In recent weeks, Leeman Verheijden Huntjens Advocaten received many questions from both tenants and landlords of business premises about rent payment and other rights and obligations in these special times. Rent costs are one of the largest cost items in the retail and hospitality sector, so in order to get through these difficult times, tenants are investigating whether they are (temporarily) not allowed to pay rent or whether they are allowed to pay less rent.
The closure of shops and other business premises has rent law consequences. For example, what can you do as a landlord if the tenant (temporarily) no longer pays the rent? And what risks do you run as a tenant of business premises if you can no longer (fully) meet the payment of the rent or an operating obligation due to reduced turnover?
This article answers the most frequently asked questions regarding the payment of rent for retail premises, cafes, restaurants and other business premises during the corona crisis. The answers relate to both leases within the meaning of Section 7:290 of the Dutch Civil Code (shops and catering industry) and leases for (other) business premises within the meaning of Section 7:230a of the Dutch Civil Code (office premises).
Is the tenant of business premises allowed to (partially) suspend payment of the rent?
The main rule is that a tenant must continue to pay the rent of a retail space, catering or other business premises. This is only different if the tenant and the landlord jointly agree that the rent may be paid later or agree that the rent does not have to be paid (in part) for a certain period of time. Postponement of the rent payment or (partial) remission can prevent the tenant from going bankrupt, which is also in the landlord’s interest. On the other hand, a lessor also has financial obligations to fulfil.
The purpose of suspending the rent payment is to persuade the lessor to fulfil his obligations under the lease agreement. This is the case, for example, when there is a defect that the lessor has to remedy and, despite a reminder to do so, he does not remedy it. Moreover, the defect must be sufficiently serious and there must be a sufficient link between the suspension of the rental payment and the lessor’s failure to fulfil his obligation.
Claiming suspension of the rent payment is not possible due to closure of the business premises or reduced turnover. After all, suspension does not achieve the aforementioned objective.
Incidentally, many lease agreements exclude the right to suspend payment of the rent for the business premises.
What if the lessee of business premises no longer pays the rent due to the corona crisis?
Failure to pay the rent on time can be a ground for termination of the lease by the lessor. The lessor may also terminate the lease in the event of force majeure, for example due to a drop in turnover due to the corona virus. For this, the lessor must always go to court. A judicial dissolution usually only comes into play in the event of payment arrears of at least three months or if payment has repeatedly not been made on time in the past. If the court agrees with the lessor, he will dissolve the lease agreement and issue an eviction order.
After the proceedings have started, a tenant can still ‘stop’ the dissolution by paying the rent arrears or a large part thereof.
Tenants of business premises who foresee that they will not be able to pay the rent (on time) are advised to inform their landlord about this. In doing so, it is important that they provide an insight into their financial situation and make an estimate or a proposal as to when the rent can be paid and any rent arrears can be made good. If a tenant has the means, it is wise to at least pay (part of) the rent. Avoid a rent arrears of three months or more.
Most rental agreements contain a penalty clause for not paying the rent on time, even in case of force majeure. If a lessor of a shop, restaurant or other business premises claims this penalty, the lessee may ask the court to mitigate the penalty. It is expected that judges will honor a claim for mitigation if the late payment is the result of a (mandatory) closure and/or reduced turnover due to the corona virus.
Does it make sense for a tenant to invoke force majeure because of the corona crisis?
A successful invocation of force majeure (e.g. by corona) does not mean that the tenant no longer has to pay rent for the business premises. A landlord can demand payment from the tenant as soon as this is possible again. Force majeure does not stand in the way of this.
It is not possible for the landlord to claim compensation for failure to pay the rent on time in the event of force majeure.
It is not yet clear whether the Lessee can successfully invoke force majeure due to the corona virus and its consequences. Whether there is force majeure must be determined on the basis of the law, the agreement or generally accepted views. It will therefore depend on the circumstances of the case. When a business premises is closed down, it also plays a role whether this is voluntary or the result of a government measure relating to the coronavirus.
In the event of an obligatory closure of the catering establishment or shop, the lessee must comply with the government measure imposed. In that case, there is most likely a situation of force majeure. If the closure is not compulsory by the government, but due to a shortage of staff or reduced visitor numbers, for example, the position may be taken that there is simply an entrepreneurial risk. In general, tenants of business premises must take such entrepreneurial risks (such as an economic crisis or natural disaster) into account when concluding the lease. If the consequences of the corona virus are regarded as an entrepreneurial risk, invoking force majeure is unlikely to succeed. Clarity about this will ultimately have to follow from case law.
What if the lessee no longer complies with the obligation to operate?
Many leases for business premises include an operating obligation for the lessee. The leased property must then be used in accordance with the agreed purpose, such as clothing shop, café, restaurant or storage space. Such an operating obligation is usually combined with a penalty clause. If the lessee does not comply with the obligation to operate, he is liable to pay a fine and may claim damages from the lessor.
In this case, too, it is important whether the lessee can successfully invoke force majeure. If the closure of the catering facility or shop is the result of a government measure, the lessee cannot be blamed for not meeting his operating obligation. The lessee can then invoke force majeure. In that case, the lessor cannot claim a (contractual) fine or damages. If the closure is on a voluntary basis, there may be a violation of the obligation to operate. The reasons for the closure then fall under the normal entrepreneurial risk (see above). However, a tenant can ask the court for mitigation of the fine.
Can the tenant claim a rent reduction for the business premises?
A tenant can only claim a reduction in rent if there is a reduction in rental enjoyment as a result of a defect. A defect exists when the tenant does not have the rental enjoyment that he could expect when entering into the tenancy agreement as a result of a state or property of the rented property or any other circumstance that cannot be attributed to the tenant. The coronavirus and its consequences can most probably not be regarded as a defect. This means that the renter cannot claim a reduction in the rent. In case law it will ultimately have to be decided whether the consequences of the corona virus (e.g. closure) can be regarded as a defect and whether a lessee can claim a rent reduction as a result.
In most business premises leases, the right to rent reduction is limited to defects that the lessor knew or should have known when entering into the agreement. If such a provision is included in the lease, reliance on rent reduction will not succeed.
Can the lessee invoke unforeseen circumstances due to the corona virus?
After entering into a rental agreement for business premises, there may be unforeseen circumstances. If this is the case, one of the parties (i.e. the renter or lessor) can ask the court to change the rental agreement or dissolve it in whole or in part. This can only be claimed if, according to standards of reasonableness and fairness, it cannot be expected that the tenancy agreement for business premises will remain unchanged.
Unforeseen does not mean unforeseen, but it must be circumstances that have not been taken into account in the rental agreement. If, for example, the lease contains a provision stating that the rent must also be paid in the event of force majeure, this is no longer an ‘unforeseen’ circumstance.
An appeal to unforeseen circumstances is seldom honoured by the court, but if there ever could be a reason to do so, it is now. Thought can be given to dissolution of the tenancy agreement for the future or (temporary) alteration of the rent.
Tenancy law lawyer
As you have been able to read, not all questions can be answered unequivocally. A number of things are still uncertain. The advice is therefore to try to reach a settlement first. Also make sure you have a good record in writing of the agreements made. If this does not work out, please contact the tenancy lawyers of Leeman Verheijden Huntjens Advocaten for legal advice. They can advise you in your specific situation about which steps to take or which risks you run. If necessary, we will start court proceedings for you. The Tenancy Lawyers assist both tenants and landlords.
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