Population shrinkage is not an unforeseen circumstance

In its ruling last October 13, the Supreme Court confirmed the Court of Appeal's opinion that population shrinkage is not an unforeseen circumstance that makes an agreement no longer necessary to be fulfilled. This means that the municipality of Bronckhorst, which had invoked these circumstances, failed to fulfill its obligations under the cooperation agreement with two project developers on the realization of 27 new homes.

What was this case about?

In 2004, the Bronckhorst municipality had a plan to build 27 new homes. In response, two project developers decided to work together to bring this plan to fruition. Meanwhile, policy was set by the province of Gelderland stipulating that 10,000 homes would be built in the coming years. A few years later, this was adjusted to 5,900. However, shortly thereafter - it is now 2009 - the municipality entered into a cooperation agreement with the two developers, in which they committed to planning cooperation for the project. A regional consultation in 2010 then revealed that the municipality would build only 385 homes, instead of more than 1,200 as previously determined. Following this, the municipality notified the project developers that it would postpone the decision to submit the draft zoning plan for public inspection. The developers did not take this lying down and held the municipality liable for non-performance. The municipality then announced that it was abandoning the plan altogether, due to unforeseen circumstances. This brought the case to court.

Unforeseen circumstances

The municipality relied on an article in the cooperation agreement, which stipulated that in the event of unforeseen circumstances that made it impossible to maintain the agreement, the parties could amend the agreement. The unforeseen circumstances, according to the municipality, consisted of the fact that the need for new housing had declined sharply due to population shrinkage. Therefore, regional and provincial policies also reduced the number of new homes to be built.

As mentioned, the two developers did not agree to this, pointing out to the municipality that it was already clear several months before the cooperation agreement was concluded that the demand for housing had fallen sharply. The court went along with this reasoning and considered that the fact that population shrinkage was not factored into the agreement as a circumstance does not mean that these circumstances were therefore also unforeseen. On the contrary, these circumstances were known to the municipality, or at least known to it. While the municipality did not yet know exactly what the new building plans would look like as a result of the shrinkage, it did know that the population shrinkage would affect the housing to be built. These circumstances were therefore not in the future at the time the agreement was concluded, as the municipality itself claimed.

Insufficient justification

In this context, the Court of Appeal then went on to consider that new insights, not discounted in the agreement, may exist that require a change of policy, but this does not mean that the agreement no longer has to be performed as a result. The latter is only the case if there is sufficient justification for this in light of the unforeseen circumstances. Whether this is the case must be determined, among other things, on the basis of the nature of the agreement, the nature of the governmental task and the nature and weight of the social interests served by the policy change. The court ruled that this was not the case in this instance, thus the municipality should have simply fulfilled the agreement. In this context, the court then went on to note that it gave weight to the fact that the municipality had not even informed the developers of the population contraction when they informed them that they would begin preparing the land for construction. The fact that the municipality had failed to offer adequate compensation also played a role in the court's finding that no adequate justification existed. The Supreme Court subsequently ruled that this conclusion of the court was not incomprehensible and thus upheld the court's judgment.

Conclusion

Thus, a municipality cannot simply unilaterally decide not to proceed with plans for a new construction project due to population shrinkage, and thus cannot easily get out of an agreement that has already been made. This is good news for project developers because they can continue to enforce agreements they have made with the municipality. It should be noted, however, that in this case the municipality already knew - or should have known - that the need for new housing had declined before it entered into the agreement. How the court will rule in the event that this was not yet known is therefore not yet entirely clear.

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