Rent payment delay due to coronavirus?
Date: March 17, 2020
Modified November 14, 2023
Written by: Jeroen Brinkman
Reading time: +/- 2 minutes
Date: March 17, 2020
Modified November 14, 2023
Written by: Jeroen Brinkman
Reading time: +/- 2 minutes
The coronavirus is spreading and at least until April 6, 2020, much of daily life is at a standstill. This means that stores are also less frequented. Turnovers are plummeting and the question is how long this will last. Many tenants will therefore have trouble continuing to pay the rent. The question is whether they can secure a rent reduction and whether they are still obliged to operate. Are there any legal leads on how to deal with this?
It is positive that temporary solutions are now being jointly sought within the industry. For example, the industry association of non-food retailers has indicated that there is a need to get in touch with landlords such as institutional investors and other industry associations of landlords to discuss a temporary postponement of payments and how the arrears will be caught up afterwards.
That this is a wise move is evident when the legal options are considered. In fact, most leases do not provide for how to deal with this unique situation. Bankruptcy lurks if the parties do not reach a settlement. Neither tenant nor landlord benefits. Advice is therefore to come to a sound solution in consultation between tenants and landlords, for example consisting of a temporary rent reduction.
Normally, based on standard lease agreements, a tenant is obligated to continue paying rent. If the tenant does not pay, then there is a default. A plea of force majeure could possibly benefit the tenant. In that case, however, the tenant must first stop paying the rent. The parties may have agreed in the lease which factors do or do not constitute force majeure. Liability for certain situations may also be excluded. Often the risk of certain circumstances is placed on the tenant as business owner . If nothing is agreed upon in the contract in this regard, the law applies. A plea of force majeure might then help the tenant. Because every lease is different, there is no simple answer.
The tenant could also argue against the landlord that there is a defect or other circumstance that is in any case not attributable to the tenant, on the basis of which the leased property no longer provides the tenant with the enjoyment you can or may assume. Depending on the specific lease agreement, a reduction of the rent could then possibly be requested. Suspension of the rent could also be possible.
Usually, however, leases exclude those possibilities. Moreover, it is highly questionable whether there is a defect. That concept is sometimes interpreted broadly. But again, this depends on what the parties have agreed upon. Even if it can be argued that the landlord is responsible, it cannot be ruled out that in that case the landlord may invoke force majeure. Like the tenant, the landlord too can hardly be blamed for the coronavirus spreading around, and measures are taken that lead to the closure of stores or a much lower turnover.
Whether the store should remain open is also a question. Within most agreements is a duty that must be operated. However, this may be different. Especially in the current situation, the question is whether the tenant has to fulfill this duty. Especially if measures have been taken from the government leading to a mandatory closure of the store. Safety aspects for a tenant and responsibility as an employer play an important role. This may result in a tenant not always being able to keep the store open.
Reasonableness and fairness will have to be observed by the parties toward each other. It will quickly be deemed unreasonable under current circumstances if a landlord continues to hold a tenant to the duty to operate.
Legally, the possibility exists for either party to invoke unforeseen circumstances. This can lead to partial termination of the lease. It is also possible under circumstances to proceed to an adjustment of a lease with an appeal to reasonableness and fairness. Consider also situations where there is a loophole in the agreement. Neither party will have foreseen the current unique situation. By invoking the limiting effect of reasonableness and fairness or its complementary effect, an amendment to the lease may be proposed.
Another option is to invoke Section 7:210 of the Dutch Civil Code. Extrajudicial dissolution of the lease agreement (in whole or in part), if it is assumed that there is a defect, which defect is not compulsorily remedied by the landlord, while the enjoyment that the tenant could expect is made impossible.
Given the unclear situation due to the unique nature of the coronavirus, the measures from the government that are being implemented, but also given the fact that parties in a contractual relationship have to behave reasonably toward each other, it is recommended to contact the other party as soon as possible. Make clear further arrangements. Consider temporary suspension of duty to pay rent. No duty to operate. No penalties due. But also consider agreements for the period when the situation has normalized again, about catching up on rent payments. An amicable solution, in other words. In that sense, it is also good that various industry associations are already consulting with each other.
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