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Lease of business premises: Lease contract does not automatically pass in the event of a change in legal form

Starting entrepreneurs often start as a one-man business or VOF (general partnership) and then, when turnover increases, switch to another legal form such as a BV (limited liability company). The lessor is not always informed of this change, let alone explicitly asked for permission. In principle, this means that the lease will not have been transferred to the new legal entity either. What are the possible consequences of this?

An entrepreneur will not always ask explicit permission from the lessor if a new company structure is formed. A lessor will often not make a problem of this. At least, as long as the rent continues to come in.  But the fact that the landlord continues to receive these payments does not automatically mean that the landlord has agreed to the contract being taken over by the new legal form.[1] This distinction is particularly relevant if the new legal form is no longer able to pay the rent as was shown in the following case study.

 Case study

An existing VOF entered into a tenancy agreement with the landlord.[2] The tenancy agreement was concluded for a period of five years and then extended for another five years. During this period, the VOF changes its business structure. The VOF becomes a BV (Limited liability company) and informs the lessor of this by letter. The lessor does not respond to the contents of the letter and continues to receive the rentals transferred by the BV. A few years later the BV goes bankrupt. However, the lessor states that he has never concluded a lease agreement with the BV and holds the former partners of the original VOF jointly and severally liable for the overdue rent payments. The partners argue that the VOF no longer exists and that they also informed the lessor of this by letter. Now that the lessor has not objected in all that time, they have assumed that the lessor has agreed to the takeover of the contract. According to them, the lessor can therefore only appeal to the (bankrupt) BV.

Contract takeover (6:159 Dutch Civil Code)

The court must assess whether in this case a contract was taken over as referred to in Section 6:159 of the Dutch Civil Code. In short, has the lease been legally transferred to the BV? According to Section 6:159 of the Dutch Civil Code, the following conditions must be met for a contract to be taken over:

– A deed in which the tenant transfers his legal relationship to the new tenant;

– Unambiguous cooperation of the lessor in the takeover of the contract (however, this cooperation does not necessarily have to be in writing).

In the case at hand, there was a deed showing that the VOF wished to transfer the lease to the BV, but the lessor never unambiguously cooperated in a contract takeover. It is true that the tenant wrote to the lessor, but the lessor then never explicitly stated that he agreed to a takeover of the contract. The former partners were therefore still jointly and severally liable for the rent arrears.

Incidentally, if a partner leaves the company, he remains jointly and severally liable as long as the lease is continued unchanged by his former partners.[3] It is therefore important for the retiring partner that the landlord explicitly agrees to the contract being taken over by the former partners so that the retiring partner is relieved of his liabilities.

Conclusion

Tenants of business premises would do well to ask the landlord’s explicit consent if they want the lease, and hence the liability, to be transferred to the new legal form. For a lessor, on the other hand, it is important to gain a good understanding of the financial position of this new legal form before agreeing to a contract takeover.

Are you looking for legal support in the transfer of your business to another legal form or has your tenant changed legal form and would you like to seek legal advice? Feel free to contact M2 Advocaten.

Attorney at law Ginio Beij (beij@m2advocaten.nl)

 

1] Hof Amsterdam 12 November 2013, ECLI:NL:GHAMS:2013:5220

2] Rb Dordrecht 30 July 2012, ECLI:NL:RBDOR:2012:BX5073

3] Ho f ‘s-Hertogenbosch 16 September 2014, ECLI:NL:GHSHE:2014:3642