The calculation of the corona rent reduction has been the subject of a variety of case law in recent months. For a nice overview of this case law, I refer to the various articles by my colleague Jeroen Brinkman.
Prejudicial questions
Eventually, all the ambiguity led to the submission of questions to the Supreme Court in a so-called preliminary ruling procedure. On March 31, 2021, the Limburg District Court submitted the following four questions to the Supreme Court:
- Should the government-imposed closure of the hospitality 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, by what 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 could lead to a reduction in rent?
- If so, what circumstances of the case weigh in determining or distributing damages?
On average, however, preliminary proceedings before the Supreme Court take six to 12 months. Thus, given the passage of time, it will be several months before the Supreme Court comes up with answers. Meanwhile, government and support measures are constantly changing. Therefore, until the Supreme Court provides clarity, lower courts will have to repeatedly find a way to a reasonable outcome in rent reduction disputes.
Remarkable statement
In this context, with respect to corona-related rent reduction, the Rotterdam District Court issued a remarkable interlocutory ruling on July 15, 2021. What exactly was at play in this case?
Scotch & Soda Retail B.V. claimed rent reduction (for one specific branch) for the period when it was obliged to close its branches due to government measures. The court rules that the corona crisis is not a rental defect, but that it is an unforeseen circumstance. The judge also ruled that, in principle, the landlord could not demand unchanged maintenance of the lease. Next, the court takes the extent of the decrease in turnover as a criterion for the question to what extent Scotch & Soda Retail B.V. is entitled to rent reduction.
The court reasoned that Scotch & Soda Retail B.V. is part of a group of which Scotch & Soda E-commerce B.V. is also part. The court finds it plausible that part of the missed turnover in the physical stores was still achieved through online sales. Since both private limited companies are part of the same group, the turnover of Scotch & Soda E-commerce B.V. is not disregarded. Indeed, in a group context, there could be a decrease in turnover to a reduced extent. In this line of thought, the court ordered Scotch & Soda Retail B.V. to investigate whether, and if so to what extent, profits from the physical stores have flowed away towards the web shop.
Until now, for the calculation of rent reduction it was relevant whether there was a decrease in turnover of the lessee, but in this calculation the online turnover of other legal entities within a group was not taken into account. An interesting development!
Breakthrough of legal personality
In my view, it is important to place a critical note on this interlocutory ruling, and it is questionable whether this ruling is legally tenable. Scotch & Soda Retail B.V. argues that it has its own legal personality, but the court does not take heed of this fact.
That online sales count in the question of whether there is a decrease in sales is correct, but in my opinion this is only the case if the online sales of company A also fall within legal entity A. The judge in this case attributes the sales of legal entity B to legal entity A because both fall under one parent. The court in this case attributes the turnover of legal entity B to legal entity A because both fall under one parent: legal entity C. Because virtually no attention is paid to the corporate structure of Scotch & Soda, this ignores legal personality. Each separate legal entity may have its own business model, its own employees and its own shareholders. Therefore, in my view, this ruling cannot simply be applied to every concern.
Directive or storm in a teacup?
For now, it is important to keep in mind that this is only an interlocutory ruling. It is up to Scotch & Soda Retail B.V. to present arguments that will make the court understand that different turnovers within the same group cannot be lumped together. Whether Scotch & Soda succeeds in doing so will ultimately determine whether this interlocutory ruling actually constitutes a guideline in corona jurisprudence or should merely be considered a storm in a teacup.
