Rent reduction by corona related to drop in sales

Earlier I wrote about why now is the time, to think about revising the rent. I suggested the possibility of turnover rent. A rent dependent on (among other things) the amount of turnover achieved. Late last week an interesting ruling by the Amsterdam subdistrict court was published. Using a formula, this judge related the rent reduction to the decrease in turnover. Tenant then receives a substantial temporary rent reduction.

Distribute pain fairly

The ruling just mentioned builds on previous rulings. The tenant is a hotel in Amsterdam. Because of the corona crisis, there has been a sharp decline in turnover. This is also evident from figures provided by the tenant. Tenant starts proceedings and demands rent reduction, among other things. Unforeseen circumstances are assumed. The parties are expected to share the pain fairly.

Formula calculation rental discount

Interestingly, the (bottom) court uses a formula to calculate what rent reduction is reasonable. A rent reduction that then results in a temporarily changed rent (retroactively). The formula boils down to the following. If there is a 100% decrease in turnover, the original rent is in principle reduced by 50%. In this case, 2020 sales were compared to 2019 sales. There was a 75% drop in turnover. The rent reduction was therefore 37.5%.

Turnover figures: TVL relevant, NOW not

To determine turnover, the judge did take into account the TVL granted. This is because, according to the judge, it is intended to cover ongoing rent. Thereby, it has an immediate cushioning effect on the negative consequences of the decreased rental enjoyment. The NOW was not included when determining the revenue realized in 2020. In fact, this allowance is earmarked to contribute to labor costs.

Management fees reduced, interning on equity

Moreover, the court ruled that the tenant had done enough to mitigate her damages. Efforts had been made to attract customers, despite all restrictive measures. The tenant could not be expected to lay off staff in order to then be able to pay the rent. Nor was it plausible that management fees were a reason why the rent could no longer be paid in full. These fees had first been reduced, later set at zero, and the tenant was cutting back on equity.

Trend set?

I am curious to see if this ruling sets a trend. If this ruling is followed by other courts, it will offer tenants guidance. But be alert. Each ruling stands on its own. The circumstances of each specific case are ultimately decisive. In this case, the tenant was willing to provide access to financial data. An auditor-approved turnover statement must also be provided to the landlord each month. Not every tenant will be willing to do so. The question is also justified whether the rent reduction should be related only to the decrease in turnover. Results achieved could also play a role. And to what extent does the turnover achieved say something about the rental enjoyment that has been provided or should be provided? If a tenant achieves all the turnover from a web shop because the leased property is closed, that still says nothing about the rental enjoyment the tenant has enjoyed.

In any case, the ruling once again indicates that it may be interesting for the lessee and lessor to make new agreements about the rent now. Linking it to turnover and/or results achieved is one option.