The consequences of the corona crisis and the associated measures taken by the Dutch government are major for business. Catering establishments have been closed by mandate, and chain stores are now closed “voluntarily”. This crisis raises questions for both landlords and tenants. Below are answers to some frequently asked questions.
The corona crisis; an exceptional situation
The corona crisis is exceptional. There is no case law on comparable situations, and it is unclear how the rules of law will be interpreted by a judge in light of the corona crisis. Tenancy law simply does not offer ready-made answers.
Should the tenant continue to pay the (full) rent?
The most frequently asked question is obvious: is a tenant obliged to continue to pay the full rent? A few large retail chains have indicated to their landlords that they will no longer pay rent during the corona crisis. Is that allowed just like that? The short answer is no.
In principle, the coronavirus and the ensuing government measures taken in this content do not affect the obligations of the lease. In principle, the tenant is and remains obliged to pay the full rent. In principle, there is also no right to a rent reduction.
It is relevant whether this constitutes a defect in the property. A defect is a situation in which the rented property does not provide the tenant with the pleasure that the tenant should expect, and that situation cannot be attributed to the tenant. In Dutch tenancy law, a tenant can only claim a reduction in the rental price or legally suspend the rent payments in the event of a defect in the rented property. The question is whether a compulsory closure ordered by the government qualifies as a defect.
I consider that chance small. In principle, a situation that does not directly hinder the use of the rented property may also constitute a defect. However, this does not apply if the situation cannot be attributed to the landlord. In my opinion, a compulsory closing of the rented property (by the government) cannot be attributed to an individual landlord. It is impossible for the landlord to “fix” the imposed closure. There is therefore no question of a defect.
The store is open, but visitors stay away and turnover decreases; is there a defect?
Usually not. It follows from case law that disappointing visitor numbers and a fall in turnover are counted as the business risk of the tenant. This is only different if special agreements have been made in the lease, such as a turnover guarantee or a guaranteed number of visitors. This rarely happens in practice.
Does rent arrears provide ground for termination of the lease?
A (growing) rent arrears in principle provides a ground for termination / dissolution of the lease. If the rent is not paid, or is not paid in time or in full, there is a shortcoming. Article 6: 265 BW stipulates that the lessor has the power to dissolve the lease due to any shortcoming. However, dissolution is only possible if the shortcoming justifies the dissolution. This greatly depends, for example, on the seriousness, nature and frequency of a shortcoming. It follows from the case law that dissolution with a rent arrears of three months (or more) is usually justified.
It is uncertain to what extent the corona crisis, a (compulsory) closure and a sharp drop in turnover are taken into account by the court when weighing up an interest.
Corona agreement: property owners are giving ailing retailers a respite until April 20th
The tenant thus seems to be drawing the short straw: they are obliged to continue to pay the full rent, are not entitled to a reduction in rent and the fall in turnover does not constitute a defect.
The trade associations of landlords, property investors and retailers recognised this precarious situation. After long negotiations, they recently announced that shopkeepers who are in (payment) problems due to the corona crisis will be granted a temporary reprieve. The industry organisations are calling on affiliated landlords to accommodate the retailers by converting a quarterly rent into a monthly rent, and to suspend the sending of rental bills until April 20, 2020.
It should be noted that this call is not binding on all landlords. This means that each tenant must contact his or her own landlord to come to an agreement. It has now become apparent that not all affiliated landlords support the appeal of the trade associations.
Unforeseen circumstances, force majeure and reasonableness and fairness
If a tenant does not come to good agreements with their landlord, the tenant may still have some legal options.
The first can be an appeal to unforeseen circumstances. A tenant could claim a reduction in rent or partial termination of the lease based on unforeseen circumstances as per Section 6: 258 of the Dutch Civil Code. In practice, however, relying on unforeseen circumstances rarely, if ever, succeeds.
I refer you in this regard to the recent blog by Raymond de Mooij: Coronavirus and renting retail or catering space.
In addition, the tenant can state that the corona crisis and the obligatory closures are causing force majeure. For reliance on force majeure to be successful, the shortcoming may not be the fault of the tenant and should not remain at the risk of the tenant. If the requirements for a successful appeal to force majeure are met, the claim for compliance with the payment obligations will be dismissed by the court.
For further information on this topic, I refer you to the blog by Mechteld van Veen-Oudenaarden: Coronavirus – the contractual consequences.
Reasonableness and fairness
Finally, the tenant could argue that claiming payment of the full rent is contrary to reasonableness and fairness. Here too, such an appeal rarely succeeds in practice. After all, in that case there must be unacceptable consequences if one adheres to the agreements in the lease. This is not easily accepted in the judiciary.
In the unlikely event that the tenant and landlord cannot come to an agreement, legal proceedings may remain an option.
The outcome is uncertain. The judge will take the agreements made as a starting point, but the corona crisis may be so exceptional that an appeal to unforeseen circumstances, force majeure or reasonableness and fairness will still succeed. The legal consequences of the corona crisis thus remain unpredictable.
For legal advice about coronavirus and the consequences for your rental of retail or catering space, please contact us.