Vacant commercial space: landlords be prepared!!!

In recent years, vacancy of commercial space has increased on balance. Just after the first corona measures went into effect, that trend leveled off. According to experts, this flattening trend has to do with the government measures and the market is now in a lull before the storm. Just like in bankruptcy law. The storm of bankruptcies is expected to come only when government support stops. Logically, business space will become vacant when companies go bankrupt. Property owners benefit from preventing vacancy. This is because vacancy increases the risk of damage from theft, decay, squatting or fire, as well as loss of income.  

For this reason, there is ample reason to consider the legal side of vacant commercial space. What factors should you take into account as a property owner? And what are the options for redeveloping your property? With this article we want to give you a head start so that you are prepared and can limit the (vacancy) damage as much as possible.

What are your options: 290-business space or 230a-business space?

To settle the lease agreement with the departing/bankrupt tenant, it is important to know under which rental regime the current lease falls. Also with regard to making the right choices about how to fill vacant commercial premises, it is important to be aware of the different rental regimes.

Rent law has different regimes depending on the type of business space. In short, there are two types of business premises: 290 business premises (or "middle-range business premises") and 230a business premises (or "other business premises"). Different rules apply to both types of commercial space, and in particular the degree of rent protection differs. 290 business premises has greater protection (think of protection regarding duration, rent, etc.).

It is generally assumed that the applicable rent regime is a choice of the parties involved. However, applicability is something that is determined by law. Thus, what name the agreement has is not decisive. What matters is the content and performance of the lease. If, based on this, there is a 290 business premises - even if the parties talk about 230a business premises - then the stricter 290 rental regime applies.

290 business premises include, for example, stores, restaurants, cafes, take-out or delivery services or craft businesses. The direct delivery of movable property or services must take place in premises accessible to the public. Hotels and camping businesses also fall under the regulations of Section 7:290 of the Civil Code. Business premises that are not 290 business premises will automatically fall under the regime of Section 7:230a of the Civil Code. Examples of 230a business premises are offices, cinemas, travel agencies, bank branches, swimming pools, transport companies and practice premises for the exercise of a profession (such as those of attorneys, general practitioners or dentists).

If it is possible to enter into a rental agreement for 230a business premises for a vacant business premises, this offers you as a landlord more contractual freedom and it is easier to enter into a short-term rental agreement, for example. For example, to cover a period of vacancy.  

Filling vacancy by loan or rental based on Empty Property Act

If a suitable tenant is not immediately available, a temporary cost-recovery structure can provide a solution. Leaseholding is a form that property owners often employ as an alternative to vacancy.

Opting for loaning has at least two advantages. First, a borrower can provide an allowance for expenses. This limits the vacancy loss. Second, a borrower has no rent protection. As a result, a property owner can more easily dispose of his vacant commercial property again as soon as he finds a suitable tenant.

However, loaning also has pitfalls. The difference between rent and loan is in the fee payable. The dividing line between loan and rent can be razor thin. If the allowance for expenses is not worked out precisely and the amount is on the high side, a judge will quickly rule that it is rent. In this way, the agreement changes color and the loan agreement becomes a rental agreement. Then the 290 or 230a regime applies. Thus, an alleged borrower can suddenly invoke rent protection after all. Thus, loaning must be used carefully.

In some cases, it is also possible to temporarily rent out your business space as living space under the Empty Homes Act. In this way, as a landlord, you are not bound to the rent protection rules with respect to living space. For letting under the Leegstandswet a permit is required. This is only granted if a number of strict conditions are met. In addition, the lease must comply with various formalities. These include mentioning the permit granted, the period for which it was granted and the rent, but also that the rent protection rules do not apply. If these formalities are not met, the lease is considered a regular residential lease. The result is far-reaching rent protection for your tenant. Therefore, we recommend always having your desired construction checked first by a specialized lawyer. 

Converting business space into living space

Another - often lucrative - option is to have the business space converted into residential space. Whether this is possible from a planning perspective will depend entirely on the type of business space and the location. In several municipalities it is possible to apply for subsidies for a feasibility study. Especially with regard to commercial space above stores, municipal regulations have been created to prevent vacancy. For this type of commercial space, municipalities are often happy to cooperate in converting the zoning from commercial to residential. Perhaps this transformation offers a nice plan B.

Bank guarantee typically does not cover vacancy damages

Be aware that a bank guarantee usually does not cover vacancy damages. It is a good idea to check this in advance.

The Supreme Court has ruled several times on the question of whether vacancy damage is covered by a bank guarantee. If there is no bank guarantee, a landlord will basically be left empty-handed. In 2013 and 2017, the Supreme Court ruled that damages for vacant properties cannot be recovered from the bankruptcy estate. When the bank acts as a third party guarantor, however, things are different. For this, rent payments must be paid by the bank at the landlord's request, unless otherwise agreed. Since then, banks have been reluctant to provide guarantees for vacancy damages.

For this reason, a bank guarantee must explicitly provide for the coverage of vacancy damage. A landlord can only claim vacancy damage if the text of the bank guarantee and the lease contains an obligation to compensate vacancy damage. The claim may expressly not apply against the tenant - and later, therefore, the estate.