Reform of Commercial Lease Regulation in Morocco

Law No. 49-16 on immovable leases or premises located for commercial, industrial and artisanal purposes was published in the Official Gazette No.6490 of August 11th, 2016. It entered into force only six months after its publication in Official Gazette, i.e. on February 11th, 2017. It applies to current leases, all matters related to commercial leases and to all lease-related litigations pending before courts at the date of its entry into force.

This new law repeals provisions of the Dahir of May 24th, 1955 on immovable leases or premises leased for commercial, industrial or artisanal purposes¹ as well as the provisions of article 112 of law no.15-95 creating the Commercial Code. This constitutes a radical change given that the Dahir of May 24th, 1955 in its original version had governed the tenant/landlord relationships regarding commercial premises until February 2017.

The main contributions of the new text are the following:

An extended scope and some exclusions

1. The field of application of the Law No. 49-16 includes immovable property, premises of State’s private property, leases of buildings leased by public entities, educational institutions, private clinics, pharmaceutical laboratories and similar organizations in their activities to the new regime of commercial lease.
   

   This is a significant change to the Dahir of 24th May 1955 which entitled the State to exclude as landlord the application of the Dahir upon express stipulation.

   The change relating to private clinics, pharmaceutical laboratories and similar organizations is also significant, although in consistency with the current liberalization of the health sector.

2. Leases related to premises located in shopping centres managed under the same brand as well as premises intended to receive investment in the field of industry and information technology carried out by the State, local authorities, public companies or companies in which a public entity holds the majority of capital share, and long term leases (baux emphytéotiques), do not fall within the scope of the new law.
   

   This is one of the major changes of the new law. The leases of premises located in shopping centres are no longer subject to the commercial lease status. The parties are now free to agree the terms of the contract subject to common law of leases agreement (i.e. articles 627 and seq. of the DOC), which is quite ironic as one of the purposes of the new law was to change and modernize the legal frame of the lease located in shopping centres and, for that purpose, the new law now refers to the archaic provisions of the DOC adopted in 1913². The issue of whether or not premises located in a shopping centre must be subject to the commercial lease status was usually solved by the determination of the existence of clients attached to the business operated in the premises. Now, the leases commercial status is denied to all the tenants of shopping centres, regardless of the existence of clients attached to their own business. This change should satisfy the owners of shopping centres as they will be entitled to review freely the terms on the on-going leases upon their expiry, unless this lack of status and legal protection for tenants results in the decrease of the rental market value of premises located in shopping centre.

Written contract and inventory of the premises

1. The Lease must be written and have a definite date and be signed by all parties.
   
   
2. An inventory of the premises must be drawn up at the time of entrance to premises.

Determination of the rent and unpaid rents

1. Rents and charges are freely negotiated between the parties. Charges are presumed to be included in the rent whenever the lease does not determine which party shall bear such charges.
   
   
2. The landlord is entitled to terminate the lease and obtain the expulsion of the tenant by interim measure if the tenant accumulates three months of unpaid rent and has been ordered to pay, and subject to the insertion of a provision in the contract providing for its early termination. In this case, the evicted tenant is not entitled to any compensation.
   

   The provision does not specify unfortunately whether the three months of unpaid rent are aggregated during the term of the lease or must be consecutive.

Renewal of lease, right to lease and eviction

1. The tenant is entitled to the renewal of the Lease upon proof of occupancy of premises by him during two consecutive years. The 2-year-occupancy condition is no longer required in the case that the tenant has already paid upfront an amount, before or at the start of the lease, in exchange of the right to lease the premises (pas de porte). This pas de porte is a common practice but was not reflected in the law. The right to lease must be included in the lease or in a separate written agreement. The eviction indemnity when applicable may not be lower than the amount of the pas de porte.
   

   Incidentally, it must be noted that not all upfront payments made before or at the start of the lease must be qualified as pas de porte. Indeed, some amounts may still be paid in exchange of services rendered by the landlord to promote the premises and real estate complex in which the premises are located, in which case such payment is not a pas de porte.

2. The assignment of the right to lease is expressly regulated. The tenant has the right to assign his right to lease with or without obtaining the approval of the landlord. However, notification of the assignment to the landlord by the assignor and assignee is mandatory. Failing which, the assignment will be unenforceable to him. Moreover, the new law institutes a right of pre-emption to the benefit of the landlord who can take over the premises in exchange of the payment of the sums committed by the assignee or the deposit of such sums , within 30 days from the notification, failing which the landlord loses his right of pre-emption.
   
   
3. The eviction indemnity granted to the tenant in case of refusal of renewal of the lease is equal to the prejudice suffered due to the eviction. The compensation shall correspond to the market value of the business established on the basis of tax returns for the last 4 years in addition to the costs incurred by the tenant due to repairs and improvements made by him, to loss of business assets and to the costs of domiciliation change.
   
   
4. The landlord will not be required to pay this eviction indemnity in certain cases listed in section 8 of Law No. 49-16, including (i) unauthorised changes of the activity operated in the premises, (ii) failure to pay the rent within 15 days from receipt of formal notice sent by the landlord, (iii) sub-lease of the premises in breach of the lease, (iv) loss of customers and reputation in the event of the cessation of activities for more than 2 years.
   
   
5. The eviction of the tenant is possible when the landlord decides to demolish and rebuild premises. However this eviction is subject to the payment to the tenant of an indemnity equal to 3 years of rent and to the right for the tenant to take over the premises once the works are completed. The tenant can claim to court the landlord to bear a part (not less than half) of the costs undertaken by the tenant to pursue its activity during this intermediary period. The landlord must start the works within two months as from the eviction date, failing which the landlord will have to pay to the tenant the eviction indemnity.

Possibility to expand the commercial use of premises

The tenant can broaden the commercial use of premises to activities not specified in the lease under the condition (i) that these activities are not inconsistent with the purpose and characteristic of the building and (ii) these activities do not jeopardize the security of the building.

Penalty of abandonment of rented premises

The new law provides for new rules applicable to premises abandoned by the tenant. In case the tenant does not pay the rent and abandons the premises for more than six months, the landlord may seek an order in summary proceeding from the President of the Tribunal to terminate the lease and recover possession of the premises.