The law provides a rule for answering this question, but the lease agreement may include different agreements. In practice that happens, but these agreements are often unclear or undated, creating opportunities and threats.
Statutory rules
In essence, the statutory rules are as follows:
- The owner of the plot also owns the structures that are on the plot, for example a petrol station;
- With building rights, the ownership of the petrol station can be allocated to somebody other than the plot owner;
- At the end of the lease agreement, the lessee may remove, in other words demolish, the changes and improvements he introduced, for example the petrol station he built;
- The lessee is only entitled to do this on condition that the leased property is returned to the ‘original condition’ in which it was made available at the time of starting the lease;
- The lessee may only remove the changes and improvements he applied and not anything that was applied by a predecessor;
- If the lessee decides not to demolish the petrol station, but to leave it behind he may ask the plot owner for compensation.
Complications
In practice this is marred by all manner of complications, such as:
- Building rights were not established;
- It is unclear whether this concerned the lease of undeveloped land or the lease of 7:290 business premises;
- The lease agreement deviated from the statutory rules, but the agreements could be interpreted in several ways;
- After commencing the lease agreement, the existing petrol station was demolished and a new petrol station was built;
- After commencing the lease agreement there were investments, including a 15-year reinspection;
Opportunities and threats
Having, keeping or acquiring a petrol-station site is of commercial and financial importance. Towards the end of the term of a lease agreement, there are opportunities and threats for the lessee, plot owner and competing fuel suppliers. It throws up issues, such as:
- Could the petrol station be demolished if it was built by a previous lessee?
- What is the ‘original condition’ if the old petrol station that was there at the start of the lease was replaced by a new petrol station?
- What is the ‘original condition’ if investments, such as a 15-year reinspection, took place?
- Is the lessee protected if the wording of the lease agreement says that undeveloped land was leased, but the petrol station was already there on entering or renewing the lease agreement?
- Did the lease agreement contain an agreement that the plot owner is entitled to acquire the petrol station, for example by paying the ‘book value’?
- What is the ‘book value’?
All this means that:
- At the end of the lease agreement, the lessee of a petrol station could be required unexpectedly to leave the petrol station behind for a competitor for a limited amount of compensation at best;
- On the other hand, threatening or actually exercising the removal (demolition) right could be a means to encourage the plot owner to renew the lease agreement under favourable terms;
- For the plot owner there could be opportunities to actually acquire possession of a petrol station for a small fee that could be leased to a different fuel supplier;
- The competing supplier has opportunities to acquire a point of sale at relatively low costs.
- Good insight into the various legal points of view that could be adopted ensures that opportunities and threats are identified in time and that the correct strategy can be determined to capitalise on those opportunities and to avoid any threats.
Information
If you have any questions about this subject, please contact Bouwe Bos.
