Mandatory lease term in commercial premises

Mandatory lease term in commercial premises

Retail premises and other commercial premises

The law draws a distinction between what are known as ‘retail premises’ and ‘other business premises’. ‘Retail premises’ are understood to mean a building (built real estate) which, according to a rental contract, is designated for the operation of a retail business, a restaurant or cafe, a collection or delivery service or a craft business, and which contains a room for the direct supply of goods and services which is accessible to the public. ‘Other business premises’ is a residual category: it refers to a rental contract, which relates to a space used for purposes other than residential or retail.

Mandatory lease term: five plus five years

The entrepreneur who operates a shop in rented retail premises is entitled to a mandatory lease term. The legal principle for that protection is that it applies for two times five years. A rental agreement for retail premises (also known as medium-sized business premises or ‘290 business premises’) is legally valid for five years. Following the expiry of this initial five-year period, the rental agreement is by operation of law (automatically) extended by a second five-year period, so that in principle the total length of a rental agreement for retail premises is ten years. Deviations from this rule are not permitted to the detriment of the lessee of retail premises.

Trial period

However, commercial tenancy law does offer the lessee and lessor the option of agreeing a trial period with one another. This trial period may last a maximum of two years. In this case, the statutory term protection for the lessee does not apply. However, lessors should be aware that as soon as the two-year period is over, the agreement automatically reverts to a rental agreement for five years.

Mandatory lease term

In practice, many rental contracts deviate from the statutory ‘5+5 rule’. However, this is far from always done in a legally correct manner. If a rental term has been agreed which is longer than two years, the rental contract is nevertheless valid for a term of at least five years. And even if nothing has been agreed or if the rental agreement says that it has been concluded for an indefinite period, the statutory principle of two five-year terms applies. A rental agreement concluded for more than five years but less than ten years is similarly extended following the expiration of the agreed duration by a second term such that the total duration amounts to ten years. So if the rental contract states the first term is six years, that agreement is extended by four years. By discussing aspects of rental agreements such as these with a commercial tenancy lawyer in advance, a lot of problems can be avoided later on.

Specialist in commercial tenancy law

In situations like these, it is important for both lessee and lessor that the procedural requirements imposed by the law are complied with on time and properly. A specialist in commercial tenancy law may be the answer. The lawyers at AMS assist both lessees and lessors. Feel free to contact us for a free meeting with no obligation.