“Pop-up Decree”: flexible short-term commercial lease for start-ups!
1 September 2016
by Ana Maria Franken
Pop-ups are trendy. They are the ideal real life teaser when a product goes viral, to accompany the release of the new product, brand or concept. They are also the ideal solution for property owners to fill in (commercial) units. They have, to some extent, redefined the current real estate market.
The stringent Act on Commercial Lease was an obstacle for many start-ups or innovative entrepreneurs. The Decree of the 17th of June 2016 relating to short-term commercial lease, commonly called the Pop-up Decree, enables entrepreneurs to overcome this obstacle, and offers a solution for the current legal vacuum. Start-ups in the Flemish region can now safely install their (temporary) shop without having to counter the Act on Commercial Lease. From September 1, 2016 on, the tenant and the lessor can conclude a short-term commercial lease! Unfortunately pop-ups in Brussels and the Walloon region still have to comply with the federal rules, including the Act on Commercial Lease.
Before the new legislation was drafted, pop-ups had to take into account that their temporary lease agreement or the - whatever they called it - agreement was considered to be an agreement for precarious use (offering no protection against eviction), or, even worse, that their agreement would be qualified as regular commercial lease, with a mandatory minimum duration of 9 years (potentially: 36 years). The only foolproof legal advise to prudent start-ups would have been to have a termination agreement confirmed by the court or a notary-public, before the entry into force of the agreement. But this is an expensive and cumbersome solution for a newborn cost conscious company.
The Pop-up Decree that enters into force on September, 1 2016 does not apply to the entrepreneur who rents an office or a co-working space. This remains governed by the general lease law, which is not nearly as stringent as the Act on Commercial Lease.
A similar legislative initiative would be useful for rental platforms such as Airbnb that operates via the private housing market. The existing mandatory legislation on residential lease is inapt for the lease of an apartment or a room through Airbnb, that even generates a higher yield. It is also highly questionable whether such agreements are still to be considered as lease. Having regard to the multiple market players and their opposite interests, there is no straightforward answer to this question.
What are the new rules for short-term commercial lease ?
In order to have a valid contract, there must be a written agreement. The new commercial short-term lease cannot arise tacitly. The maximum during of a short-term commercial lease is one year, minus one day. The agreement may be extended but only for a short term of, for example, one or three months, and has to be subject to the same conditions as the existing agreement. We regret the lack of clarity regarding the applicability of the Pop-up Decree on commercial lease contracts of exactly one year.
The Pop-up Decree is tenant-friendly and flexible. The tenant can give notice of termination at all times, provided this is done by registered mail, with a minimal notice period of one month. The lessor-owner cannot serve notice of termination. This aims to protect the start-up’s project, based on a non-compete consideration: to prevent that the lessor would operate the successful commercial concept of its tenant in the property.
Another element proving the tenant friendly character of the Pop-up Decree, and the goal to protect the tenant, is the composition of the rental fee: the rental price must include the property tax.
The termination of the short-term commercial lease by mutual consent is also flexible, compared to the Act on Commercial Lease: it can be done by written agreement, without any additional formalities.
Unless agreed otherwise, the tenant may also, without having to obtain the consent (but with notification in writing) of the lessor, adapt the building, provided that the works are beneficial to its commercial concept, and that the total cost does not exceed the rental price of one year. Upon termination, the lessor may request that the building is restored as it was delivered, or may accept these works. In the latter case, the tenant is not entitled to any compensation.
On the other hand, the Decree contains a (limited) disadvantage for the tenant: it is not possible to sublet the building or transfer the lease. But most entrepreneurs will not want to sublet or transfer the unit they have let for a short term. And if they do, they can mutually agree to this with the lessor during the execution of the short-term agreement.
To conclude, we welcome the new Pop-up Decree, which was urgently needed to keep up with reality, and provide the necessary legal framework for pop-up stores, galleries and bars that cheer up our everyday lives. More flexibility will assure the existence and growth of this successful concept, facilitate market-entry of start-ups, and also allow real estate owners to optimise occupation of their property.
Ana Maria Franken | Associate
Natalie Lemense | Partner