Looking back at last year, most people will probably have first in mind the Covid-19 crisis and its share of uncertainties and challenges for the real estate sector. This focus on the health crisis may explain that the B2B Law has not attracted much attention. However, this law applies since 1 December 2020 to contracts between enterprises, renewed or modified after that date, and may impact many real estate-related contracts.
The Law of 4 April 2019 (the B2B Law) introduces a prohibition on ‘unfair clauses’ in contracts between enterprises. It furthermore includes a blacklist (4 clauses which are irrefutably deemed to be unfair and therefore prohibited) and a grey list (8 clauses which are presumed to be unfair, but the presumption can be refuted). All kind of real estate agreements, such as purchase agreements, lease agreements and construction agreements regarding real estate assets, are subject to the provisions of the B2B Law if they are entered into between enterprises. The protection offered by the B2B Law is not limited to small and medium-sized companies, nor is a relationship of ‘dependency’ required. Consequently, real estate companies who contract with other real estate professionals will have to comply with the new law, regardless of the companies’ size or the value of the transaction.
What does it mean for real estate professionals?
Firstly, it should be kept in mind that not only blacklist and the grey list apply. Indeed, nearly each provision in a real estate contract subject to the B2B Law can be challenged based on the general ‘significant imbalance’ test.
Secondly, the blacklist can also be relevant, especially the prohibition of unilateral interpretation clauses. Clauses giving a party the right to unilaterally interpret a contractual provision will be unlawful. All clauses with ambiguous or unclear wording that grant certain rights to a party to decide on a certain item without reference to objective criteria may fall under the scope of this prohibition, e.g. the right for the principal not to grant the provisional acceptance relating to a building in case of “material” snag items without defining the term “material”.
Thirdly, the greylist might become a source of litigation. The three most significant grey clauses are as follows:
? Unilateral amendments. Clauses that aim to give a party the right to modify, unilaterally and without a valid reason, the price, characteristics or terms of the contract are presumed to be unlawful. Some construction agreements grant the contractor the right to unilaterally modify the unit prices of certain materials. In case the agreement does not provide objective criteria or ‘valid’ reasons for the contractor to change the unit prices (e.g. unexpected scarcity or increase in the price of raw materials), such clauses will be presumed to be unlawful.
? Tacit extension or renewal without reasonable notice period. Clauses that aim to tacitly extend or renew an agreement of definite term without providing a notice period or reasonable notice period to the counterparty, are presumed to be abusive. It is common practice in Belgium that, if a lease agreement includes a tacit lease extension or renewal of the agreement, such lease extension or renewal takes place unless a party has given a prior written notice, i.e. opposed against such renewal or extension.
? Reversal of economic risk without compensation. Clauses that aim to place, without compensation, the economic risk on one party, where that risk is normally borne by the other party or by another party to the contract are presumed to be abusive. For instance, asset purchase agreements often contain representations and warranties, specific indemnities and/or exoneration clauses related to the (characteristics and compliance of the) real estate asset. Also lease agreements often contain exoneration clauses. When you discuss such provisions, are you speaking about economic risks (as they can have a financial impact) or legal risks? Who should normally bear these risks: the seller or the purchaser? What type of compensation could justify a shift of these risks?
In the framework of the great reform of the Civil Code, our Parliament is now working on a new “book” reforming the contract law. We can hope for the best – that they will repeal the B2B Law – but at the same time we should be prepared for the worst.
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