The Court was asked to rule whether a business transfer under the Acquired Rights Directive (referred to as a TUPE transfer in UK) would apply when the landlord of a commercial property, which was leased to a coffee shop, terminated the lease and found a new tenant, who also used the premises as a coffee shop.
The Court ruled that the mere fact that a similar business activity was previously carried out at the same premises leads to a transfer of the business activity and as such to the automatic transfer of employees. This despite there being no direct relationship between the two tenants on the takeover of the lease or on the sale of any tangible or intangible property relevant to the business such as kitchen equipment or stock. According to the Court’s opinion the business transfer occurs on the basis of whatever legal acts which result in change of the employer and their replacement for another eligible employer.
This decision has brought great uncertainty to real estate practice as the general understanding prior to this decision was based on the fact that the transfer of employees may be carried out only with the transfer of a stable economic entity.
Conclusions: We recommend that parties involved in commercial property transactions review the history of the premises and consider asking for appropriate representations and warranties on employee transfer. Prior legal assessment to avoid an accidental TUPE transfer is advisable in any case.