Tenants often carry out alteration works to premises they let. The type of works can include fitting-out works for the personal benefit of the tenant, as well as amelioration works that benefit the premises in general (e.g. replacement of the aircon and heating systems). What regime applies to these works upon the expiry of the lease?
The lease of office spaces is regulated by the common lease law principles set out in the Belgian Civil Code.
The Belgian Civil Code does not provide any rules that apply to works carried out by a tenant during or at the inception of a lease agreement. Consequently, parties have complete contractual freedom in that respect. In the absence of clear contractual provisions, one should refer to Belgian case-law.
As a general rule, if parties have not provided otherwise in their lease agreement:
- A tenant may not carry out any substantial works to the let premises without the prior approval of the landlord.
- The ownership of such works (and thus all obligations deriving there-from, such as maintenance, repair and insurance) remains with the tenant and is only transferred to the landlord upon the expiry of the lease agreement.
- Upon the expiry of the lease agreement, the landlord may request either (i) that the tenant removes these works or (ii) to keep the works, in which case however the landlord must compensate the tenant for the added value which the works give to the property.
Case-law and doctrine are somewhat divided as to whether this principle also applies for works which cannot be removed without damaging the property (e.g. painting works, replacing of floor).
The above principle often gives rise to interpretation disputes if parties have not or not clearly described in their lease agreement what regime will apply to the works. Therefore, when a tenant carries out alteration works to let premises, parties should be thoughtful and provide clearly in their lease agreement what legal regime will apply to these works during and upon the expiry of the lease.
Among other things, parties should agree on:
- whether the ownership of the works will be immediately transferred to the landlord or whether it remains with the tenant for the duration of the lease. If ownership remains with the tenant, the latter will normally be responsible for the maintenance and repair thereof and will also have to include them in its insurance policy;
- what happens if the lease agreement is terminated earl, i.e. will the works be kept by the landlord or should the tenant return the premises to their original state (i.e. remove the works)? If the landlord keeps the works, will he pay compensation therefor and, if so, how is it calculated (amortisation?). Such compensation could for example be based on the book value of the works (historical cost less depreciation).