When may a tenant cease operation?

Blogs Real estate, Construction & Environment Arjen de Bruijn
A lease for commercial real estate, such as stores, restaurants, hotels, but also offices, almost always contains an operating obligation for the tenant. In other words, the lessee must operate and the "store" must be open to the public. The interest of the landlord, for example, is to prevent possible deterioration of the premises in question. The tenant's interest is obvious: he wants to operate, because otherwise he will not sell anything (leaving aside internet sales) or make any turnover. The interests run parallel. However, things can also run differently, namely, things happen after the lease commencement date that make the tenant want to close. The question that then arises, and which we regularly encounter in our practice, is whether the tenant is always obliged to continue operating or whether there may be reasons why he no longer needs to. The starting point is, of course, that agreements made must be honored. However, under certain circumstances the lessee can indeed be relieved of this. The most well-known circumstance - indeed, settled case law - concerns making a structural loss. In short: a lessee does not have to continue operating if he is making a permanent loss. In some cases even if he himself is guilty of those losses. Of course a balancing of interests takes place. By closing down, the losses will be less and this interest is regularly considered in case law to outweigh the landlord's interest. Less well known is that other interests can also weigh so heavily that the tenant no longer needs to operate. A good example is the ruling of the Gelderland District Court of November 10, 2023. The landlord, " the church legal entity The Dutch Province of the Congregation of the Holy Spirit" (not very relevant to this blog, but a wonderful name) leases to the National Museum of World Cultures Foundation the so-called Africa Museum. Another party that has sided with the lessor in the proceedings, The Africa Collections Foundation, has given on loan for no consideration all the items on display in that museum. The lease agreement and the loan agreement run until December 31, 2024, and during that term tenant is bound to operate the museum, otherwise under both agreements. In 2021, the agreements were terminated by landlord and lender (landlord et al.) by December 31, 2024. More than 2 years later, in 2023, Tenant reports that closing a museum involves much more than " at just a lease termination". Tenant reports that it has decided to initiate the phasing out of the museum effective Nov. 27, 2023, so 1 year and 1 month before the end of the agreements. This means that on that date, the museum will close to the public, a social plan for the staff will take effect and the timely eviction will be prepared. In the proceedings (a preliminary injunction under Article 223 RV within proceedings on the merits), the landlord et al. claim (on forfeiture of penalties) that the tenant must continue to operate until 3 months before the end of the agreements. This, incidentally, already partially satisfies landlord et al.'s point that tenant cannot be required to operate until the end of the agreements. The court ruled in favor of the tenant after weighing all interests. The interests of the lessor c.s. are that they want to prevent parts of the collection from being removed or dispersed (according to the court, this has not been demonstrated, so this interest lapses), prevention of (further) deterioration of the leased property (in the main case the lessor c.s. claimed fulfillment of the maintenance obligation), prevention of degeneration, damage and squatting. The interests of the tenant can be briefly described as follows: because of the termination, the morale of the employees has dropped, there is uncertainty and as a result an unpleasant work situation has arisen. This must come to an end. Logical moment is the expiration of the last exhibition on November 26, 2023, moreover, the social plan goes into effect on December 1, 2023. The tenant would like to give its employees the opportunity to find a new job in a timely manner and thus move from job to job. Therefore, a generous period of about one year is needed. Because many employees will be laid off using the plan, there is a high risk that the museum cannot be kept open due to lack of staff. Moreover, the museum is still very little visited anyway. Visitor numbers, especially after the corona pandemic, have fallen sharply. After December 1, 2023, the energy and inspiration of tenant and its staff cannot be required to organize another temporary exhibition. The tenant has argued that the security of the leased premises and maintenance will continue to be sufficiently guaranteed up to and including the end of the lease. To the extent that there are no longer its own personnel to take care of this, personnel will be hired. Partly because most of the landlord's objections have been removed, the tenant's interests prevail. This feels like a fair decision after careful consideration of interests. It is important to realize that every interest, which is different in every case and carries different weight, will be considered. Thus, the prevailing opinion that only losses can lead to the cancellation of the operating obligation is not correct, it is much more nuanced.   Need help in your case (as a landlord or tenant)? Feel free to contact Arjen de Bruijn or one of the members of our Property, Construction & Government Section.