Rent and corona: the state of affairs

About six months ago, the government announced the first measures to combat the spread of the corona virus. During this first "corona wave," my colleague Jeroen Brinkman wrote a blog about the impact of the government measures on tenants and their lease obligations.

Due to the government measures, stores and hospitality businesses, among others, closed their doors for several months. Because of the declining or even complete loss of sales, it was almost impossible for tenants of business space to continue to pay the (full) rent instalments.

Meanwhile, there have been several interlocutory proceedings on the question of on whose behalf the government measures come: the tenant or the landlord? It is therefore time for an overview of the state of case law on this issue.

Rent reduction due to defect

Under the statutory defect rule, if the landlord does not provide the rental enjoyment the tenant was entitled to expect, there is a defect. The tenant can then request a rent reduction under the law. The question is whether government measures can count as a defect in the leased property.

Provisional courts have ruled in the majority of proceedings that government measures restricting the operation of a business premises constitute a defect. See, for example, the decisions of the District Court of Limburg of June 19, 2020 (ECLI:NL:RBLIM:2020:4399) and District Court of Amsterdam of June 11, 2020 (ECLI:NL:RBAMS:2020:2914).

The provision judges based their judgment in particular on the parliamentary history of the defects regulation. From this it can be deduced that a defect within the meaning of the law is not limited to the physical properties of the leased property. Even a government forced closure of the leased property can constitute such a defect. For in that case, too, the tenant's enjoyment of the lease is affected. The question is then whether this is a reason to reduce the rent.

A final rent reduction must be determined by a judge in proceedings on the merits. In interlocutory proceedings, therefore, the interim injunction courts only gave a preliminary judgment on the expected rent reduction. In doing so, the rent was often reduced by 25 to 50% (see, for example, the Amsterdam District Court ruling of July 31, 2020, ECLI:NL:RBAMS:2020:3756).  

Rent reduction due to unforeseen circumstances

In recent months, several tenants have taken the position that the lease should be amended because of the corona crisis. These tenants invoked Article 6:258 of the Civil Code. This article provides that if, due to unforeseen circumstances, the unchanged maintenance of a (rental) agreement cannot be expected, the agreement can be amended. At issue is whether in the case of the corona crisis there was an "unforeseen circumstance."

The majority of the provision judges ruled that the corona crisis and subsequent government measures were an unforeseen circumstance. Indeed, the parties did not anticipate a pandemic with far-reaching consequences when they entered into the lease. The next question is what is the consequence of the corona crisis constituting a contingency.

The Rotterdam District Court ruled on August 7, 2020 (ECLI:NL:RBOT:2020:7089) that the unforeseen circumstance could not lead to adjustment of the rent. The interim relief judge found that the loss of turnover due to the corona crisis was part of the entrepreneurial risk. The Amsterdam District Court ruled otherwise in its ruling of July 29, 2020 (ECLI:NL:RBAMS:2020:3730). This interim relief judge also considered the corona crisis an unforeseen circumstance, but did reduce the agreed rent by 50% for this very reason. Indeed, the tenant and landlord had to bear the adverse financial consequences of the crisis jointly. So we see that it depends on the circumstances of the case whether the corona crisis gives rise to a rent reduction.

Conclusion

Case law in recent months indicates that summary judgment judges have mostly ruled that the government shutdown constitutes a defect. In addition, the vast majority of injunction judges find the corona crisis to be an unforeseen circumstance.

Whether these defects, or the unforeseen circumstance, will also lead to the rent having to be reduced has not yet crystallized. So-called proceedings on the merits will shed more light on this. In proceedings on the merits, there is more scope for substantiation of the financial situation, for example. So time will tell whether judges on the merits will rule broadly the same as the judges in summary proceedings.