Commercial tenant’s rights: what the contract sets, what the law adds, and how to defend yourself

Service page: Commercial contracts lawyer: drafting, review and enforcement.

What governs a commercial lease: the contract or the law?

You received a letter from the landlord: the rent goes up by 40% from next month, or, worse, a demand to vacate the shop within a month. What can you do? The first answer is to open the contract, because in a commercial lease it is the document that decides. The Rental and Loan Law, 5731-1971, states expressly that its provisions apply “where there are no special provisions on the matter in another enactment and no other intention can be inferred from the agreement between the parties” (section 2(c)). In other words, it supplements the contract; it does not override it. There are two important exceptions: the duty of good faith in performing the contract and in exercising rights (section 4), and a term that exempts the landlord from liability for a defect or non-conformity that the landlord knew or should have known about and did not disclose to the tenant, which is void (section 8).

And what about the Tenant’s Protection Law [Consolidated Version], 5732-1972? It is hardly relevant to businesses today: under section 14 the Law does not apply to a building that was completed and let after 20 August 1968, and under section 9 a property that had no protected tenant on that date is not subject to the Law as long as it has not been let for key money. The chapter added to the Rental and Loan Law in 2017 (Article F: residential lease contract, section 25A onward) also applies only to residential apartments. So a tenant of a shop, an office or a warehouse relies on the contract and on the default rules below. On drafting the contract itself, see Commercial contracts: 7 principles.

Can the landlord evict you before the end of the contract?

Not without grounds and not without a court process. A landlord may cancel a fixed-term lease only if the tenant breached it, and usually only for a fundamental breach, or for a breach that was not remedied within the time set in the contract or in a warning, under the rules of the Contracts (Remedies for Breach of Contract) Law, 5731-1970; the Rental and Loan Law itself adds to these remedies and does not detract from them (section 23). The breaches that justify cancellation are set in the contract: late payment beyond a defined period, using the property for a purpose other than the one agreed, subletting without consent, damage to the property.

Even when there are grounds, the landlord may not change the lock or cut off the electricity. The only way is a claim for eviction from leased property under regulations 78–82 of the Civil Procedure Regulations, 5779-2018. This is an expedited proceeding in which the tenant has 30 days to file a statement of defense, the hearing is set within 30 days of its filing, and the judgment is given within 14 days of the end of the hearing; a money claim for damage or a debt is filed separately. In other words: a landlord with real grounds can evict a commercial tenant within a few months, and a landlord without grounds will not be able to do so even in a year.

Raising the rent in the middle of the term

During the term of the contract, the landlord can change the rent only through a mechanism set in it: linkage to the consumer price index, an annual update at a fixed rate, or an “option” for an additional period at a price set in advance. If the contract is silent, the price is fixed until the end of the term. A clause that leaves the update to the landlord’s discretion is not void in itself (although in a standard-form contract, a term that gives the supplier the right to change the price at its sole discretion is presumed to be an unfair term, section 4(4) of the Standard Contracts Law), so it is important to spot it before signing and to demand a cap. At the end of the term, there is no control over the amount of rent in a commercial lease: the landlord may ask for a new price, and the tenant may refuse and leave. In a commercial lease almost everything is decided by the wording, so drafting and reviewing commercial contracts is worth more than any argument after the fact.

Maintenance and repairs: sections 7–9 of the Law

The default rule of the Law is clear. Under section 7(a), the landlord must repair, within a reasonable time of receiving a demand from the tenant, anything “that causes a real disturbance to the ordinary use of the leased property or to its use as agreed”, whether the defect existed at delivery or arose later, except a defect for which the tenant is responsible under the Bailees Law, 5727-1967 (חוק השומרים, התשכ״ז-1967), or whose repair falls on the tenant under the agreement or by custom. Section 9 gives the tenant two tools if the landlord did not repair within a reasonable time: to repair it themselves and claim their reasonable expenses (after notifying the landlord a reasonable time in advance, except in an urgent repair, section 9(b)–(c)), or to reduce the rent “in the proportion by which the rental value decreased because of the defect compared with its value under the contract”.

An important qualification: commercial leases almost always divide maintenance differently, with routine maintenance on the tenant and systems and infrastructure on the landlord, and the division in the contract prevails. So before setting anything off against the rent, check three things: what the contract says about that defect, whether a written demand with a reasonable deadline was sent, and whether the reduction is proportionate to the actual harm. An excessive set-off turns the tenant into the party in breach.

A numerical example: a proportionate reduction of the rent

An office is let for NIS 12,000 a month (the figures are for illustration). The air-conditioning system broke down in July, the tenant sent a written demand, and the landlord, who is responsible for maintaining the system under the contract, did not repair it for two months. If an appraiser or a reasonable estimate shows that the rental value of an office without air conditioning in summer is 25% lower, the tenant may reduce the rent by NIS 3,000 a month, NIS 6,000 for the two months, until the repair. Alternatively, if the tenant repaired it themselves for NIS 8,000 after written notice, they may claim the expense from the landlord, and under section 25 of the Law, mutual debts arising from the lease can be set off. Stopping payment entirely, on the other hand, is not justified: the use of the office was not taken away completely.

Subletting and transfer of rights: section 22

A business that finds it needs only half of the office wants to let the rest. Section 22(a) of the Law provides that the tenant may not transfer their right or sublet except with the landlord’s consent. But if the landlord refused “on unreasonable grounds” or made its consent subject to unreasonable conditions, then in a lease of real property the tenant may carry out the transaction even without consent, and the court may permit it on the conditions it sees fit, even contrary to what the contract says. In practice, do not rely on an “unreasonable refusal” as a defense: ask for consent in advance and in writing (in a lease of real property, section 22(b) also requires this), because subletting without consent may be treated as a fundamental breach that justifies eviction.

Three rules for a tenant who becomes a sub-landlord. They remain liable to the head landlord for all the terms of the original contract, even if the subtenant does not pay. They cannot give the subtenant more than they have themselves: not a longer period, and not a use that the original contract prohibits. And the Law applies to the sublease “with the necessary changes”, with the head tenant treated as the landlord (section 2(b)). The sublease should therefore include automatic termination if the head lease ends, insurance, a record of the property’s condition at move-in, and a quick collection mechanism.

The contract ended and was not renewed: what now?

Israeli law gives a “long-standing” commercial tenant no automatic right to renewal. If you wanted certainty, it is built into the contract: an option to extend at a fixed price or by an agreed mechanism, and a right of first refusal. When the contract ends and the parties continue the lease without setting a new period, section 19(a) applies: each party may end the lease by giving the other party notice “a reasonable time in advance” (section 19(b), which set a separate rule for a lease whose rent was fixed by periods, was repealed). A tenant who stays after the notice period has ended is exposed to a claim for eviction from leased property and to a claim for use fees.

The landlord is in breach: four steps

1. Documentation. Payments, correspondence, photos of the defect, and written confirmation of every oral agreement (“As we agreed today…”).
2. A written demand setting out the breach and a reasonable deadline for the repair. The demand for repair is the condition for using section 9, and the writing is the proof of it.
3. Using the remedies that the law and the contract give: proportionate reduction, repair and set-off, and, for a fundamental breach, cancellation under the rules for canceling a contract. Use them in proportion, and not beyond.
4. Mediation or a claim. Commercial mediation suits cases where there is value in continuing the relationship; otherwise a claim for remedies for breach of contract, and for small amounts, small claims. A bank guarantee or a deposit held by the landlord should be managed early; see the guide to bank guarantees.

More guides on commercial contracts are collected in the commercial contracts information center.

Frequently asked questions

Does the Tenant’s Protection Law protect a tenant of a shop or an office?

In most cases, no. The Law does not apply to a building that was completed and let after 20 August 1968 (section 14), and a property that had no protected tenant on that date is not subject to the Law as long as it has not been let for key money (section 9). An ordinary commercial tenant relies on the contract and on the Rental and Loan Law.

The landlord doesn’t make repairs: may I stop paying rent?

Do not stop paying; reduce the rent instead. Under section 9 of the Rental and Loan Law, if the landlord did not repair a defect it is responsible for within a reasonable time of the tenant’s demand (preferably in writing), the tenant may reduce the rent in proportion to the fall in rental value, or repair it themselves and claim the expense. Stopping payment entirely is a breach by the tenant.

May the landlord change the lock on a tenant who is in breach?

No. Eviction is carried out only under a judgment, in a claim for eviction from leased property under the Civil Procedure Regulations, an expedited proceeding that usually takes a few months. A landlord who evicts on their own is exposed to a claim.