In recent months Dutch courts have ruled several times that the COVID-19 pandemic is an unforeseen event due to which, in the light of reasonableness and fairness, the parties to a lease agreement cannot expect such lease agreement to remain unchanged. On application of one of the parties, a Dutch court may amend a lease agreement, modify the consequences of a lease agreement or cancel the lease agreement in whole or in part. However, all decisions so far were interlocutory proceedings (kort geding procedures) where the court was only allowed to make provisional arrangements (e.g. suspension of rent) until a final decision on merits has been taken (please also refer to the blog on hotel W Amsterdam published in August 2020). On 21 January 2021, the sub-district court in The Hague has finally ruled in a proceeding on the merits (bodemprocedure) on this issue, which seems to confirm a trend in the Netherlands.
The proceedings underlying this ruling of the sub-district court in The Hague were initiated by a landlord of commercial premises, intended to be used for hospitality purposes. The tenants were behind in rent payments (representing an amount of € 6,200), which rent arrears arose at the beginning of the COVID-19 pandemic. This dispute centres the question whether the tenants are obliged to fulfil their rent payment obligations as agreed in the lease agreement in full, in the light of the COVID-19 pandemic and the consequences thereof. One of the consequences relates to the measure issued by the Dutch government (for purposes of containing the spread of the COVID-19 virus) to close all restaurants and bars in the Netherlands from 15 March to 31 May 2020. From 1 June to 14 October 2020 only restrictive measures were in force, but as a result of the deteriorating situation around COVID-19, the restaurants and bars were once again closed from 15 October 2020 to date.
The tenants argued that the landlord had not complied with its obligation to provide the leased premises as necessary for the agreed use thereof. As a consequence, the rental enjoyment (huurgenot) of the tenants has been seriously affected, as have their exploitation and turnover possibilities. The sub-district court confirms the tenants' point of view by stating that due to the COVID-19 pandemic and its consequences, the tenants were not provided with the rental enjoyment they were entitled to expect, resulting in a defect within the meaning of clause 7:204 of the Dutch Civil Code. Although the landlord claimed such defect could not lead to a rent reduction on the basis of the lease agreement, the sub-district court concluded that the contractual exclusion referred to by the landlord does not prohibit (the granting of) a claim for rent reduction due to unforeseen circumstances or in light of reasonableness and fairness, both of which the tenants have put forward as grounds for reduction of the rent.
The sub-district court sees no reason to assume that at the moment of entering into the lease agreement the parties have taken into account a possible worldwide health crisis preventing the leased property to be used to its full potential. Therefore, the sub-district court ruled that the COVID-19 pandemic, in view of its extent and its consequences for the economy and society, must be regarded as an unforeseen circumstance within the meaning of clause 6:258 of the Dutch Civil Code. As a consequence of this qualification, the sub-district court may amend the lease agreement, modify its consequences or cancel it in whole or in part.
Furthermore, according to the sub-district court the measures and restrictions imposed in light of the COVID-19 pandemic have led to a fundamental imbalance in the lease agreement. The question is how the balance can be restored, taking into consideration that (i) even if the landlord would make the leased premises available to the tenants, it still cannot be used (at least not to its full extend), and (ii) under the given circumstances it would not be fair to reduce the payment obligation of the tenants to nil. Since neither party can be blamed for the occurrence of the unforeseen circumstances, it would only be fair that the financial disadvantage resulting therefrom must be borne by both the landlord and the tenants. As the financial information supplied by the tenants regarding their business sufficiently demonstrates the loss of turnover during the COVID-19 pandemic (while the fixed costs including the rent continued), the sub-district court decided that the financial consequences thereof must be borne by the landlord and the tenants on a 50-50% basis for the period in which the leased premises were closed (i.e. from 15 March until 31 may 2020 and from 15 October 2020 until the closure measures are lifted). Furthermore, a significant loss of turnover was also noted during the summer of 2020 (from 29 September 2020 to 14 October 2020), when restrictive measures were in force and the premises was difficult to reach due to road construction works. The sub-district court decided that a rent discount of 25% for this period would be fair.
In view of the above, the sub-district court in The Hague ruled that that the tenants are to pay 50% of the contractual rent for the period that the leased premises was closed due to the government injunctions and 75% of the contractual rent for the period that limiting restrictions were applicable. The rent arrears claimed by the landlord must be paid by the tenants with due observance of the foregoing reductions, which is in line with various interlocutory proceedings decisions that we have seen lately.
Authored by Carola Houpst, Art van der Pols, and Iléne Baltes