9 April 2024

High inflation resulting in a steep rent increase is not an unforeseen circumstance

By Glenn Kerver

The ongoing existence of rent indexation clauses seems to have come to an end this year.

For example, the Court of Amsterdam ruled that when letting residential property, certain rent modification clauses are contrary to European law. This could lead to rental price indexation not being applied at all, with all the consequences this entails. The Supreme Court is currently considering the issue.

A different discussion arises when leasing business premises. Due to high inflation, applying the consumer price index (CPI) without restriction will lead to substantial rent increases of up to 14.5% this year. It is being argued from various sides that such an increase, due to global circumstances, may qualify as an unforeseen circumstance under Article 6:258 of the Dutch Civil Code (Burgerlijk Wetboek), as a result of which the indexation clause should not reasonably be applied unchanged.

In its judgement of 25 October 2023, the District Court of Gelderland ruled that the cause of such an increase is not an unforeseen circumstance. At least not if the general provisions of the ROZ Real Estate Council of the Netherlands (Raad voor Onroerende Zaken) model are applied, nor can the derogatory effect of reasonableness and fairness lead to a lower increase. A welcome relief for lessors, but less good news for renting entrepreneurs.

Unforeseen circumstance?

As a rule, invoking Article 6:258 of the Dutch Civil Code will not readily succeed. In the aftermath of the corona crisis, the Supreme Court ruled that lessees that could only partially operate from their business premises because of government measures were entitled to temporary rent reductions under Article 6:258 of the Dutch Civil Code. This verdict was not a foregone conclusion and there was much discussion beforehand about the possible outcomes of the case.

The corona crisis may be over, but many entrepreneurs have not yet fully recovered. High inflation rates allowed lessors to implement hefty rent increases this year. And the question arose as to whether the cause of this high inflation (the energy crisis due to the war in Ukraine) would also qualify as an unforeseen circumstance.

The preliminary relief judge of the District Court of The Hague, Gouda location, ruled on 4 May 2023 that the energy crisis is not an unforeseen circumstance. However, given that CBS has slightly changed the method of calculation, full application of the rent price indexation would potentially be unreasonable. The lessor’s claims were dismissed for that reason. Both supporters and opponents of high rent indexation found points of reference for their case in this judgement.

The judgement of the District Court of Gelderland

The judgement of the District Court of Gelderland now tips the balance in favour of the supporters.

According to the court, relatively high indexation is not an unforeseen circumstance because Article 26.3 of the ROZ Real Estate Council of the Netherlands 2012 model, applicable in the case at hand, already takes into account an increase of more than 10%. The ROZ Real Estate Council of the Netherlands 2022 model has a similar article (29.3). The ROZ Real Estate Council of the Netherlands model will have been declared applicable to the vast majority of leases. Incidentally, it is questionable whether this is a strong argument from a legal point of view, as it is a standard article in the applicable General Provisions, which has not been substantively negotiated.

An appeal to the derogatory effect of reasonableness and fairness also fails, especially since Statistics Netherlands (Centraal Bureau voor de Statistiek) itself advises continuing to apply the consumer price index (CPI):

“The fact that the war in Ukraine increased the CPI does not necessarily make its use unacceptable by standards of reasonableness and fairness. After all, all circumstances must be considered. In doing so, Happy Italy, as DJL has argued, loses sight of the fact that DJL has also had to deal with the same high costs and that the parties opted for the CPI methodology without capping it.

Therefore, in view of all the above, it cannot be said that it is unacceptable by standards of reasonableness and fairness that DJL required Happy Italy to comply with the rent increase calculated by reference to Article 18.1 of the General Lease Conditions. In this regard, the Subdistrict Court also takes into account, as this has not been sufficiently substantiated by Happy Italy, that Statistics Netherlands has recommended to continue using the CPI.”

Conclusion

It seems safe to conclude that the war in Ukraine does not qualify as an unforeseen circumstance that should lead to restricted rent indexation. The question arises whether this also applies if there is no article in the lease or applicable general provisions that allows for substantial rent increases.

For now, further case law should be awaited, but until then there does not seem to be a legal basis for restricted rent indexation under the aforementioned circumstances.

More information

Do you have a legal question? If so, please do not hesitate to contact me or one of the other specialists at GMW advocaten.

Glenn Kerver

Glenn Kerver

Lawyer

Glenn works in real estate & tenancy law and liability law.

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