Commercial rent payments in the Netherlands

As a result of the COVID-19 pandemic, there have been many decisions relating to the issue of commercial rent payments in times of COVID-19 in the Netherlands, most of them in interim relief proceedings. In very few cases courts have awarded rent reduction for office space. For retail and hotel space, courts have been more lenient. In addition, on 24 December 2021 the Dutch Supreme Court has given a clear guidance.

This summary of the status regarding commercial rent payments in the Netherlands focuses on retail and hotel space (in accordance with article 7:290 Dutch Civil Code ("DCC")). Recently, the Dutch Supreme Court gave clarity on how to deal with rent reduction as a result of the COVID-19 crisis and the accompanying governmental measures. The Dutch Supreme Court formulated its own formula and guidelines for the purpose of calculating rent reduction for retail and hotel space.

In summary, the Supreme Court ruled that the consequences of the COVID-19 virus and the accompanying governmental measures can (in the majority of cases) be qualified as "unforeseen circumstances" ("onvoorziene omstandigheden")  which may result (in the event of retail and hotel space) in the adjustment of the lease agreement including rent reduction. However, the Supreme Court emphasised that the aforementioned only applies to leases concluded before 15 March 2020 (start date lock down in the Netherlands) and that all circumstances of the case must be examined. The Supreme Court further ruled that the COVID-19 pandemic does not qualify as a "defect" ("gebrek") under the lease agreement. The aforementioned legal principles will be further explained with due observance of the current COVID-19 crisis and the accompanying governmental measures.

The Dutch court is entitled, at the request of both contracting parties, to amend or terminate an agreement in the event of "unforeseen circumstances" of such nature that the lease agreement, according to standards of reasonableness and fairness, cannot be maintained in unmodified form. The court must take into account all the circumstances of the case in its assessment.

Unforeseen circumstances in the context of COVID-19 may include, but are not limited to, the absence of tourists as a result of (inter)national restrictions on traveling, the social distancing rules, and the forced closure of retail space.

The Dutch Supreme Court ruled that, in case (i) there are/were governmental measures in place as a result of the corona pandemic, that affect the operations of the tenant in place as a result of the corona pandemic (such as the aforementioned), (ii) the tenant whose turnover depends on the number of visitors cannot or can only to a limited extent operate its business in the leased space, (iii) the lease agreement is concluded before 15 March 2020 and (iv) in the absence of concrete indications to the contrary, the Supreme Court rules that this may qualify as a unforeseen circumstance as referred to in article 6:258 DCC. In that case the tenant may request the court to adjust the lease agreement by applying a rent reduction. However, a tenant will have to motivate sufficiently that the decrease in turnover really is a result of the COVID-19 related government measures.

The courts have not yet accepted a termination based on unforeseen circumstances (yet).

In order to calculate the rent reduction based on the below formula of the Supreme Court, the following steps must be taken:

(agreed rent - proportion of TVL attributed to rent) x percentage of turnover reduction x 50%.)

1. The agreed rent is expressed as a percentage of the total fixed costs.
2. The part of the TVL that corresponds to that percentage and to which the tenant is entitled is deducted from the amount of the agreed rent.
3. The percentage of reduction in turnover shall be determined by comparing the turnover in the period over which the rent reduction is calculated (hereinafter: the lower turnover) with the turnover in a comparable period preceding the corona pandemic (hereinafter: the reference turnover) according to the formula: 100% - (100% x (the lower turnover : the reference turnover)).
4. The disadvantage associated with the disruption to the value relationship shall be equally divided between the landlord and the tenant (each 50% of the disadvantage), unless a different division follows from the principle of reasonableness and fairness as referred to in article 6:258 subparagraph 1 of the DCC.

Please note that the Supreme Court provided the formula as a leeway for parties whether (not) to apply it. Furthermore, the Dutch Supreme Court ruled that an equal division of the disadvantage may not in all cases apply on the basis of the principal of reasonableness and fairness. For example, on the basis of circumstances such as the capacity of a tenant or landlord or the financial standing of one of the parties, the aforementioned formula may be deviated from. In this case, all circumstances must be taken into account to determine whether a deviation is in place. Case law of the lower courts as well show that to allow rent reduction, certain circumstances have been taken into consideration including, but not limited to:

1. if the loss of turnover reduced over 2020 or 2021 compared to 2019;
2. if the turnover reduction as a result of COVID-19 has been objectively well-substantiated;
3. if the tenant was affected by any associated governmental measures;
4. if the tenant has performed any cost-saving measures;
5. if the tenant received any governmental aid (TVL) 1 TVL: "Tegemoetkoming Vaste Lasten", English translation: "the reimbursement of fixed costs". ;
6. if the tenant unilaterally decided to not fulfil its payment obligation;
7. if parties refused to hold any constructive consultations or refused to accept any reasonable proposals;
8. the financial capacity of both parties, and more specifically the financial capacity of the tenant.

Once an amendment of the lease agreement or a final settlement between parties has been made, parties must keep to it.

At last, please note that although the ruling of the Supreme Court is quite clear on the rent reduction method in case of corona related government measures, it does not automatically guarantee that a tenant is entitled to claim a rent reduction based on the method of sharing the disadvantage on a 50/50 basis. A tenant shall have to motivate sufficiently that the decrease in turnover is a result of the corona governmental measures, and it depends on the circumstances of each case whether an equal division of the disadvantage is in line with the principal of reasonableness and fairness.

If the leased space cannot be used as this may be considered a "defect" under the lease agreement. A defect gives the tenant the opportunity to claim for a rent reduction on the basis of the Dutch Civil Code. However, parties have most often excluded the right to a rent reduction in the event of a defect in the lease agreement or the general conditions. As a result, parties cannot rely on a defect to claim compensation or rent reduction.

In addition, the Dutch Supreme Court ruled that (the consequences of) the corona pandemic does not qualify as a defect within the meaning of article 7:204 (2) DCC, as it follows from the legislative history of article 7:204 of the DCC that it cannot be used to qualify general governmental measures as a defect that are unforeseeable for the parties and are aimed at restrictions in the conduct of business.