Dutch Supreme Court provides clarity on rent reductions for commercial properties due to Corona measures
On 24 December 2021, the Supreme Court ruled on the possibility for lessees of business premises as meant in Section 7:290 of the Dutch Civil Code to claim a rent reduction by invoking unforeseen circumstances as a result of corona measures imposed by the government.
The ruling was prompted by rent proceedings before the Limburg subdistrict court, in which the question arose whether, as a result of the corona measures, part of the rent should be lower than the contractually agreed rent. To this end, the subdistrict court submitted the following preliminary questions to the Supreme Court on 21 March 2021:
- Should the government-imposed closure of the hotel and catering sector as a consequence of the corona crisis be regarded as a defect within the meaning of Section 7:204 (2) of the Dutch Civil Code?
- If so, on the basis of which criteria should the degree of rent reduction be assessed?
- (Or) does the restriction on the use of the leased property constitute an unforeseen circumstance that may lead to a rent reduction?
- If so, what circumstances of the case at hand must be taken into account when determining or apportioning the damage?
Questions one and two
With regard to the first two preliminary questions, the ruling of the Supreme Court is brief. It rules that, as follows from the legislative history of Section 7:204 of the Dutch Civil Code, it is not intended that general government measures that are aimed at restricting the conduct of business and which are unforeseeable for the parties - such as the government-imposed closure of the catering industry and other business premises as a result of the corona pandemic - should be regarded as a defect. Furthermore, it does not follow from the legislative history that the lessee may expect the lessor to indemnify him against such restrictions. The Supreme Court therefore ruled that the mandatory closure of so called ‘290 business premises’ as a result of the corona pandemic cannot be regarded as a defect as meant in Section 7:204 (2) of the Dutch Civil Code (question one). Therefore, question two did not need to be addressed.
For the answer to questions three and four, the Supreme Court stated first and foremost that its judgment relates (i) to all business premises within the meaning of Section 7:290 of the Dutch Civil Code (i.e. not only the hotel and catering sector) and (ii) not only to closures, but also to other government measures (including government acts such as rendering advice) in connection with the corona pandemic as a result of which the leased property cannot be exploited, or can be exploited only to a limited extent, in the sense that fewer shopping customers will visit the leased premises.
Before answering the third preliminary question, the Supreme Court gives a definition of what constitutes an unforeseen circumstance: an unforeseen circumstance is a circumstance which at the time of the conclusion of the contract is still situated in the future and which has not been taken into account. Whether the latter is the case must be determined by interpreting the contract.
The Supreme Court ruled that: "the circumstance that, as a result of government measures in connection with the corona pandemic, a lessee who depends on the arrival of the public for his turnover cannot exploit the 290 business premises leased by him, or can do so only to a limited extent, constitutes, in the case of a lease concluded before 15 March 2020, barring concrete indications to the contrary, an unforeseen circumstance as meant in Section 6:258 of the Dutch Civil Code on the basis of which the court may adjust the lease by reducing the rent".
According to the Supreme Court, in the case outlined above it can be assumed that the value of the right to use the leased property has decreased to such an extent that the value relationship between the mutual performances by the lessor and the lessee has been seriously disturbed. Moreover, according to generally accepted standards, this circumstance is not entirely for the account of the lessee. As a result, the landlord can no longer, by standards of reasonableness and fairness, claim full payment of the agreed rent. The court may therefore reduce the rent on the grounds of unforeseen circumstances.
The Supreme Court stated that losses caused by the government measures imposed as a result of the corona pandemic do not, as a rule, fall within the area of the account and risk of the lessor nor of the lessee. Therefore, according to the Supreme Court, the disruption of the value relationship between the mutual performances by the lessor and the lessee is best overcome by dividing the damage - in so far as it is not already compensated by the financial support of the government to the lessee in the form of the Contribution towards Fixed Expenses - equally between the lessor and the lessee.
With regard to the calculation of the rent reduction, the Supreme Court chooses the fixed costs method (vastelastenmethode). Its application results in a percentage by which the contractually agreed rent can be reduced. In its ruling, the Supreme Court offers an extensive calculation example which provides guidance on how the rent can be adjusted.
If you have any questions as a result of the above or if you have any general questions about renting and leasing business or office space, please contact Rens M.R. Berrevoets: 020-3122879 or firstname.lastname@example.org.