Substitution of tenant is the court authorisation allowing a tenant of retail business premises to put a third party in their place as tenant, in connection with the transfer of the business carried on there. It makes the sale of a shop or restaurant possible without the landlord’s cooperation.
Legal basis
Article 7:307 of the Dutch Civil Code provides the claim. The requirements are that the business carried on at the premises is being transferred, that the tenant has a substantial interest in the transfer, and that the proposed tenant offers sufficient guarantees for performance of the lease and for proper conduct of the business. The court may attach conditions to the authorisation. The provision is mandatory law in the tenant’s favour: a contractual prohibition on substitution does not hold.
How it works in practice
A buyer of the business stands or falls with the lease, and landlords regularly use that to extract better terms. The claim is the counterweight. Three documents are decisive in support: the sale agreement for the business, the candidate’s financial information and business plan, and evidence of their experience in the sector. A substantial interest on the tenant’s part is generally accepted on retirement, illness or cessation of business.
Where it goes wrong
The transaction is presented as a sale of the business when in reality only the lease is being transferred; the claim then fails. A second error is a candidate without demonstrable solvency or sector experience. Third, proceedings are started too late, so that the sale of the business falls through before the court has ruled.
Related terms
Substitution belongs with the lease of retail business premises, connects to rent review and to the asset deal.
Selling your business while the landlord refuses? Our real estate law specialists apply for the authorisation.
