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An entrepreneur who wants to sell his business will generally want to transfer the lease of his business premises to the buyer. This is possible by means of substitution. For mid-market business premises, such as shops, catering, collection or delivery services and craft businesses, this is regulated by law. It is a special form of a transfer of the lease agreement.
What is a substitution?
In the event of substitution, the rights and obligations from the original tenancy agreement are transferred to the successive tenant. The ‘new’ tenant takes the place of the original tenant in the lease. The agreed lease terms, lease price and other conditions therefore simply remain in force.
Parties will often first try to have the substitution take place in consultation. However, if the landlord does not want to cooperate, for example because he is afraid that the new tenant will not pay the rent (on time), the tenant can go to court. The tenant then asks the court for permission (a replacement authorisation) for the substitution.
How does the court assess a claim for substitution?
The court assesses a claim for substitution on the basis of the following criteria:
- it must be a transfer by the lessee of the business established in the leased property;
- the incumbent tenant must have a substantial interest in that transfer; and
- the succeeding tenant must provide sufficient guarantees for the correct performance of the lease and proper business operations.
If requested, the court must also weigh the interests of the tenant and the landlord against each other. In addition, the court may attach a condition or charge to the authorisation for substitution. For example, the judge may make it a condition that the new tenant must provide a bank guarantee or other security.
When must substitution take place?
In principle, an action for substitution must be brought before the business is transferred. If substitution is not realised before the transfer of the business, permission must be sought from the court as soon as possible after the transfer. Another important point of attention is that the tenant may not give the leased property to the new owner without the landlord’s permission. If this is not permitted under the tenancy agreement, this may be a reason for the lessor to dissolve the tenancy agreement. If the tenant still wishes to give the property in use to the new owner, permission to do so can be requested from the court in preliminary relief proceedings. However, in order not to run any risks, it is always wise to seek advice from a rent lawyer.
Do you have any questions about subletting when renting mid-terrace business premises?
Leeman Verheijden Huntjens’s commercial property tenancy law attorneys will be happy to answer any questions you may have about the renting and letting of business premises. We assist both tenants and landlords and, where necessary, draw up a substitution agreement. If necessary, we will start summary proceedings or ask the court for a replacement authorization for the substitution.