Retail lease in The Netherlands

Lease of retail business premises in the Netherlands is governed by mandatory rules of law, that serve to protect the interests of the tenant and used to serve the stable development of the Dutch economy after the second world war. Although the justification for the strict rules and regulations no longer plays any role whatsoever, the rules still are in force today. This is a particularity of Dutch law landlords and tenants are confronted with on a day-to-day basis.

Under these mandatory rules a lease term should either be a maximum of two years, or a minimum total of ten years. If the parties fail to observe mandatory law, this can result in surprises. Where the lessor and the lesse agree to a fixed seven year term, the lessee can successfully force an extension of the lease term with three years (so in this example the total lease term will be ten years). After ten years, the contract will continue for an indefinite period of time; either party may then give notice of termination with a notice period of one year.

What is retail lease?

The court will have to establish whether a lease falls within the scope of the mandatory law on retail lease. The law states, that retail premises include restaurants, shops, hotels, and other premises, as long as goods are sold in a premises which is accessible to the general public. As this latter description is rather vague, there is a lot of case law about whether or not a certain agreement is a retail lease agreement. It has been decided, for instance, that the lease of petrol stations is retail lease in the sense of the law. The lease of a cinema on the other hand was not regarded as retail lease.

Lease term

The law provides for it, that the term for retail lease is either a maximum of two years, or a total of ten years (normally divided into two five year periods, but other combinations such as seven plus three years are also possible). With permission of the Cantonal Court, it is possible to deviate from these standard terms. If permission of the Cantonal Court is not obtained and the contract contains a non-standard term (for instance a total term of six years without prolongation), either party may invoke prolongation of the lease term up to a total of ten years.

Termination of a lease contract

In general, lease of business premises may only be terminated before the agreed end date in specific circumstances. This is considerably easier for the tenant than for the landlord. If the lessee does not agree with a termination initiated by the lessor, the lessor will always have to bring proceedings before the Cantonal Court in order to have the agreement terminated.

The lessee may terminate the agreement at the end of the first five year term or at the end of the ten year term by giving notice of termination at least one year before the end of the term.

The possibilities for the lessor are more restricted. First of all, a notice of termination without mentioning a specific ground for termination is to be held null and void. According to the law, possible grounds for termination by the lessor during the first five years of the agreed term are:

  • business operations of the lessee are not "as benefits a good lessee"
  • the lessor urgently needs the premises for his own use.

Most important example of the first ground for termination is non-payment of rent due; however, other examples do of course exist. From case law comes the example of a petrol station operator who frequently worked while under the influence of alcohol; this proved to be sufficient grounds for termination.

After the second five year term, the lessor may also ask for termination of the agreement on the grounds that his interest to end the agreement is more compelling than the interest of the lessee to continue the agreement. The interests of both parties will be weighed by the Cantonal Court.

Flexibility

The demands of the market are often more flexible than this relatively rigid system. For example, parties might want to agree to lease for no longer than seven years, without an automatic extension to ten years in total. And, especially in case of so-called "shop-in-shop" lease, the location of the premises might have to be (relatively) flexible as well.

Especially for these matters, the dutch legislature has introduced the facility of the so-called "derogational clauses" ("afwijkende bedingen"). When parties wish to agree to enter into a non-standard lease contract, they will have to ask the Cantonal Court for prior permission to enter into this agreement.

Certain clauses will never be allowed by the Cantonal Court. To give an example, clauses that extend the possibilities of the lessor to terminate the agreement are not permitted under Dutch law.

The legal system in Holland seems rigid at first sight. However, if one makes good use of the legal possibilities, it is no problem to get the desired result. Modern concepts, like the "shop-in-shop"-concept flourish in The Netherlands.

Further information

For additional information please feel free to contact our Real Estate contact person. Your comments and questions are always welcome.

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