Commerical sub-lease update

Amendments to pre-1995 commercial sub-leases: Important points

On 3 April 2018, Act VIII of 2018 introduced in the Civil Code seven new provisions regulating the sub-letting of commercial tenements entered into before the 1 June 1995. The purpose of these new provisions is to grant the sub-lessees of a commercial premises where the sub-lease would qualify to terminate on 31 May 2018, with an option to request the Rent Regulation Board (‘RRB’) to extend the term of the said sub-lease.

Below are the main requirements and conditions emanating from these  amendments:

• In the absence of an agreement between the lessee and the sub-lessee in respect of a commercial sub-lease that expires on 31 May 2018, the person who before the 31 May 2018 was the sub-lessee shall have the right to continue managing his business from the sub-leased tenement after 31 May 2018 under those conditions determined by the RRB. However, the extended period shall not be longer than the period of the current lease or be more than ten years, whichever is the shorter.
• For the sub-lessee to avail of this right, he must lodge an application to the RRB not later than 31 May 2018. In order to uphold the application the RRB must be satisfied that the sub-lessee will suffer serious prejudice if the request to extend the sub-lease is not upheld.
• Both the owner of the tenement and the lessee shall be notified with the application and they shall have the right to oppose the request.
• At any stage of the proceedings, the RRB has the right to establish or change the amount of compensation to be paid by the sub-lessee to the lessor or the lessee, or both, whilst the proceedings are pending. There will be no right of appeal from the decree establishing the  amount of compensation.
• If the RRB accedes to the request for the applicant to extend the term of the sub-lease, the RRB will establish the rent payable by the sub-lessee after 31 May 2018. This  rent must reflect the value that such a tenement would  command  if it were to be leased on the market by its owner for the use that was being made thereof during the year immediately preceding the 21 May 2018.
• Should the RRB be satisfied that the payment of the  market value rent would impose “harsh consequences” on the person managing his business from the tenement in a way that would prejudice that person’s living or that of persons working in that tenement, the RRB may order payment of rent below the established  market value. In such case, however, the RRB will also have to order that the payment of the rent shall increase yearly until it reaches the said market value by the year 2027.
• When the RRB establishes a new rent in accordance with the aforesaid, the RRB has the power to order that the new rent payment be divided between the owner of the tenement and the lessee to set the manner in which such lease is to be divided.
• The rent established by the RRB shall be paid by the sub-lessee as from 1 June 2018. Any compensation fixed by the RRB to be paid by the sub-lessee during the pendency of the proceedings shall be deducted from the arrears due.

This document does not purport to provide legal, financial or other advice.