Our Corporate Commercial lawyers at Al Tamimi & Company discuss The differences between shopping mall leases and other commercial leases in Morocco and pro
Partner, Head of Office - Morocco
In February 2017, Law no. 49-16 on Commercial Leases (“Law”) entered into force in Morocco, replacing a text that dated back to 1955. Simpler, clearer, resolutely modern and now in harmony with other legal texts and case law, the Law generally provides for a better balance between the rights of commercial tenants and landlords
In terms of scope, the Law applies to public and private properties where a business is exploited by a trader, craftsman or industrialist, and ancillary properties (storage box, warehouse, etc.) attached thereto. It also applies to leases to build (rare outside of a free zone), buildings rented to operate private schools, private clinics and similar establishments, drugstores, private laboratories, etc.
But one type of commercial lease falling outside the scope of application of the Law may be one of its most interesting features: shopping mall leases, which, in effect, are only governed by the provisions of Articles 627 to 699 of the Moroccan Civil Code which dates back to 1913 and, for the most part, are not of mandatory application, leaving nearly complete contractual freedom to the parties,
with a few exceptions.
Still, shopping mall leases, like leases governed by the Law, must have a maximum stated duration of less than 10 years (or will be considered a long lease, governed by different legal provisions) and must be registered (for a fixed fee of MAD 200).
In addition, the amount of the rent can be freely set between the parties (subject only to a Dahir of 1920) and the increase of the rent is limited to 10% every three years. The only difference is that the rent is, under the Law, deemed to include all charges, unless agreed otherwise by the parties.
Otherwise, shopping mall leases often include a variable component, based on the monthly or annual turnover of the tenant’s business. This is justified because the tenant’s business is subordinated to the shopping mall’s business as a whole.
The main difference between commercial leases in shopping malls and commercial leases governed by Law no. 46-12 is in respect of the right to a lease. This right, which forms part of any business operating out of a rented location, can be acquired in two ways under the Law: after two years of occupancy or if key money is paid pursuant to the lease or a separate deed.
If shopping mall tenants do not have a right to a lease, it also means that they are not entitled to indemnification in case of expulsion or eviction.
Normally, under the Law, this indemnity is calculated on the basis of the tax returns for the last four years, the capital investments made by the tenant, the losses suffered by the going concern and moving costs. There are, of course, exceptions where expulsion or eviction does not a warrant the payment of this indemnity, such as the failure to pay rent for three months, unauthorized works, change of activity or sub-rental without the approval of the landlord, destruction caused by the tenant or force majeure or accident; lack of exploitation for at least two years, etc.
It also means that shopping mall tenants are not entitled to the renewal of the lease (a corollary of the right to a lease) and the lease can be terminated in any manner set out in the lease, contrary to other commercial leases where the new law provides for a 15-day (in case of failure to pay rent or if the destruction of the location is imminent) or 90-day notice period to cure, following which the landlord is authorized to file a request for eviction within six months. While the procedure of eviction is identical, tenants of shopping malls cannot introduce a request for indemnification that can, potentially, stop the procedure if the landlord does not deposit the amount sought by the tenant with the court’s clerk.
Under the new law, if a tenant abandons or fails to operate its business for six months, the landlord may petition the President of the court to order, after an enquiry, the forced opening of the store or building for repossession purposes, after which the tenant has six months to show up and ask the court to be allowed to regularize its situation, which he must do within 15 days, or the eviction will become effective. Under shopping mall leases, tenants have no such rights in case of abandonment, which is normally a breach of the operating conditions and a cause for termination.
Under the Law, in case of expulsion for demolition and reconstruction by the landlord, which is possible after at least one year of ownership, the landlord must pay the tenant a provisional amount equal to three years of rent, in addition to 50% of the waiting costs evidenced by the tenant and having to preserve the tenant’s right to return. In this case, the right to return follows an order of priority between tenants. Full indemnification will be ordered if the landlord fails to observe the tenant’s right to return or if the tenant cannot return within three years of its expulsion.
Where the building may fall, the evicted tenant has a right to return only if the building is restored or rebuilt within three years following the eviction. In that case, if its right to return is not observed by the landlord, the tenant may claim full indemnification.
In case of expansion or elevation of the building, it is possible for the tenant to be evicted for up to one year (plus, possibly, a one-year extension), but the tenant is entitled to indemnification for the damage suffered, up to an amount equal to the profits made during the year prior to the eviction.
In all cases where the tenant returns, the previous rent will continue to apply until the new rent is agreed by the parties or determined by the court.
Finally, eviction is possible under the Law with respect to ancillary lodging units attached to a business location (frequent for drugstores), provided that the landlord uses it for itself, its spouse, parents or children, within six months of the eviction, and for at least three years, and pays an indemnity equal to three years of rent. If the lodging conditions are not met, the tenant may claim additional damages equal to 18 additional months of rent.
For tenants of shopping malls, no such rights exist, unless they are expressly provided for in the lease.
Under the Law, tenants are authorized to sublet unless the lease states otherwise. In any event, if the sub-rental generates a higher rent, the landlord is authorized to seek an increase of the tenant’s rent.
Additionally, under the Law, the tenant may transfer its lease, provided that it notifies the landlord, in which case the landlord has 30 days to exercise a priority right to take back the premises at the proposed price.
Shopping mall leases usually forbid subletting the premises or transferring the lease to a third party without the prior written approval of the landlord.
For further information, please contact Nesrine Roudane.
Published in August 2022