Real Estate alert – The Netherlands (January 2022)

On 24 December 2021, the Supreme Court in the Netherlands answered preliminary questions the District Court of Limburg had posed with respect to possible rent reduction for business premises due to the impacts of COVID-19. The key question was whether and, if so, how the agreed rent may be reduced (retrospectively) if a tenant of business premises as referred to in Section 7:290 of the Dutch Civil Code (DCC) (eg shops, restaurants, hotels) is not (or only to a limited extent) able to exploit the leased property as a result of governmental measures in connection with the COVID-19 pandemic. The Supreme Court provided a clear legal framework, which will be summarized below.

The Supreme Court clarified that the COVID-19 pandemic qualifies as an ‘unforeseen circumstance’ (within the meaning of Section 6:258 DCC) which the parties have not taken into account when entering into the agreement. According to the Supreme Court not (or only to a limited extent) being able to exploit the leased property due to COVID-19 governmental measures is in principle an ‘unforeseen circumstance’ under a lease concluded before 15 March 2020. On that date, business premises within the meaning of Section 7:290 DCC had to close for the first time in the Netherlands due to the COVID-19 pandemic. If a tenant under such a lease is or has been faced with a decrease in turnover due to COVID-19 related governmental measures, this may be a legal basis for a rent reduction. For leases concluded after 15 March 2020, it should be assessed on a case-by-case basis whether the impacts of the COVID-19 pandemic qualify as an unforeseen circumstance or not.

The Supreme Court then formulated a calculation method which can be used to determine the actual reduction. The starting point is the so-called “share the pain” doctrine; the consequential disruption of the value between the mutual performances should in principle be divided equally between the landlord and the tenant. The calculation method also takes into account the government support for allowance for fixed costs (in Dutch: Tegemoetkoming Vaste Lasten or TVL) to which the tenant is entitled to.

The Supreme Court furthermore clarified that, while the (impacts of the) COVID-19 pandemic – in the circumstances described above – may qualify as an unforeseen circumstance, the (impacts of the) COVID-19 pandemic do(es) not qualify as a rental defect (within the meaning of Section 7:204 DCC) under the lease agreement. This means that according to the Supreme Court, tenants will have to use the legal basis of ‘unforeseen circumstances’ in order to possibly claim rent reduction.

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