Supreme Court clarifies Corona lease discount

Supreme Court clarifies Corona lease discount for business premises

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Also in: Dutch

24-12-2021

Just prior to Christmas eve, the Supreme Court answered the preliminary questions posed by the District Court of Limburg. In these preliminary ruling proceedings, the key question is if and, when applicable, how the agreed rent may be reduced if a tenant of business premises as referred to in Section 7:290 of the Dutch Civil Code, who depends for his turnover on the attendance of the public, cannot exploit this space, or can only do so to a limited extent, as a result of government measures in connection with the corona pandemic. The Supreme Court provides a clear legal framework in its judgment.

Unforeseen circumstances; when are they applicable?

First of all, the Supreme Court provides clarity on the question of whether the corona pandemic qualifies as an 'unforeseen circumstance': according to the Supreme Court, this may be the case if a tenant and a landlord concluded the lease before 15 March 2020, the date on which retail premises had to close for the first time in the Netherlands due to the corona pandemic. If a tenant under such a lease is faced with a decrease in turnover due to corona-related government measures, which turnover depends on the attendance of the public, the corona pandemic as an unforeseen circumstance may form the legal ground for a rent reduction by the court. For leases concluded after 15 March 2020, it should be assessed on a case-by-case basis whether the corona pandemic qualifies as an unforeseen circumstance.

Fixed charge method for rent reduction

Furthermore, the Supreme Court has formulated a calculation method that can be used to determine the actual amount of the rent reduction. The starting point is the so-called share the pain doctrine; the equal division of the (financial) burden resulting from the corona pandemic as an unforeseen circumstance between the tenant and the landlord. After all, the corona pandemic is neither for the tenant's nor the landlord's its risk or account.

Concretely, the Supreme Court has formulated a calculation method by which a percentage can be calculated on the basis of which the contractually agreed rent may be reduced. This calculation method also takes into account whether the tenant has received any government support - in the form of 'Tegemoetkoming Vaste Lasten' (allowance for fixed costs) - or is entitled to it.

Corona pandemic; rent arrears?

In addition, the Supreme Court has established that (the consequences of) the corona pandemic do not qualify as a rental defect (7:204 (2) Dutch Civil Code). The tenant may not expect the landlord to indemnify itself from the (financial) consequences of the corona pandemic. However, this does not prevent a reduction of the rent on the basis of the corona pandemic as an unforeseen circumstance.

All in all, the Supreme Court has provided clarity to the hospitality industry, retail premises and property owners on determining the manner and circumstances in which a rent reduction is justified, and when it is not. The fixed costs method formulated by the Supreme Court can then be used to arrive at an objective calculation of the rent reduction.

Should you have any questions or need advice in connection with the above, please do not hesitate to contact one of the colleagues below.