Dutch Supreme Court clarifies rent increase clause: surcharge of 3% in addition to the agreed indexation according to the CPI is not unfair
Leases for unregulated housing, including the model of the Dutch Real Estate Council (Raad voor Onroerende Zaken (ROZ)), usually include a rent increase clause that allows the landlord to apply an annual surcharge (usually between 3% and 5%) to the rent in addition to the agreed indexation according to the consumer price index.
Since 2023, there has been a debate as to whether such a surcharge clause should be considered unfair within the meaning of European Directive 93/13/EEC. Case law on this issue and on the possible legal consequences has been divided. This has led to considerable legal uncertainty for landlords.
On 29 November 2024, the Dutch Supreme Court provided clarification in its judgment following preliminary questions from the Amsterdam Subdistrict Court.
Surcharge clause and indexation clause to be assessed separately
First, the Dutch Supreme Court ruled that a surcharge clause differs from an indexation clause and must therefore be assessed separately. This is because the two clauses serve different purposes. An indexation clause is intended to offset the impact of inflation on the value of the underlying asset, whereas a surcharge clause is typically used to offset cost increases that exceed inflation and to keep the rent at a level that is in line with the value of the property. Consequently, a surcharge clause that is considered unfair does not necessarily affect the validity of the indexation clause.
Surcharge of up to 3% on top of the CPI is not unfair
Second, the Dutch Supreme Court ruled that a surcharge clause allowing for an annual surcharge of up to 3% on top of the indexation according to the consumer price index is not an unfair clause.
In this respect, the Dutch Supreme Court found, among other things, that a residential lease is usually entered into for a long period of time and that the landlord may terminate a residential lease only on limited grounds. This gives the landlord a legitimate interest in being able to adjust the rent annually, not only in light of inflation, but also in order to pursue the objectives of the surcharge clause. The Dutch Supreme Court also found that the financial consequences of such a surcharge clause are foreseeable for the tenant, as the frequency of the rent increase, the calculation of the rent increase and the maximum rent increase are fixed. The Dutch Supreme Court also found that, in the case of an open-ended lease, the tenant has the option to terminate the lease if the rent is increased. The Supreme Court furthermore found that Dutch legislation for the unregulated housing sector is based on the premise that the landlord has a legitimate interest in an annual rent increase. The Maximum Rent Increases Act (Wet maximering huurprijsverhogingen) and the Affordable Rent Act (Wet betaalbare huur) provide for the maximum permitted annual rent increase, subject to a maximum percentage prescribed for surcharges on top of indexation.
However, the situation may be different in individual cases in relation to additional circumstances that existed at the time the lease was entered into, the Dutch Supreme Court said.
The Dutch Supreme Court did not rule on the question whether a surcharge clause providing for an annual surcharge on the rent of more than 3% (e.g. 4% or 5%) on top of the indexation according to the consumer price index is permissible. In light of the Dutch Supreme Court's reasoning and the Procurator General’s opinion of 19 July 2024 (ECLI:NL:PHR:2024:770), we believe that a surcharge clause of, for example, 4% or 5% may also be legally valid under certain circumstances.
Consequences of disapplying an unfair surcharge clause
Third, the Dutch Supreme Court ruled that if a surcharge clause is deemed to be unfair, it should be deemed inapplicable, and the situation that the tenant would legally and factually have been in without that surcharge clause should be reinstated. In light of the above, any rent increase paid by the tenant on the basis of an unfair surcharge clause is considered an undue payment within the meaning of Article 6:203 of the Dutch Civil Code. Consequently, the tenant has a claim against the landlord for the refund of such payments.
Role of the court
Fourth, the Dutch Supreme Court ruled that, when assessing a claim for payment of rent arrears, the court must ex officio deduct the rent increase based on an unfair surcharge clause from the amount of rent arrears to be awarded. However, this does not mean that the court can award only the rent originally agreed: indexations applied in the past on the basis of an indexation clause that was not found to be unfair will be maintained.
The Dutch Supreme Court furthermore ruled that the court should consider ex officio the circumstance that the tenant has overpaid rent in the past on the basis of an unfair surcharge clause when assessing a claim for the dissolution of the lease and eviction of the leased property for rent arrears.
