On November 29, 2024, the Supreme Court gave a preliminary ruling on a rent modification clause in rental agreements with consumers. The Supreme Court answered the question of whether in the liberalized rental sector a rent modification clause with a surcharge of up to 3% (storage clause) in addition to an indexation clause is unfair. First, it is important to distinguish between the indexation clause and the storage clause. In principle, both the indexation clause under consumer price index and a storage clause with a maximum percentage of 3% are not unfair. The preliminary ruling is detailed below.
The facts
Underlying the Supreme Court’s preliminary ruling are two cases. These are between ASR as landlord and two different tenants who have fallen into rent arrears. The leases stipulate the following with respect to rent adjustment:
“10.2 The provisions of Articles 5.1 and 5.2 of this Lease and Article 18 of the General Provisions forming part of this Lease shall not apply. Instead, the parties agree as follows:
- The last applicable rent may be adjusted by Landlord for the first time as of July 1, 2016 and annually thereafter. Such adjustment shall be made by applying the monthly index figure according to the Consumer Price Index (CPI), all households series (2006 = 100), published by Statistics Netherlands (CBS). It is checked how the index figure for the calendar month that is four calendar months prior to the calendar month in which the rent is adjusted relates to the index figure for the calendar month that is sixteen months prior to the calendar month in which the rent is adjusted. That ratio shall be expressed as a percentage. The rent payable on the modification date shall be modified by that indexation percentage plus an additional surcharge to be determined by the lessor of up to 3% over the last applicable rent.
- If application of the provisions of this article under 1 cannot result in a rent adjustment of a maximum of 3%, the last applicable rent may nevertheless be increased by the lessor by a maximum of 3%, until, in the event of a subsequent indexation, the index figure of the calendar month lying four calendar months before the calendar month in which the rent is adjusted. That ratio shall be expressed as a percentage. The rent due on the modification date shall be modified by that percentage of indexation plus an additional increment to be determined by Landlord of up to 3% over the last applicable rent. (…)”
The question in both cases is whether there is an unfair term within the meaning of Directive 93/13. If it is, the provision must be annulled. In other words, then the provision is not valid.
As a result of these two cases and because there are questions about the scope and consequences of the annulment of such a clause, the subdistrict court submitted preliminary questions to the Supreme Court.
The preliminary questions
In summary, the Subdistrict Court submitted the following four questions to the Supreme Court:
1 A. Is the storage clause unfair?
1 B. Are the storage clause and the indexation clause separately reviewable clauses?
2. What are the consequences of disapplying an unfair clause?
3. What should and may a court do on its own motion if the rent modification clause is found to be unfair?
The Supreme Court’s answers
Answer to question 1B
First, the Supreme Court addresses question 1B. That question raises the issue of whether, for the purpose of assessing its unfairness, what is provided in Article 10.2 of the lease agreement about storage (‘the storage clause‘) is separate from what the same provision contains about indexation (‘the indexation clause‘). The Supreme Court held that the unfairness of the storage clause can and should be tested separately.
The indexation clause and a storage clause have different purposes. The purpose of an indexation clause is to compensate for monetary depreciation. As a rule, the purpose of a storage clause is to compensate the landlord for cost increases in excess of inflation and to keep the rent in line with changes in the value of the property.
Response to Question 1A
Question 1A raises the issue of whether a storage clause that requires the tenant to pay an annual surcharge on the rent of up to 3% over and above the indexation according to the consumer price index is unfair within the meaning of Directive 93/13. The Supreme Court rules that such a storage clause is not unfair.
The Supreme Court does note that when assessing the unfairness of a clause in a contract, all the circumstances surrounding the conclusion of the contract must be taken into account. The cumulative effect of all the terms in the contract in question must also be considered. In other words, when assessing the storage clause, consideration must also be given to what effect it has in combination with (inter alia) the indexation clause.
The storage clause is not unfair because its financial consequences are foreseeable for a tenant at the time the lease is concluded and the annual rent increase with a maximum percentage is usually within acceptable limits.
The Supreme Court also ties in with recent legislation:
“3.2.9 Dutch legislation for the liberalized rental sector is based on the premise that the landlord has a legitimate interest in changing the rent annually. The Maximum Rent Increases for Liberalized Rental Agreements Act (Wet maximering huurprijsverhogingen geliberaliseerde huurovereenkomsten), which came into force on May 1, 2021, and the Affordable Rent Act (Wet betaalbare huur), which came into force on July 1, 2024, assume the existence and permissibility of a rent modification clause. The Maximum Rent Increases Act and the Affordable Rents Act compulsorily regulate the maximum rent increase allowed annually, with a maximum percentage prescribed for surcharges on top of the rent indexation. Section 7:248 (3) of the Civil Code provides for leases of living space in the liberalized sector that to the extent that application of a rent modification clause leads to a more far-reaching increase in the rent than permitted by law, the clause is null and void to that extent and the rent is then deemed to have been increased by the maximum permitted increase.”
Answer to Question 2
Question 2 raises the issue of the consequences of disapplying an unfair term.
The Supreme Court rules that when a storage clause is found to be unfair, the clause must be disapplied. The tenant must be put in the situation he would have been in without that clause. Thus, a rent increase based on a storage clause that is found to be unfair is not possible. Not for the past nor for the future. Any rent increase a tenant has paid on the basis of an unfair storage clause is undue payment within the meaning of Article 6:203 of the Dutch Civil Code (undue payment), so the tenant can claim repayment thereof.
Answer to question 3
Question 3 raises the question of what the court may and must do ex officio if a storage clause is found to be unfair.
The Supreme Court ruled that when a landlord claims rent arrears, the court must ex officio deduct rent increases based on an unfair clause. The court may not ex officio set off a tenant’s rent debt against a tenant’s claim for undue payment in respect of past rent increases paid under the unfair storage clause. Indeed, setoff must be invoked.
Conclusion
The Supreme Court ruled that in the case of a rent adjustment clause, a distinction must first be made between a storage clause and an indexation clause. However, when testing the unfairness of the storage clause, the cumulative effect with the indexation clause must be considered. A consumer price indexation clause and a storage clause with a maximum percentage of 3% are, in principle, not unfair. Should a storage clause be unfair, it should be disapplied. The tenant can then claim repayment of the rent overpaid under the storage clause or invoke set-off.
Are you a landlord and would you like to know the consequences of this preliminary ruling on your real estate portfolio or would you like to have a provision in the lease reviewed or amended? If so, please contact Mr. Yvonne Hilderink at hilderink@lvh-advocaten.nl. She specializes in lease law at LVH Advocaten.
