Outsourcing real estate management: one concern more or less?

By outsourcing real estate management, they hope to have fewer concerns about the rented house or business premises. The range of duties of a manager can vary greatly. For example, a manager may be responsible for finding new tenants. However, they could also be responsible for collecting rent payments and dealing with repairs and maintenance. In practice, the duties of a manager are often a matter of discussion. The same applies to the proper recording of agreements. After all, who is responsible for what? I will discuss some aspects below.

Should there be a rental contract or a management contract?

It seems obvious that a tenant and a manager are two completely different (legal) persons. Unclear contracts create unclear divisions of responsibility and discussions.

As a rule, the title of the contract is not decisive for the qualification of the contract. In a case from 2019, it was established that the parties had referred to the contract agreed between them as a ‘tenancy agreement’. It also stated that the tenant/ manager Casa Haarlem was allowed to sublet the rooms in this property. Casa Haarlem is an agency specialising in real estate and the management of real estate. When the owner wanted to terminate the contract, Casa Haarlem invoked rent protection.

The Sub-district Court ruled that a tenancy agreement for an indefinite period of time had come into being, and that there were no grounds for termination. However, the Amsterdam Court of Appeal delivered a different ruling. One important factor was that the parties had stipulated that the contract could be easily terminated. This is no sinecure for a tenancy agreement due to rent protection. Furthermore, it was clear that Casa Haarlem was referred to as both the ‘tenant’ and the ‘manager’ in the tenancy agreement. They performed management tasks and referred to itself as the ‘manager’ in the contracts with the subtenants. On the other hand, the owner and Casa Haarlem had called the contract between them a ‘tenancy agreement’. They had declared the General Provisions for Tenancy of Residential Accommodation (Algemene bepalingen voor de huur van woonruimte) applicable. And they had given explicit permission for subletting.

The importance of clear agreements

Nevertheless, the Court of Appeal ruled that the actual execution of the tenancy agreement and the intention of the parties – despite the wording – pointed to a management agreement, and not to a tenancy agreement.[1] Note: if the Court of Appeal had ruled that there had been a tenancy agreement, the owner could only have terminated this agreement with Casa Haarlem by successfully invoking the legal grounds for termination. Due to the far-reaching rent protection, the owner would have had a much weaker legal position in that case.

[1] Court of Appeal Amsterdam 3 September 2019, ECLI:NL:GHAMS:2019:3230, legal ground 3.6 to 3.12.

In a similar case, the owner and manager/ tenant had concluded an agreement called an ‘Agreement for the lease and rental of deregulated furnished and/ or unfurnished accommodation’. In this case, too, it was established that the manager/ tenant did not use the property itself. However, they rented it on a room-by-room basis to third parties. The Court of Amsterdam ruled that this was a management agreement, expressly taking into account that a private limited company cannot even occupy a property as a tenant.[2] However, such cases are not a foregone conclusion. Therefore it is very important that the owner draws up the contract with the manager. This has to happen carefully in order to avoid an unexpected invocation of rent protection.

Powers of the manager

Disputes can also arise about communications from and/ or approval given by the manager that the landlord is unaware of. To what extent may tenants rely on such statements? And can a landlord subsequently reverse them?

In a 2012 case, it was not in dispute that the manager was authorised to conclude tenancy agreements on behalf of the owner. At some point, the manager had rented out five properties to one tenant, who had carried out extensive refurbishment and sublet the homes to third parties for much more money. The manager and owner claimed termination of the tenancy agreement: the refurbishment and subletting were, in their view, attributable failings for which no permission had been granted. However, the tenant argued that the manager had given the impression that it had granted permission for this. The manager disputed this, stating that the tenant could not assume in the first place that the manager was authorised to give permission for a large-scale refurbishment.

Authority to grant consent

The Amsterdam Court of Appeal ruled that it is inherent in a certain function that sufficient authority has been granted to conclude contracts that are commonly considered to arise from that function. According to the Court of Appeal, giving permission for a major refurbishment is in line with a managerial function. It follows from this that if the tenant could reasonably trust that the manager was authorised to give permission, the manager and owner could not invoke this against the tenant if no authorisation had been given (Article 3:61(2) of the Dutch Civil Code (Burgerlijk Wetboek)).[3] As it had been established that the manager had given permission for the refurbishment, tacitly or otherwise, the tenancy agreement could not be terminated on account of the refurbishment, even though it had been established that the owner had not authorised the manager to give permission.

This did not apply, however, to the unauthorised subletting. Does authorisation to sublet give the tenant/sub-tenant the de facto right to use the property to conduct a business? The Court of Appeal ruled: “Such a course of action is so divergent from the normal management of housing that a manager cannot, in principle, be considered to have the authority to do so”. [4] Thus even if the manager had given the impression that it was giving permission for subletting, the tenant should not, in principle, have trusted that the owner had entrusted the manager with such authority.

[2] Court of Amsterdam 22 November 2017, ECLI:NL:RBAMS:2017:9077, paragraphs 4.2 and 4.3.
[3] Amsterdam Court of Appeal 30 October 2012, ECLI:NL:GHAMS:2012:BY6340, paragraphs 3.15 to 3.19.
[4] Amsterdam Court of Appeal 30 October 2012, ECLI:NL:GHAMS:2012:BY6340, paragraph 3.20.

Conclusion

Management arrangements are very common and widespread. It is therefore in the interest of all parties to properly record the agreements between the owner and the manager. Especially so for owners. This will prevent a boomerang effect after handing over a certain task. Do you want to outsource the management of real estate and require assistance? Do you have other questions about the management of real estate? Please do not hesitate to contact us.