Commercial Lease in Morocco: Renewal, Rent and Eviction Indemnity

In brief: The commercial lease in Morocco is governed by the Dahir of 24 May 1955 (as amended). It grants the commercial tenant a right to renewal (commercial property right) after two years of operation and registration in the trade register. In the event of refusal of renewal without legitimate grounds, the landlord must pay an eviction indemnity equivalent to the value of the business. Rent is revisable every three years. This protective regime is essential for securing commercial operations and preserving business value.

Scope of application of the 1955 Dahir

Leases covered

The Dahir of 24 May 1955 relating to leases of premises for commercial, industrial or artisanal use applies to leases of premises in which a business is operated. The following are covered:

Leases of commercial premises (shops, stores, warehouses)
Leases of industrial premises (factories, workshops)
Leases of artisanal premises (craftspeople’s workshops)
Leases of premises used for a similar professional activity

Conditions of application

To benefit from the protection of the 1955 Dahir, the tenant must meet two cumulative conditions:

Two years of effective operation of the business in the leased premises
Registration in the trade register — the tenant must have the status of trader

These conditions are designed to ensure that the tenant has effectively created a clientele attached to the premises, which justifies the legal protection of their “commercial property”.

Exclusions

Certain leases are excluded from the scope of the 1955 Dahir:

Leases for residential use (governed by Law 67-12)
Premises located in souks managed by local authorities
Leases of premises belonging to the State or public bodies (unless otherwise provided)
Leases granted on a precarious basis or under special conditions

Commercial property: right to renewal

Fundamental principle

Commercial property is the right for the commercial tenant to obtain the renewal of their lease upon its expiry. This right constitutes an essential element of the business: since the clientele is often attached to the location, losing the premises amounts to compromising the value of the entire business.

This right to renewal is a matter of public policy: any clause in the lease that derogates from it would be deemed unwritten.

Renewal request

A tenant who wishes to obtain the renewal of their lease must make a request to the landlord within six months preceding the expiry of the lease. This request must be notified by extrajudicial act (bailiff) or by registered letter with acknowledgment of receipt.

In the absence of a renewal request within this period, the lease continues by tacit renewal under the same conditions, but the tenant retains their commercial property right.

Notice given by the landlord

The landlord may give notice to the tenant in two scenarios:

Notice with offer of renewal: the landlord acknowledges the right to renewal but proposes new conditions (notably a new rent)
Notice without offer of renewal (refusal of renewal): the landlord refuses renewal, which in principle obliges them to pay an eviction indemnity

The notice must be served on the tenant at least six months before the expiry of the lease and must specify the grounds for refusal of renewal, where applicable.

Eviction indemnity

Principle: compensation for loss

When the landlord refuses to renew the lease without legitimate and serious grounds, they are required to pay the tenant an eviction indemnity. This indemnity is intended to compensate the tenant for the loss suffered due to the loss of their business.

The eviction indemnity is in principle equal to the value of the business, increased by moving costs, reinstallation costs and loss of clientele. It can represent very significant amounts, which constitutes a powerful lever of protection for the tenant.

Valuation of the indemnity

The valuation of the eviction indemnity takes into account several elements:

The market value of the business (clientele, goodwill, location)
Moving costs and reinstallation in new premises
Loss of clientele resulting from the transfer
Transfer fees and duties related to the acquisition of a new lease
Commercial disruption suffered during the transition period

In practice, the valuation is often entrusted to a court-appointed expert designated by the commercial court.

Legitimate grounds for refusal without indemnity

The landlord may refuse renewal without being required to pay an eviction indemnity in the following cases:

Serious fault by the tenant (non-payment of rent, degradation of the premises, unauthorized change of activity)
Insalubrious or dangerous building requiring demolition
Repossession for personal use by the landlord (under the conditions set by law)

The landlord must prove the existence of the legitimate and serious grounds invoked.

Rent revision

Triennial revision

The rent of a commercial lease may be revised every three years at the request of either party. The revision is based on changes in the rental value of the premises, taking into account:

The location and characteristics of the premises
The state of supply and demand in the sector
Improvements made by the tenant or the landlord
Local commercial factors (establishment of new brands, urban development, etc.)

Revision procedure

The revision request must be notified by extrajudicial act to the other party. In the event of disagreement on the amount of the new rent, the commercial court is competent to set the revised rent, after obtaining an expert opinion if necessary.

Rent cap

The triennial revision is in principle capped: the new rent cannot exceed the change in rental value observed since the last determination. However, this cap may be set aside in the event of a notable change in local commercial factors or the characteristics of the premises.

Termination of the commercial lease

Termination for tenant’s fault

The landlord may seek judicial termination of the commercial lease in the event of a serious breach by the tenant of their obligations:

Non-payment of rent and charges: this is the most frequent ground for termination. The landlord must in principle send a prior formal notice
Unauthorized change of activity (unauthorized despecialization)
Unauthorized subletting
Degradation of the premises
Non-compliance with essential clauses of the lease

Termination clause

Most commercial leases contain a termination clause providing for automatic termination of the lease in the event of a breach by the tenant (notably non-payment of rent). Invoking this clause requires sending a formal notice that remains unanswered for a period generally set at one month.

However, the judge retains discretionary power and may grant grace periods to the tenant.

Subletting and assignment of the lease

Subletting

Subletting of commercial premises is in principle prohibited, unless expressly authorized by the landlord or by a contrary clause in the lease. In the event of authorized subletting, the sub-tenant does not benefit directly from the commercial lease regime vis-a-vis the owner, but only in their relationship with the main tenant.

Assignment of the lease

Assignment of the lease is free when it accompanies the sale of the business. Any clause prohibiting the assignment of the lease to the purchaser of the business is deemed unwritten (Art. 10 of the 1955 Dahir). This rule protects the transferability of the business.

However, the assignment of the lease alone (without the business) may be prohibited or subject to the landlord’s approval by a clause in the contract.

Key money (pas-de-porte)

Key money is a sum paid by the incoming tenant to the landlord or to the outgoing tenant for access to the commercial premises. Its legal nature is debated:

If paid to the landlord, it may be characterized as a rent supplement (taxable as property income) or as compensation for the commercial property right granted
If paid to the outgoing tenant, it constitutes the price of the assignment of the right to lease, distinct from the sale of the business

Key money is a common practice in Morocco, particularly in sought-after commercial locations in Casablanca, Rabat or Marrakech. Its amount varies considerably depending on the location and the commercial attractiveness of the premises.

Link with business value

The commercial lease constitutes an essential element of the business. The commercial property right — i.e., the right to renewal of the lease — often represents the most important component of business value. The loss of the right to lease, through termination or non-renewal, can lead to the outright disappearance of the business.

This is why free management of a business necessarily includes the right of enjoyment of the commercial premises. Similarly, company domiciliation does not confer any commercial lease right.

The tax management of the commercial lease — deductibility of rents, professional tax, VAT regime — must be integrated into the company’s overall strategy.

Upsilon Consulting, a member of the Order of Chartered Accountants, assists you in the negotiation, drafting and tax optimization of your commercial leases. Contact our experts for personalized advice.

Frequently asked questions

Can the tenant change their activity in the commercial premises?

The tenant cannot change the activity carried out in the premises without the landlord’s consent, unless the lease provides otherwise. A distinction is made between partial despecialization (related or complementary activities) which may be authorized by the court, and total despecialization (complete change of activity) which requires the landlord’s consent or court authorization and may give rise to a rent revision.

How is the eviction indemnity calculated in practice?

The eviction indemnity is generally valued by a court-appointed expert designated by the commercial court. It includes the market value of the business (calculated on the basis of turnover or profits), moving and reinstallation costs, loss of clientele and commercial disruption. In practice, it often amounts to two to three years of turnover for well-established businesses, making refusal of renewal very costly for the landlord.

What happens at the end of the lease if neither party takes action?

If neither the landlord nor the tenant takes action upon expiry of the lease, it continues by tacit renewal under the same conditions. The tenant retains their commercial property right and may at any time request formal renewal of the lease. The landlord may also give notice at any time, subject to respecting a six-month notice period and the obligations related to the right to renewal.

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This article is written by the team of chartered accountants at Upsilon Consulting, a firm registered with the Order of Chartered Accountants (OEC) of Morocco.

Need assistance with managing your commercial lease? Contact Upsilon Consulting for tailored advice.

Commercial Lease in Morocco: Renewal, Rent and Eviction Indemnity | Upsilon Consulting