In my real estate practice, I am frequently faced with the situation where the owner of an office complex, shopping center or other commercial space wants to undertake a renovation, but one or more tenants do not want to cooperate.
Obviously, a tenant’s willingness to cooperate in the desired renovation is lessened the more the renovation may have adverse consequences for the tenant, such as the temporary unavailability of the leased space or its relocation. The question then becomes what means the landlord has to be able to carry out the renovation anyway. This publication is concerned only with business premises and not residential premises.
In the first place, of course, the landlord is always well advised to seek a solution in consultation with the tenant that reduces any adverse consequences for the tenant as much as possible. This could include financial compensation, but also the temporary or permanent provision of good substitute rental space. If, however, it is not possible to reach an agreement with the tenant, the law gives the landlord a number of options for enforcing the tenant’s cooperation through the courts.
Urgent own use
The first possibility is then that the Subdistrict Court, on the landlord’s demand, can determine that the lease agreement ends if the landlord makes it plausible that he urgently needs the leased property for his own use. By urgent own use is expressly understood: “renovation of the business premises which is not possible without termination of the lease”. By the way, an owner cannot invoke this provision if he has been the owner (in this case landlord) for less than three years.
So there is a tough criterion: the landlord must make it plausible that renovation is not possible without termination of the lease. Such a situation does not arise easily. Renovations often take place in phases, with different parts of the buildings in question or the building remaining in use at different times. Especially in situations where similar space becomes available for the tenant in question at the same location after the renovation is completed, the landlord will have to make every effort to find the tenant any temporary accommodation at the location in question or in the vicinity.
Balance of interests
A second legal option available to the landlord is to bring an action to terminate the lease based on a balancing of interests. This option cannot be used until after the lease has already existed for ten years. The court will reject the landlord’s claim if, upon reasonable consideration of the tenant’s interests against those of the landlord, the tenant cannot be required to vacate the leased property. Even in that case, therefore, the landlord must make a plausible case that there is really no other way than for the tenant to disappear, given the interests at stake for him as landlord.
Case study: renovation hospital
In a case recently before the court, both of the above grounds were invoked by the landlord. The case involved the landlord of a flower store with coffee corner/grand café and visitors’ restaurant within a hospital. The landlord sought termination of the lease on the grounds of urgent own use because renovation of the hospital would not be possible without termination of the lease and also invoked the balancing of interests.
First, the subdistrict court ruled that the renovation was not deemed “impracticable” if the lease was to continue. It had been argued by the lessee that during the renovation it would be possible to operate from a mobile flower store and that the operation of the coffee corner/grand café could also be continued, despite the renovation work. The landlord had also argued that no grand café or similar catering facility would return after the renovation, but apart from the fact that that did not prove to be entirely true, that could not be an argument to terminate the lease on the grounds of renovation.
Furthermore, the subdistrict court in the judgment went into great detail about how the renovation would be carried out, namely in three phases. Quite detailed was thereby indicated how during those various phases the operation of the tenant’s business could be continued.
The need for renovation was not disputed by the tenant in this case. The lessor’s interest was in providing top academic care, with the lessor arguing that this interest outweighed the lessee’s economic interest in continuing to operate. The subdistrict court ruled that the landlord had not presented sufficient facts and circumstances to be able to conclude that its interest would be affected by the continuation of the lease to such an extent that the interest of the tenant would have to give way. The landlord therefore fails to terminate the lease.
Conclusion
The conclusion is that termination of a commercial lease on the grounds of renovation is certainly not impossible, but only if it can be made plausible that the renovation cannot be carried out without termination of the lease. Avoiding proceedings in this regard by reaching solutions in proper consultation with the lessee is of course always recommended.
