumstance, it must have occurred at the time of the application for rent review. A circumstance cannot be considered new if it has not yet occurred. All the circumstances invoked by X (the planned redevelopment of the Groenplaats, the as yet unfinished work on the new Leien, etc.) are therefore not new circumstances at all. The work has not yet been completed! As for the low-emission zone, the judge ruled that it had not been sufficiently proven that its introduction would have such an impact that it would justify an increase in rent.
As a result, the landlord's application was rejected in its entirety, and as the landlord was also unable to prove what the reference value of the rent was, it is unlikely that he will be able to demand a higher rent in the future - even if the Groenplaats is redeveloped in the future.