Rent reduction based on Dutch government coronavirus measures: possible or not?
The economic consequences of the 'intelligent lockdown' for the commercial rental sector are slowly becoming visible. Examples of these consequences include a considerable drop in demand, forced closings, and government-imposed operating limitations. In many cases this leads to significant falls in turnover, while suspension of the rent is often excluded by contract. Can tenants escape their obligation to pay rent during this corona crisis?
There is no generic answer to this question. The answer depends on the content of the lease and the specific circumstances of the case. In an earlier blog post, we explored three legal grounds on which a tenant could appeal in this context: an appeal to force majeure (art. 6:75 Dutch Civil Code ("DCC")), a claim for a reduction in rent due to a defect (art. 7:207 DCC) and an appeal to unforeseen circumstances (art. 6:258 DCC). The first judgments in preliminary relief proceedings on this subject have now been published. Careful study of these judgments may provide guidance as to which routes are more (or less) promising.
Force majeure
Force majeure is regulated in art. 6:75 DCC and, in short, is a situation that cannot be attributed to the debtor. The parties may agree on which circumstances qualify as force majeure; however, this is not common in lease agreements, as the ROZ models do not contain provisions regarding force majeure. This means that in many cases, the statutory regulation will apply.
In case of force majeure within the meaning of art. 6:75 DCC, the debtor is in principle released from the obligation (a) to perform an otherwise binding obligation that is temporarily or permanently 'impossible', and (b) to pay compensation. The performance is considered 'impossible' if, for example, the imposed government measures prohibit the performance (such as the fulfillment of an operating obligation). In principle, an inability to pay does not qualify as an 'impossibility'. In general, it is assumed that financial inability to pay does not justify an appeal to force majeure, even if the inability to pay is not the result of a fault of the debtor (in this case, the tenant).
In principle, a tenant cannot get out of his payment obligation with an appeal to force majeure. This has been confirmed in two recent interim injunctions (ECLI:NL:RBOVE:2020:1906, ECLI:NL:RBAMS:2020:2914).
Rental price reduction
The tenant can claim a proportional reduction in the rent if his enjoyment of the lease is diminished by a defect (art. 7:207 DCC). A successful appeal for a reduction in rent requires a 'defect'. From art. 7:204 (2) DCC and relevant case law it can be inferred that there is a defect (i) if the leased property does not provide the enjoyment that the tenant might expect, and (ii) if the tenant has not accepted the risk (in the lease agreement itself) of such circumstances arising.
The question now turns to whether measures imposed in response to the coronavirus threat, and which limit or diminish the enjoyment of the leased property, are sufficient to constitute a defect. According to the Parliamentary History, the term 'defect' must be interpreted broadly, and may include unforeseen government measures that hinder the use of the leased property. Four recent judgments in preliminary relief proceedings explicitly refer to this example from Parliamentary History (see ECLI:NL:RBNNE:2020:1979, ECLI:NL:RBGEL:2020:2768, ECLI:NL:RBOVE:2020:1906, ECLI:NL:RBAMS:2020:2914); in three of these four judgments, the preliminary relief judge concluded that the corona measures did result in a defect. Only in the Urbana verdict (ECLI:NL:RBOVE:2020:1906) did the preliminary relief judge arrive at a different conclusion, following the principle that parties can agree that specific circumstances do not qualify as a defect or are at the tenant's risk. In the Urbana judgment, the preliminary relief judge ruled that the risk of a forced closure had been placed on the tenant (and therefore accepted by the tenant) under the general provisions. Therefore, there was no defect. This judgment has been criticised in literature. Nevertheless, this assessment shows that the actual content of the lease agreement plays an important role in assessing whether there is a defect.
If there is a defect, the tenant’s work is not done yet. After all, it is possible that the parties have contractually excluded an appeal to a rent reduction. This is not uncommon for commercial leases (see the recent ROZ models and also the Vitesse judgment (ECLI:NL:RBGEL:2020:2768)).
Unforeseen circumstances
Even if rent reduction is contractually excluded, the tenant still has one final option. The tenant can claim that the lease should be amended or even dissolved by the court through an appeal to unforeseen circumstances (i.e. a future circumstance for which no provisions were made in the contract) under art. 6:258 DCC. The judgments in the Inbev and Vitesse cases and a recent interim relief judgment of the Amsterdam district court show that the corona crisis can qualify as an unforeseen circumstance (ECLI:NL:RBGEL:2020:2768, ECLI:NL:RBNNE:2020:1979, ECLI:NL:RBAMS:2020:2914). However, this does not mean that such a claim always leads to a change or a dissolution of the lease. A successful appeal based on unforeseen circumstances requires that the circumstances are such that it is no longer reasonable or fair to expect the lease to be left unaltered, and that these circumstances are not considered to be at the tenant's own risk. Case law shows that an appeal to unforeseen circumstances must be cautiously accepted. At the time of the economic crisis in 2008, judges were reluctant to amend or dissolve contracts due to unforeseen circumstances on the basis that the economic crisis was a normal business risk. In recent literature, there are voices in favour of a different distribution of these risks. The current corona crisis is highly exceptional and has its roots in major health problems. It is possible that judges will decide that the extremely disruptive effects of the corona crisis go beyond normal business risks; this may lead to, for example, a temporary rent reduction (see also ECLI:NL:RBAMS:2020:2914). Unfortunately, the above-mentioned interim relief judgments provide little guidance as to how high the rent reduction may be. It is difficult to provide guidelines for rent reduction as this will depend on all circumstances of the case, including the social position and interrelationships of the parties and the nature and seriousness of the interests involved. The guiding principle remains the intention and the contractually agreed risk distribution between the parties (see also ECLI:NL:RBAMS:2020:2406 and ECLI:NL:RBAMS:2020:2647).
