Supreme Court provides clarity for real estate sector

A recent ruling by the Supreme Court has important implications for the real estate market, particularly regarding automatic rent increases in the liberalised sector.

The Supreme Court has ruled that rent increases of up to 3% above inflation, as often included in rental contracts, are generally considered to be not unfair. Many lease contracts for unregulated rental properties in the private sector contain a clause allowing a maximum annual rent increase of 3% on top of inflation. Tenants found this clause unfair and took the matter to court. Subsequently, clarification has been sought from the Supreme Court of the Netherlands (by asking so called ‘prejudicial questions’).

At first, the Supreme Court ruled that different elements of indexation / surcharge clauses, being the 'inflation' itself and the 'surcharge' on the inflation, should be seen and judged separately. The indexation clause is mainly intended to prevent depreciation, and the surcharge clause to compensate for cost increases that exceed inflation and to keep the rent in line with the increase in value of the property.

Secondly, according to the Supreme Court, an indexation / surcharge clause allowing a maximum annual rent increase of 3% on top of inflation is generally considered to be not unfair and in fact provides clarity about future rent increases.

This judgment is particularly important for the question whether tenants were entitled to repayment of rent paid in the past. Based on the judgment this is not necessarily the case. For now, the judgement has limited impact for the sector due to the recent extension of the Rent Increase Maximization Act until 2029 (which includes a mechanism providing a mandatory cap on indexation and surcharge).

Should you wish to learn more on how this may impact your business, please do not hesitate to contact us.