In a case concerning the question whether a lessee of business premises is entitled to a rent reduction because of the coronapandemic, the Subdistrict Court of Roermond asked the Supreme Court preliminary questions on March 31. The answer to these questions is important for legal practice, because the answers from the Supreme Court will also give other tenants and lessors of business accommodations something to hold on to when solving concrete cases. In short, the Attorney General’s opinion concludes that tenants of commercial premises are entitled to a rent reduction if there is a sufficiently serious loss of turnover due to corona.
What preliminary questions were asked?
The following four questions were asked:
- Should the government-imposed closure of the catering industry as a result of the corona crisis be considered a defect within the meaning of article 7:204 (2) of the Civil Code?
- If so, on the basis of which criteria should the degree of rent reduction be assessed?
- (Or) does the restriction in the use of the leased property constitute an unforeseen circumstance that can lead to a reduction in rent?
- If so, what circumstances of the case weigh in determining or apportioning damages?
Attorney General’s opinion on rent reduction for business premises due to corona
On September 30, 2021, the opinion of the Attorney General to the Supreme Court was published. In his opinion, the preliminary questions raised should be answered as follows.
Answer question 1:
Barring a different contractual arrangement, a forced closure of the catering industry in connection with the corona pandemic is in principle to be regarded as a circumstance not entirely attributable to the lessee as a result of which the property cannot provide the lessee with the enjoyment that the lessee may expect, so that to that extent there is a defect within the meaning of Section 7:204 (2) of the Dutch Civil Code.
Answer to question 2:
The legal consequences of this as regards the obligation to pay the rent should be assessed on the basis of (Article 7:207 Dutch Civil Code in conjunction with) Article 6:258 Dutch Civil Code.
Answer to question 3:
With regard to contracts for the rent of business premises concluded before the corona crisis, whereby the lessee depends on the arrival of the public for its turnover in the leased premises, such as in the case of catering establishments and stores, it may be assumed as a starting point that the corona pandemic and its consequences (the corona crisis) is an unforeseen circumstance which may mean that, according to standards of reasonableness and fairness, the lessor may not expect the lease to be maintained unchanged.
Answer Question 4:
The consequences to be attached to the corona crisis for the unaltered maintenance of the contract depend on the circumstances of the case. In principle, the corona crisis may lead to a temporary reduction in rent based on the prejudice suffered by the tenant as a result of the sufficiently serious loss of turnover of the tenant in the leased property attributable to the corona crisis. In determining the disadvantage, the amount received by the lessee in respect of the leased property in the form of Tegemoetkoming Vasteastenasten (TVL) may be discounted in the manner described by the Court of Appeal of Amsterdam 14 September 2021, (see the calculation below). As a starting point, the said disadvantage should be divided equally (50/50) between landlord and tenant. Circumstances that as such are separate from the disruption of the contractual balance between the performance of the lessor and lessee in the lease of business premises due to the corona crisis may justify a deviation from this starting point.
How does the calculation of the rent reduction work under the Attorney General’s opinion?
The Attorney General opts for the so-called “fixed expense method. This involves deducting the TVL from the actual fixed charges. The disadvantage suffered is then divided 50/50 between the parties (lessee and lessor of business premises).
The following formula is used: (total actual fixed charges – TVL amount) x (rent portion of actual fixed charges) x percentage of turnover reduction x 50%.
Example calculation of rent reduction due to corona according to Attorney General’s advice:
Suppose the rent is 40. The total fixed costs (including rent) amount to 160. The rent portion of the fixed costs is then 25%. The loss of turnover due to corona is 75%.
The rent reduction is then (160 – 100 = ) 60 x 25% x 75% x 50% = 5.6. The rent then becomes 40 – 5.6 = 34.4.
Supreme Court decision on rent reduction for business premises due to corona
The Supreme Court has yet to give a final ruling on the preliminary questions posed. It is not unusual for the Supreme Court to follow the Attorney General’s advice. Whether that will happen in this case remains to be seen. It is therefore not yet certain that the Supreme Court will opt for the same method of calculating the rent reduction.
Are you a landlord or tenant of commercial property, such as catering or retail space and do you have questions about what is possible with regard to rent reduction because of corona? Please contact Yvonne Jansen.
