Operating obligation in lease agreement does not always hold up

An obligation to operate a business in a lease agreement is valid in principle, but not always enforceable. A court may set aside the obligation if continuing the operation is factually impossible, or if, following a balancing of interests, the tenant's interest in leaving outweighs the landlord's interest in preventing vacancy. If the obligation is invalidated, the landlord can in many cases still claim compensation for demonstrable vacancy damage. Below, you can read when the obligation holds, what the consequences of non-operation are, and what you, as a landlord or tenant, can do specifically.

In short

• An operating obligation requires the tenant to furnish the leased premises and keep them open to the public; the aim is to prevent vacancy.
• The obligation is contractually valid, but a judge may refuse performance if operation is factually impossible or if a balancing of interests weighs in favor of the tenant.
• Even if compliance is not imposed, compensation for demonstrable damage due to vacancy usually remains possible.
• A sharply formulated penalty clause makes it possible to claim for non-exploitation without an extensive burden of proof.

What is an operating obligation?

An operating obligation is a contractual agreement whereby the tenant undertakes to actually use the leased property for the agreed purpose: furnishing the premises, equipping them with inventory, and keeping the doors open to the public. This obligation is particularly common in the lease of retail space and is included in the widely used ROZ model lease agreement, but it can also be included in a lease agreement for office or business space.

The goal is clear: the landlord wants to prevent vacancy. Vacancy depresses the value of the property, can damage the attractiveness of a shopping center or business park, and sometimes affects other tenants as well. By requiring the tenant to actively operate the premises, the landlord protects the value of his property.

Is a tenant legally obliged to operate?

In principle, a tenant is not legally obliged to actually open a shop in a rented retail space. Nevertheless, the obligation to act as a good tenant , under certain circumstances, result in a de facto obligation to operate the business. To avoid such disputes, landlords often explicitly stipulate this obligation to operate the business in the lease agreement. This leaves no doubt that the tenant must provide the premises with sufficient fittings and inventory and keep them open to the public.

What are the consequences if the tenant does not operate?

If the tenant fails to meet their operating obligation, this can have various consequences. The most common are:

• Penalty. An obligation to operate is often linked to a penalty clause. The tenant then feels the default directly in their wallet, without the landlord having to prove concrete damages.
• Compensation. The landlord may claim compensation for the damage resulting from the vacancy, provided he can prove such damage.
• Dissolution of the lease agreement. In the event of a serious breach, failure to operate the business may constitute grounds for dissolving the lease agreement (via the court).
• Compliance. The landlord may demand that the tenant resume operations, possibly reinforced by a penalty payment. However, this is by no means always successful, as shown below.

If an outstanding fine or compensation remains unpaid, it is wise to collect the debt in a timely and structured manner. Read how we help entrepreneurs collect outstanding debts.

When is an operating obligation unenforceable?

The basic principle is freedom of contract: a contractually agreed obligation to operate is in principle valid and binding. However, this does not mean that the obligation can be enforced under all circumstances. Case law shows that a judge may set aside the obligation, particularly in two situations.

1. Continuation is effectively impossible

When it is impossible for the tenant to continue operations, performance cannot automatically be demanded. In case law, this has been accepted, for example, in the case of a tenant who recorded negative operating results year after year and could not reasonably continue operations. Whether this is the case depends heavily on the specific circumstances, such as the cause of the losses, the investments required to continue, and the remaining term of the lease.

2. A balancing of interests weighs in favor of the tenant

Even if continuation is not strictly impossible, the court may weigh the interests based on the standards of reasonableness and fairness. In a well-known case involving Blokker , the tenant vacated a leased office space in Amsterdam to relocate the head office to a new building. Here, too, an obligation to operate the business had been agreed upon. The court weighed the interests against each other and ruled that the relocation of the head office, resulting from a reorganization intended to safeguard the chain's continued existence and employment, was significant enough to render the obligation to operate the business effective. The landlord's interest, which essentially only sought to prevent vacancy, carried less weight in this regard. In that case, however, the tenant remained obligated to continue paying the rent.

The lesson for landlords: an obligation to operate the business offers no foolproof guarantee. The more weighty and legitimate the tenant's reasons for leaving, the greater the chance that the obligation will be struck down by the court. If you doubt whether your clause is strong enough, have the lease agreement reviewed by a lawyer beforehand via our legal assistance for entrepreneurs.

Compensation often remains possible

The fact that the obligation to operate is not always enforceable does not mean that the landlord is left empty-handed. Even when the court does not order compliance with the operation, it remains possible in many cases to claim compensation for damages resulting from the vacancy. However, the landlord must concretely substantiate and prove those damages. This is precisely why a well-formulated penalty clause is valuable: it makes it possible to claim a fixed amount in the event of non-operation without an extensive burden of proof.

Why including an operating obligation remains wise after all

For landlords, it remains advisable to include an operating obligation in the lease agreement, even though it does not hold up in every situation. The benefits outweigh the risk:

• The obligation has a deterrent effect: tenants think twice before leaving the property vacant.
• If the obligation holds up, you can collect the fine without a heavy burden of proof.
• If the obligation does not hold up, the possibility to claim proven damages generally remains.
• As a rule, including the provision entails no disadvantage for the landlord.

The wording is crucial, however. A clearly drafted operating and penalty clause, tailored to the type of space, increases the likelihood that you will be in a strong position in the event of a dispute. Whether it concerns a lease agreement for industrial premises or a lease agreement for office space: have the provision carefully recorded.

Step-by-step plan: what to do in the event of a conflict regarding the obligation to operate

If you, as a landlord or tenant, encounter a dispute, it helps to proceed in a structured manner:

1. Read the lease agreement carefully. Review the exact agreed operating and penalty clauses and any additional general terms and conditions (such as the ROZ model).
2. Map out the facts. Since when has the business not been (fully) exploited, and what is the reason? A structurally loss-making or factually impossible situation carries different weight than a commercial choice.
3. Document the damage. As a landlord, gather evidence of vacancy damage (lost rent, costs, loss of value) for potential compensation.
4. Formally put the other party in default. Give the tenant a reasonable period in writing to still comply, so that default occurs.
5. Seek legal advice. Whether performance, a penalty, damages, or dissolution is most likely to succeed depends on the contract and the circumstances.

Frequently asked questions about the operating obligation

Is an obligation to operate legally mandatory?

No. There is no legal obligation to actually operate a rented space. The obligation arises because the parties agree to this in the lease agreement, often via the ROZ model agreement. Without such an agreement, an obligation to operate is more difficult to enforce.

Can the landlord force the tenant to keep the shop open?

Sometimes yes, sometimes no. If an obligation to operate has been agreed upon, the landlord can demand performance. However, the court may refuse such performance if continuation is factually impossible or if a balancing of interests weighs in favor of the tenant.

What can the landlord do if the tenant leaves despite the obligation to operate the business?

The landlord may collect any agreed penalty, claim compensation for vacancy (provided this is demonstrable), and, in serious cases, invoke dissolution of the lease agreement. Which route is most likely to succeed depends on the wording of the contract and the circumstances.

Does the operating obligation lapse for a loss-making enterprise?

Not automatically. However, the court may rule that continuation cannot reasonably be expected when the operation has become structurally loss-making and factually impossible. That is a factual assessment on a case-by-case basis.

Must the tenant continue paying rent if the obligation to operate the business ceases?

Generally speaking, yes. The fact that a judge suspends the obligation to operate the business does not mean that the lease agreement ends. As a rule, the tenant remains bound by the agreed lease term and the corresponding rent payment, unless the agreement has been validly terminated or dissolved.

Can the tenant also avoid paying compensation?

The landlord must concretely prove the damage caused by vacancy. If this is not possible, the claim may fail. A well-formulated penalty clause helps the landlord precisely because proof of concrete damage is usually not required for it.

Does the obligation to operate also apply to office space and business premises?

Yes, provided the parties agree to this. The obligation occurs most frequently in the case of retail space, but can just as easily be included in a lease agreement for office or business space. Enforceability is assessed on a case-by-case basis in each instance, applying the same test of feasibility and balancing of interests.

Is a fine always due for non-operation?

Not by definition. A penalty clause is valid in principle, but the judge may reduce or set aside a fine under certain circumstances, for example if the result would be unacceptable. A carefully formulated clause increases the likelihood that the fine will be upheld.

Need help with your lease agreement or a dispute?

Do you want a lease agreement with maximum protection against departing tenants, or do you have a dispute regarding an operating obligation? Our legal experts draft watertight operating and penalty clauses and advise you on your options. View our expertise in tenancy law and contract law, or schedule an intake with one of our specialists directly.