Use of event spaces for healthcare during COVID-19 in the Netherlands

Many people want to help fight the Coronavirus / COVID 19. At the same time, several operators within the hotel and events sector are having problems due to the many cancellations of hotel stays and events. We have heard from hotel operators, events organisations and other operators who wish to make a virtue of necessity by temporarily converting their space to help alleviate the impending lack of space in healthcare. We would like to aid in this process with this publication.

Specifically, we have heard that hotel and event space may be converted into residential space for healthcare employees who cannot return to their families, or used as birth and maternity hotels. The space may also be used for the accommodation of specific groups of patients (including rehabilitation) to make room in hospitals for more severe cases. Of course, do not forget about shelter for the homeless and asylum seekers: just to name some off-the-cuff ideas.

We have drawn up the following checklists for considering such temporary conversions from a legal perspective. The courage to show guts, take responsibility and take bold action in these times is necessary to overcome the crisis caused by Coronavirus.

These checklists are a work in progress: if you have any questions, please contact us (our contact details are listed at the bottom). If you have any additions or suggestions (including those of a non-legal nature), please let us know! It will help us further develop these lists.

Checklist regarding existing contracts and the framework of administrative law

Lease / leasehold

Check whether the designated use in the lease or leasehold conditions allows for the amended use. Also look at the provisions on sub-letting / use by third parties. Depending on the temporary use, the space may need significant changes, which may not be allowed contractually and could result in the early termination of the lease or leasehold.

If the lease or leasehold conditions contain restrictions on the above points: please raise the subject with the lessor. Keep in mind that this party may desire additional security in exchange for their permission. It might be possible to obtain such security from the user. The lessor's underlying fears might also be dispelled by letting them inspect the agreements with the user, or by appealing to the lessor's (non-legal) morals.

Check these points regarding both the lease / leasehold conditions and any general terms and conditions that may apply (such as the general conditions for lease of the Real Estate Council of the Netherlands (ROZ)).

Hotel management contract

Hotel management contracts often contain obligations regarding specific use, specific services provided by the operator, guarantees, and obligations to obtain consent.

Raise the subject of the use with the other party (i.e. the owner/rightsholder of the space or the operator). Please make sure there are clear arrangements in particular on the services to be provided, the safety, the duration of the deviating agreements and the compensation due during the temporary conversion.

Permits / zoning plan / other permissions

Check whether the zoning plan allows for the envisaged temporarily amended use. If not, raise the subject of the (temporary) adjustment of the allowed use with the municipality.

However, this will need action within days or a few weeks. The accelerated handling of an environmental permit for divergent use or an informal statement from the municipality that it will not enforce the zoning plan may provide a (temporary) solution.

The municipality, or the mayor, may also issue emergency orders under the Dutch Municipalities Act and/or the general municipal ordinance. In that case, emergency knows no law.

Financing agreement

The purchase or operation of the current hotel and/or event space may have been financed with a loan from a bank or other financier. Financing documents often contain various restrictions and obligations to obtain consent or provide information.

Check whether the provisions of the financing documents apply to the conversion. If that is the case, raise the subject with the financier. Keep in mind that the financier may desire additional security in exchange for their permission. It might be possible to obtain such security from the user. The financier's underlying fears might also be dispelled by letting them inspect the agreements with the user, or by appealing to the financier's (non-legal) morals. Also keep in mind that the financier needs some time to grant permission: in that case, try to have the request escalated within the financier's organisation. In any event ensure that the communication with the financier is (eventually) put in writing.

Ongoing refurbishments

The space may already be undergoing refurbishment. Such refurbishment might have to be cancelled due to the temporary use.

If the contractor has not already stopped the work himself, the principal may suspend performance of the work at a certain cost if the Uniform Administrative Conditions for the Execution of Works 2012 (UAV 2012) or the Uniform Administrative Conditions for Integrated Contracts 2005 (UAV-GC 2005) are applicable (provided that the relevant provisions were not deviated from). If neither of these sets of conditions applies and the contract contains no provisions on this subject, the principal will have to raise the subject with the contractor, as it would then involve a contract change.

In the event of a suspension pursuant to section 14.1 UAV 2012 or section 16.1 UAV-GC 2005, the contractor may be entitled to extension of the time limit and/or compensation of costs/losses. If the contractor has to perform extra work after he is able to restart his work (to undo the impact of the temporary use, for example), he may be entitled to a compensation for such work.

If the suspension lasts longer than 1 month (under UAV 2012) or 6 months (UAV-GC 2005), the contractor will be entitled to terminate the building contract.

It is in any event important to raise the subject with the contractor before suspending performance. Construction companies also suffer from the impact of the Coronavirus and all of the associated liquidity problems, and they may even benefit from a suspension of the work.

Other relevant contracts

In addition to the aforementioned contracts, there may be other contracts with obligations that should be borne in mind when temporarily changing the use. Examples include cooperation agreements, agreements with neighbours, contracts with online travel agencies and, of course, bookings and reservations that have not yet been cancelled.

Keep in mind that if existing agreements with other parties cannot be performed because of this temporary conversion, the losses of those other parties will have to be compensated. A number of exceptions may apply, however, such as force majeure, unforeseen circumstances and a reliance on the derogatory effect of reasonableness and fairness. Each exception is subject to specific formal requirements and, therefore, specific considerations. Try to talk this through in advance and change the existing agreements together. This will provide clarity in advance.

Checklist regarding agreements with temporary user

The following is a list of the most important topics to think about when making agreements with the temporary user. Please ensure that these agreements are put in writing.

Type of agreement with user

Determine what type of contract you will enter into with the new temporary user: is it a contract for use, a lease? In case of overnight stays in hotels, for example, those might still be considered hotel stays, but at different rates; the following checklist does not relate to that situation.

An important distinction between lease and use is that a lessee has more statutory rights than a user.

It is a lease if the consideration for the mere use of the space exceeds a pure reimbursement of costs, no matter how minor the consideration. The consideration could also consist of carrying out certain surveillance or monitoring.

In case of a lease, a number of variants are possible: the contract could be based on an ROZ model, or it could be triple net lease, a sublease or a substitution/assumption of contract under the existing lease. It is important that any obligations already applicable are passed on to the temporary user. If that is onerous, please raise the subject with the main lessor.

Division of tasks

Make clear agreements on which party will take up certain tasks. In particular this may include such tasks as cleaning work, conversion / refurbishment, surveillance, monitoring, taking out insurance, et cetera. Also keep in mind the safety measures to be taken: for example, who will be responsible for providing masks and other protective equipment? In doing so, please consider the impact of the amended use (more on this below).

If the contract with the temporary user has to qualify as a contract for use, the tasks of both parties have to remain as close to their own core tasks as possible. Even if the contract can qualify as a lease, this is still recommendable for more practical reasons. To illustrate: having a user carry out surveillance may in certain situations be seen as a consideration (making it a lease).

In case of refurbishment work, it is important that you do not simply offer the space to the temporary user but instead remain involved in the refurbishment based on your own knowledge and experience with the space.

For example, the obligation to obtain the relevant permissions from the competent authorities (such as a permit to deviate from the zoning plan) may be passed on to the temporary user.

Payments

Which payments will the temporary user be making and for what period:

• A reimbursement of certain recurrent items, measures for modifications to the space (before and after the use), safety measures (including for own staff), cleaning costs after the use, et cetera. Such costs must be demonstrable to prevent lease;
• A fixed fee for the mere use (which would make it a lease); and/or
• Compensation for any damage or loss incurred during and further to the temporary use (e.g. repair work and lost income).

How will the temporary user reimburse these amounts? Consider working with advance payments (which may also be attractive from a liquidity standpoint). Depending on the temporary user (and the wishes of any financiers involved), it may also be desirable to obtain some form of security (like a bank guarantee or corporate guarantee).

Points to note regarding payments

Should the drop in turnover turn out to be lower than originally expected in the application under the 'Temporary Emergency Bridging Measure for Sustained Employment' (NOW) due to payments for temporary other use, a part of the advance payment may be reclaimed. More on this can be found in our newsletter on the employment-law impact of the government's measures on jobs and the economy.

In addition, business owners can apply for a 3-month deferment of payment of wage tax, VAT and corporate income tax (and income tax for entrepreneurs subject to income tax rules). An interest rate of 0.01% applies in that case, and the normal default penalty for late payment of taxes is omitted. The application of these measures is therefore independent of potential (substitute) income. If business owners want a deferment of tax payments longer than 3 months, they will have to submit an application in which they indicate that the payment problems are related to the Coronavirus. More on this can be found in our newsletter on the fiscal impact of the government's measures on jobs and the economy [link to follow].

Please bear in mind that under certain circumstances the temporary other use may result in a limitation of the right to deduct input VAT. This may have adverse consequences for the VAT on the purchase of and/or investments in the immovable property, the VAT on operation costs and the VAT on the costs of the modifications necessary to facilitate the temporary other use. This may be reason to conclude a different type of contract regarding the provision of the accommodation.

Communication

It is important to have clear lines of communication both during the refurbishment work and during the use. Organise (telephone) consultations at regular intervals, and keep each other informed even outside of those consultations.

Impact of the amended use Consider the consequences of the amended use and who is responsible for those consequences. Examples include an increase in the use of parking spaces and an increase in van access traffic (even at times the neighbours are not used to). Who will ensure that adequate parking is available? Who will take care of the communication with neighbours and relevant authorities?

Term

How long will the temporary use last? Is there a fixed end date, or is renewal possible? How can the contract be terminated? Keep in mind that the market will fluctuate. It is also important to make agreements on the condition of the space at the time of delivery (both at the start and, particularly, at the end of the temporary use) and any increases or decreases in value.

In case of disputes

Determine which authority will have jurisdiction in case of disputes. Keep in mind that access to the courts will be very limited in the months to come due to the Coronavirus.