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Protection Of Business Location In Lease Agreements

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A common doubt arises when an entrepreneur rents real estate and develops his commercial
activity therein, investing in the space leased, transforming it into a source of income apt to
generate revenue resulting from their work. Thus, this space becomes a “reference,” that is, people
may begin associating that location with a certain store or a commercial activity.

However, the real estate in which the business location operates does not belong to the lessee.
Thus, does the business location, the result of the investment and the activity developed by the
entrepreneur, belong to him or to the owner of the real estate? Is there any legal protection that
defends the business location?

The Business Location belongs to the person who explores the activity, and not to the owner of
the real estate. The Business Location does not exist by itself, it depends on the exercise and the
exploration of the company and is fruit thereof; a consequence of the work developed.

All the investment made by the lessee deserves legal protection, such that upon the end of the
Lease, the lessee does not see that such investment was made in vain. This right is exercised
through its own individual action called: renewal action. This action effectively protects the right
to the Business Location resulting from the activity developed, which is the reason why in the case
of a sublease, the individual who has the right to renewal shall be the sublessee, who is the
individual who effectively has possession of the location.

Thus, if the requirements set out in Article 51 of Law No. 8.245/91 are met, the entrepreneur or
company may legally plead the compulsory renewal of the lease agreement. It is worth
emphasizing, however, that this right is not absolute, given that it goes against the right to
property of the lessor.
And what are these requirements for protection of the business location?

I – the contract to be renewed must have been executed in writing and for an established term.
It is important to note that it is not good business for an entrepreneur to enter into an agreement
for an indeterminate term, given he would in fact see his bond with the lessor cease upon simple
prior notice when, in the majority of cases, it is of interest to the person who develops a certain
business to remain at the location for the longest possible period in order to establish the
respective name and become known.

II – the minimum term of the agreement to be renewed or the sum of the uninterrupted terms
of the written agreements must be of five years.

It is possible to compose the term of five years by the sum of various written agreements of shorter
duration, provided they are successive and that the sum of all such agreements has duration
greater than or equal to the legal requirement. It is important to note that the requirement of a
written agreement for renewal is valid for all of the agreements to be added to compose the five
(5) years, but does not require that all such agreements are established for a determinate term,
but merely the last one, which will be renewed.

III ‐ lessee is exploring its business, in the same area of activity, for the minimum and uninterrupted
term of three years.

It is necessary for the lessee entrepreneur to have been exploring the same activity for at least
three uninterrupted years, a term which is considered necessary for the location to obtain added
value in order to grant it the right to renewal.

It is also important to note that there is an additional requirement in order to file the Renewal
Action which often goes unnoticed: the referred action must be filed between one year and six
months prior to the end of the agreement to be renewed, which is a statute of limitations that
cannot be suspended or interrupted. Therefore, it is recommended that a written instrument
setting forth the renewal already begins to be prepared at the beginning of the last year.

The right to renew the agreement may be transferred to assignees or successors of the lease, and
even in case of the death of one of the partners of the company, the remaining partner, if he/she
continues working in the same area of activity, shall also be entitled to such right.

However, there are exceptions in which, even if the necessary requirements for filing a renewal
action are met, the right to property prevails over the interests of the lessee. Articles 52 and 72 of
Law No. 8.245/91 set forth cases in which even if the requirements for the Renewal Action were
met, the owner may exercise what the legal writings know as Right to Repossession, that is, to take
back possession of the real estate regardless of the existence of the right to renewal on the part of
the lessee. And what are these exceptions? Note:

I – if, by determination of the Public Authorities, the lessor must perform work on the real estate
which entails the radical transformation thereof; or to make modifications of such a nature that
increases the value of the business or of the property;

II – if the real estate begins being used thereby or for the transfer of goodwill in existence for more
than one year, with the majority of capital held by the lessor, spouse, ascendant or descendant.

In the case of item II, the real estate cannot be intended for use within the same area of activity of
the lessee, except if the lease also involved the goodwill, with the facilities and assets.

The lessee shall have the right to indemnification for reimbursement of the losses and the loss of
profit that may be borne thereby due to the change, loss of the location and devaluing of the
goodwill, if the renewal does not occur due to a third‐party proposal, under better conditions, or
if the lessor, within the term of three months from the delivery of the real estate, fails to provide
the intended destination or does not begin the work determined by the Public Authorities or any
intended work declared thereby.

In addition to such cases determined by law, there may be a possible indemnification for loss of
the location when such loss results from some violation of contractual good faith, whether
subjective or objective, as would occur if the lessor began to explore the same activity of the lessee,
taking advantage of the name already formed by the latter in order to capture clients.

Gaiofato e Galvão

Gaiofato e Galvão