The COVID-19 pandemic has now held the world firmly in its grip for more than six months. Within the real estate world, tenants and landlords are confronted with declining visitor numbers, closures and bankruptcies. In previous articles, we have answered tenancy law issues in this corona crisis with some reticence – and we still do so. On the one hand, because the legislator did not write the Civil Code with a crisis of this magnitude in mind, and on the other hand, because the higher legal authorities such as the courts and the Supreme Court have not yet passed irrevocable judgments on the subjects under discussion.
The preliminary relief judges and courts have now issued several judgments, and the general trend in those judgments is that, in many cases, tenants can enforce a rent discount. In this article, we briefly discuss the most important principles for rent reduction due to the crisis, and conclude with general advice.
The defects regulation in article 7: 204 et seq. Of the Dutch Civil Code refers in principle to known defects to a home or business space: leaks, subsidence, etc. During the debates about the defect regulation, the question was raised whether an unforeseen government measure (such as temporary closure of the rented property) should be regarded as a defect within the meaning of the law. According to the Justice Committee, this was indeed the case (Parliamentary Papers II, 1999/00, 26 089, no. 6, p. 15).
With reference to this passage, various tenants have successfully argued that the temporary closure of catering and retail space due to the corona crisis constituted a shortcoming under tenancy law which justified rent reduction. (See, among others, Northern Netherlands District Court 27 May 2020, ECLI: NL: RBNNE : 2020: 1979, ground 4.5 and District Court Rotterdam 18 June 2020, ECLI: NL: RBROT: 2020: 5585, ground 5.3.) Yet there are also judges who ruled otherwise. The subdistrict court in Overijssel, for example, held that the fact that the tenant was contractually responsible for obtaining government permits implied that the tenant also carried the risk of temporary suspension of a government permit due to a pandemic (Overijssel District Court 3 June 2020, ECLI: NL). : RBOVE: 2020: 1906, paragraph 6.2). According to this court, the tenant in question was therefore not entitled to a rent reduction.
In recent versions, the widely used ROZ model excludes rent reduction due to defects, which would leave the tenant empty-handed in the situation outlined. However, various judges have ruled that the corona crisis means that there are unforeseen circumstances and that such an article cannot therefore be validly invoked (see, for example, Gelderland District Court 29 May 2020, ECLI: NL: RBGEL: 2020: 2768, ground 4.2).
Jurisprudence is divided as to whether the consequences of the corona crisis are a defect. Even among prominent lawyers, there is no agreement on the answer to that question.
In exceptional cases, the parties can avoid the obligations arising from a rental agreement concluded by them by invoking “unforeseen circumstances” (Article 6: 258 BW). Such circumstances could, for example, lead to a rental price reduction.
A number of lower courts have meanwhile ruled that the consequences of the corona crisis do constitute an unforeseen circumstance that justifies a rent reduction (see, among others, Amsterdam District Court 31 July 2020, ECLI: NL: RBAMS: 2020: 3756, ground 13 and Limburg District Court 12 August 2020, ECLI: NL: RBLIM: 2020: 5994, ro 4.5).
However, it is still unclear whether these statements will hold.
In higher case law, an appeal to unforeseen circumstances is rarely honoured, because the general starting point in Dutch contract law is that the agreements under a contract must be fulfilled. It is only possible to deviate from that starting point in very exceptional situations. Time will tell whether such a situation arises today.
The general tendency is therefore that lower courts are inclined to allow exceptions to the tenancy law obligations due to the corona crisis. In this way, the rent can be temporarily reduced or, for example, the payment obligation can be suspended. The degree of rent reduction that is reasonable is strongly dependant on the circumstances of the case. When the turnover has remained virtually unchanged despite the closure of a physical store (for example due to an increase in online sales), it does not seem reasonable to significantly reduce the rent, even if the rental enjoyment has been affected.
Judges are also divided on the question whether the loss of income of tenants falls under the entrepreneurial risk or not (no entrepreneurial risk: Amsterdam District Court 17 July 2020, ECLI: NL: RBAMS: 2020: 3494, ground 5.4, but entrepreneurial risk: Rotterdam District Court 7 August 2020, ECLI: NL: RBROT: 2020: 7089 ro 3.4). This also determines the degree of rent reduction.
Most landlords and tenants approach this in a solution-oriented manner. For example, several brewers have suggested to their landlords to share the pain of loss of turnover equally between landlords, brewers and the catering operators for several months.
In his article of 19 March 2020, Professor Mr R.P.L. Tjittes argues for a 50/50 division of the outlined disadvantage between landlord and tenant.
Branch organisations such as Vastgoed Belang, Aedes, the Woonbond and IVBN continue to consult with each other about the outlined problem. However, unambiguous solutions do not exist; the consequences of the corona crisis are too diverse for that.
GMW lawyers assists both landlords and tenants during the corona crisis. We are well able to assess the reasonableness of a rent reduction proposal. Apart from the legal aspects, business ownership also plays a major role in weighing up mutual interests. A tenant who pays on time and in full, year after year, may earn (literally) nothing but credit in these times. A defaulter, on the other hand, should not be allowed to use corona as yet another excuse.
It is also important that the parties do their best to find solutions in consultation. A non-cooperative attitude of the landlord or tenant is regularly punished by the courts. With the growing vacancy rate of office space and the exponential increase in homeworkers, it is also questionable whether landlords will benefit from a stubborn attitude, given that in these turbulent times it will not be easy to find new tenants who are willing to pay the original rent.
It will take years before the legal issues described here are answered with 100% certainty; the Supreme Court and legislator will not provide the answers in the foreseeable future.
Business owners and entrepreneurs simply do not have the time to wait for a final legal judgment. We therefore advise our clients to assess on a case-by-case basis whether a change in the rental relationship is reasonable, and if so, what that should be. We then properly record those adjustments.
To be continued…
This blog was written in close collaboration with Glenn Kerver.