Introduction
Goodwill is often the beating heart of a retailer's business. Yet the termination or non-renewal of a commercial lease can threaten its very existence. The Luxembourg law of 3 February 2018, which governs commercial leases, introduced provisions strengthening tenant protection, particularly through eviction compensation. But this protection still raises many questions today, six years after the law came into force. Far from guaranteeing a clear outcome, it leaves vast grey areas that case law will have to clarify.
The principle of eviction compensation in Luxembourg
When a lessor terminates a commercial lease or refuses to renew it after at least nine years of occupancy of the leased premises, without giving any reason, eviction compensation must be paid to the lessee.
Before examining this principle in more detail, it is worth recalling certain rules.
Legal grounds for termination or refusal of renewal
The law identifies four grounds on which the lessor may terminate or refuse to renew the lease, regardless of the duration or period of occupation of the premises:
1. Personal need : The lessor (or their family) wishes to use the premises.
2. Abandonment of all lettings for identical activities: The lessor ceases to operate identical businesses on the site.
3. Reconstruction or conversion of the rented property : In principle, the work must make it impossible for the tenant to continue their business.
4. Serious misconduct on the part of the tenant : Such as non-payment of rent or change of use of the premises.
It should be noted that for the first three reasons, the lessor must give at least six months' statutory notice, as well as respect the next contractually agreed termination date. In the event of serious misconduct on the part of the lessee, the lessor may request that the contract be terminated by the courts with immediate effect.
The lessor's choice at the end of an occupancy of at least nine years
Since the law of 2018, a choice is offered to the lessor to terminate the lease contract after a period of occupancy of at least nine years:
1. Invoke a legal reason provided for by law : No eviction compensation is due to the tenant.
2. No reason given : Eviction compensation must be paid to the tenant.
Case law has confirmed that eviction compensation only comes into play after nine years of occupancy of the premises. Before that time, the landlord can only terminate the lease on legal grounds, and the tenant has no right to such compensation.
Calculating eviction compensation
La loi prévoit que l’indemnité d’éviction soit calculée « sur base de la valeur marchande du fonds de commerce pour l’activité en question »The law provides for eviction compensation to be calculated "on the basis of the market value of the business for the activity in question." However, this concept is open to interpretation:
In France, case law often considers that compensation should correspond to the total value of the business in the event of a complete loss of customers. It considers that this is generally the case for retail businesses, not wholesalers. It should be noted, however, that the relevant legislation in France is different from that in Luxembourg.
In Luxembourg, the issue is not explicitly regulated by law, and to our knowledge, no decision has yet been handed down on this matter.
However, Luxembourg law expressly allows the parties to fix an amount in the lease agreement, which can put a tenant at a disadvantage when faced with a landlord in a strong position.
The question then arises: Could an amount set too low be deemed abusive and contrary to the spirit of the law? To our knowledge, case law has not yet clarified this point.
Half-hearted protection
The eviction compensation mechanism has two major flaws:
Lack of clarity over the calculation of compensation: The absence of a precise method opens the door to disputes.
2. Manque de clarté sur le calcul de l’indemnité : L’absence d’une méthode précise ouvre la porte à des litiges.
These shortcomings weaken tenant protection against experienced and strategic landlords.
Case law will be crucial in providing answers and clarifying the balance between tenant protection and landlord rights.
