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The W Hotel Amsterdam is allowed to suspend rent payments for a total of € 2 million

27/07/2020

In a decision that has been published on 24 July 2020 the court of Amsterdam, in summary proceedings, has awarded the claim of the tenant of the W Hotel Amsterdam to suspend rent payments due (and to become due) for the last three quarters of 2020 for a total amount of € 2 million by qualifying the COVID-19 outbreak and its consequences for the hotel as an unforeseen circumstance.

Palace Hotel Operational B.V. (Palace Hotel) rents two properties from Deka Immobilien Investment GmbH (Deka). The properties comprise the W hotel, three restaurants, a shop, a night club, wellness and fitness facilities and a pool. The rent amounts to € 580,000 a month (to be raised to € 834,000 by 1 October 2020). The lease agreement expires in 2040 and provides that Palace Hotel has no right to suspend, offset or apply any discount to rent payments. Marriott is responsible for the day to day management of the hotel.

Due to the measures imposed by the Dutch government as a result of the COVID-19 outbreak, Palace Hotel had to shut down the restaurants from 15 March until 31 May 2020. While it was allowed to keep the hotel open during that period, Palace Hotel voluntarily closed the hotel due to the loss of turnover and stopped paying rent as of 1 April 2020.

Palace Hotel initiated summary proceedings with the court of Amsterdam requesting for a considerable rent reduction for 2020 by claiming that the closure of the property qualifies as a defect that diminishes its quiet enjoyment of the property and thus justifies a reduction of the rent. Palace Hotel claimed that it should not be paying any rent for the period between 12 March and 15 June 2020 and only part of the rent due for the remainder of the year as it expected social distancing and the lack of business travel and travel from outside the EU to have a severe impact on operation for the rest of 2020.

Deka argued that:

  • the government's measures only concerned restaurants and that the hotel was not required to close;
  • any negative impact on operation as a result of the COVID-19 outbreak is a business risk and as such should be borne by Palace Hotel;  
  • as the parties have agreed on a triple net lease, the impact of any and all unforeseen circumstances has been taken into account in the lease.

The court ruled in favor of the tenant. Due to its scope and consequences, the COVID-19 outbreak qualifies as an unforeseen circumstance which has not been provided for in the lease. Due to the forced closure of the restaurants and the total collapse of demand and occupancy, the decision to close the hotel was justified. Palace Hotel has suffered considerable losses during the closure and an operational loss is expected for the third and fourth quarters of the year. Under these circumstances it would be unreasonable and unfair for Deka to expect that the entire rent is paid. As no party is to blame for the COVID-19 outbreak, the financial loss incurred as a result should be borne by both parties.

Consequently, Palace Hotel may suspend payment of 50% of the rent for Q2, 40% for Q3 and 25% for Q4 – totaling € 2 million -  and must initiate proceedings on merits against Deka for a rent reduction for the period concerned within a month following the court's judgment.

As this concerns summary proceedings, the court cannot award a rent reduction but is only allowed to make provisional arrangements such as suspension of rent until a final decision on merits has been taken. Palace Hotel has announced that it will pursue the matter further and will initiate proceedings on merits as instructed.

 

Authors

Picture of Roman Tarlavsky
Roman Tarlavski
Partner
Amsterdam
Picture of Arnout Scholten
Arnout Scholten
Partner
Amsterdam