Substitution

Substitution

When a tenant sells their business, it may be important for the buyer that business operations can be continued at the same location. In such cases, the tenant can exercise the option of substitution. With a substitution, the buyer of the business takes over the lease agreement from the seller. This means that the rent and contractual agreements transfer to the buyer of the business.

Substitution is only possible under certain conditions. For instance, the transfer must involve the same business. Additionally, the selling party must have a substantial interest in the sale of the business. Finally, the buyer must have sufficient financial guarantees to fulfill the obligations under the lease agreement. In principle, a landlord cannot refuse a substitution if the aforementioned conditions are met and the premises constitute business premises within the meaning of Article 7:290 of the Dutch Civil Code.

We have the knowledge and expertise to assume diverse roles: from advice to dispute resolution. We have an experienced team of lawyers and legal experts in the field of tenancy law. Contact us to discuss the possibilities.

Legal basis: Article 7:307 of the Dutch Civil Code

Substitution is regulated by law in Article 7:307 of the Dutch Civil Code (BW). This article applies exclusively to commercial premises for small and medium-sized enterprises within the meaning of Article 7:290 BW, such as shops, hospitality establishments, takeaway businesses, or craft businesses with premises accessible to the public. For so-called 230a business premises (Article 7:230a BW), such as offices and warehouses, this statutory right does not exist; in those cases, you are dependent on contract assignment with the landlord's consent. The strength of Article 7:307 BW is that the tenant can enforce substitution through the sub-district court, even if the landlord is unwilling to cooperate. Whether you are an international group transferring a branch or the baker on the corner selling his business: the legal framework is the same, but the implementation requires a tailored approach.

The three conditions highlighted

The subdistrict court judge assesses a claim for substitution against three key conditions. First, there must be a genuine transfer of business: the successor continues the same business conducted in the leased premises, including the transfer of, for example, inventory, trade name, personnel, and goodwill. A mere transfer of shares in a private limited company (BV) generally does not qualify as a transfer of business within the meaning of Article 7:307 of the Dutch Civil Code. Second, the tenant must have a substantial interest in the transfer. This interest may be financial (a good selling price or the monetization of accumulated goodwill), but also personal, such as retirement, illness, business succession within the family, or the transfer of the enterprise into a new legal entity. Third, the proposed new tenant must sufficient guarantees for proper business operations and compliance with the lease agreement. The judge assesses this on the basis of, for example, annual figures, a business plan, and the creditworthiness of the successor.

Substitution or assignment of contract (Article 6:159 of the Dutch Civil Code)?

Substitution is often confused with contract assignment. With a contract assignment pursuant to Article 6:159 of the Dutch Civil Code, the lease agreement transfers to a new tenant, but this is only possible with the cooperation and written consent of all parties involved, including the landlord. If the landlord cooperates voluntarily, contract assignment is often the fastest and simplest route. If the landlord refuses, the special provision of Article 7:307 of the Dutch Civil Code offers a solution: the tenant can then enforce the substitution through the sub-district court. In practice, therefore, we usually start with negotiations regarding a voluntary contract assignment and keep judicial substitution as a last resort. Which route is the most sensible depends on your negotiating position, the relationship with the landlord, and the timing of the assignment.

The judicial procedure and conditions of the judge

If the landlord is unwilling to cooperate, the tenant claims substitution from the subdistrict court. The judge weighs the tenant's interest in the transfer against the landlord's interest in a solvent and reliable tenant. The subdistrict court may grant authorization for substitution subject to conditions or attach a burden to it, such as a bank guarantee, a personal suretyship from the successor, or agreements regarding future share transfers. An important consequence is that the rent and other contractual terms are, in principle, transferred to the new tenant unchanged. Any rent arrears may also become part of what the successor tenant takes over; careful agreements regarding this prevent unpleasant surprises.

Points of attention and pitfalls

Preferably arrange the transfer of the leased property before the sale of the business is finalized, or at least inform the landlord as soon as possible. Do not allow a successor to take possession of the business premises unnoticed without formal substitution or contract assignment: this constitutes a breach of contract that, in the worst-case scenario, can lead to dissolution and eviction. Furthermore, pay attention to the description of the intended use in the lease agreement, to non-compete and industry clauses, and to whether the successor will actually continue the business in the same form. For tenant, buyer, and landlord alike, timely and sound advice prevents much dispute afterwards.

What MKB Juristen does for you

Our mixed teams of lawyers and (corporate) legal counsel guide you through every step of the substitution process: from assessing the lease agreement and substantiating the substantial interest, to negotiating with the landlord and, if necessary, conducting proceedings before the sub-district court. We assist both tenants and buyers who wish to continue their business at the existing location, as well as landlords who wish to assess the safeguards of a successor tenant. From an international corporation to the baker on the corner: we translate tenancy law into a practical, feasible solution. This page is part of our broader expertise in Tenancy Law.

Frequently asked questions about substitution

Can the landlord refuse a substitution?

In principle not, provided it concerns business premises covered by Section 290 and the conditions of Article 7:307 of the Dutch Civil Code (transfer of business, substantial interest, and sufficient safeguards) are met. If the landlord nevertheless refuses, the tenant may enforce the substitution through the subdistrict court.

Does substitution also apply to offices and industrial halls?

No. The statutory right of substitution applies only to 290 business premises. For 230a business premises, such as offices, warehouses, and industrial halls, transfer of the lease is only possible via contract assignment with the landlord's consent.

Do the rental price and conditions transfer?

Yes. In the event of substitution, the new tenant takes over the existing lease agreement, including the rent and other contractual terms. The judge may also impose additional safeguards, such as a bank guarantee or suretyship.

Does a transfer of shares count as a transfer of business?

Generally not. In the case of a single share transfer, the lessee remains the same legal entity, so that there is usually no transfer of the business to a third party within the meaning of Article 7:307 of the Dutch Civil Code.