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Assignment of shop leases and bankruptcy of assignee

Assignment of shop leases and bankruptcy of assignee

Under the rules governing commercial leases, in the event of an assignment of the lease the Assignor remains liable to the Lessor for the proper performance of the lease by the Assignee.

One of the circumstances where this rule may come into play is where the Assignee is declared bankrupt, in which case the Lessor may look to the Assignor in order to obtain payment of rentals.
The Belgian bankruptcy rules provide that where a private individual has been declared bankrupt, at the end of the bankruptcy proceedings, the Court may declare that the bankrupt is “excused”. The effect of this decision is that the bankrupt is freed from all his/her obligations and debt at the time of the bankruptcy. As a matter of practice, provided there is no evidence of any criminal offence committed by the bankrupt, it is quite common for such a decision to be taken.

Normally speaking, where the Assignor of the commercial lease has incurred liability to the Lessor as a result of the bankruptcy of the Assignee, the Assignor has a right of recourse against the Assignee. However, where the bankrupt Assignee has been “excused” such recourse becomes impossible because the effect of being “excused” is precisely to free the Assignee of all his/her debt and liabilities.

The Belgian Constitutional Court has recently had to rule on the question as to whether the above rule was not anti-constitutional in that it violated the principle of equal treatment and non-discrimination. The answer of the Court was that there was no discrimination and the rule was valid and enforceable.

Assignors of commercial leases need to be particularly wary of this rule when contemplating assignments to private individual assignees, who may be declared bankrupt and then later benefit from being “excused” of all liability, leaving the Assignor without any recourse.

Michel Pierreux

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