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Belgium

Law and regulation of rental agreements in Belgium during Covid-19

Table of contents
  1.  Is a lessee eligible for rent reduction due to a significant decline in footfall and consequently its turnover as a result of COVID-19?
  2. Is a lessee eligible to temporarily close its leased space - on its own initiative – and opt for rent reduction as a result of COVID-19?
  3. Is a lessee eligible for rent reduction in the event its leased space is closed following an order by the Government as a result of COVID-19?
  4. What kind of security is generally provided by a tenant in connection with a lease, a bank guarantee, a deposit or otherwise?
  5. Could a lessee consider other legal options, such as a lease termination, not paying rent at all or other options as a result of COVID-19?
Belgium
Updated on 25.03.2020

1. Is a lessee eligible for rent reduction due to a significant decline in footfall and consequently its turnover as a result of COVID-19?

No a decline of the turnover does not as such entitle the lessee to a rent reduction.

2. Is a lessee eligible to temporarily close its leased space - on its own initiative – and opt for rent reduction as a result of COVID-19?

Unless otherwise agreed in the contract (e.g. retail lease agreements usually provide for an obligation on lessees to permanently maintain and operate commercial premises), a lessee is eligible to temporarily close its leased space on its owned initiative BUT in principle, he cannot suspend or reduce the rent

3. Is a lessee eligible for rent reduction in the event its leased space is closed following an order by the Government as a result of COVID-19?

The undisturbed use and enjoyment of the leased premises by the lessee is of the very essence of all leases. Courts will have to decide who of the lessor or the lessee should bear the risk of the restrictions currently imposed on non essential businesses. If the restrictions are analysed  as bearing on the lessee's business activity as such, arguably the risk should be borne by the lessee. If the restrictions are analysed as bearing on the leased premises, arguably the risk should be borne by the lessor. This analysis will need to be done on a case-by-case basis, having regard, inter alia, to the asset class to which the leased premises belong.

4. What kind of security is generally provided by a tenant in connection with a lease, a bank guarantee, a deposit or otherwise?

The bank guarantee is the most common security provided by lessees (in B2B agreements), although deposits and/or parent guarantees can also be found from time to time.

If the event of force majeure that prevents the lessor from providing the quiet enjoyment of the premises to the lessee, is just temporary, the lessee has no right to terminate the lease, unless otherwise provided by the lease (e.g. hardship clauses). In the current state of legislation and case law, there is no hardship principle generally applicable.
 
Retail lease agreements are governed by a specific statute that  entitles the lessee to claim  a rent reduction after each period of three years provided that, as a result of new circumstances, the normal rental value of the premises is at least 15 p.c. lower than the agreed rent. It remains to be seen whether the Covid-19 crisis will have a significant long-term impact on rental prices.

Authors

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Portrait ofPierre-Axel Chabot
Pierre-Axel Chabot
Partner
Brussels
Portrait ofBruno Duquesne
Bruno Duquesne
Partner
Brussels