Sharing of rental burden during corona measures
As a result of the corona measures, many entrepreneurs lost turnover. As a result, they were not always able to pay the rent in full. In various proceedings, a reduction in the rent was sought on the basis of the rules governing defects in rental property (Section 7:207 of the Dutch Civil Code) or the general assessment framework of unforeseen circumstances (Section 6:258 of the Dutch Civil Code).
On 31 March 2021, the Subdistrict Court of Roermond submitted preliminary questions to the Supreme Court in connection with the multitude of proceedings revolving around the question of whether the tenant was entitled to a reduction in rent during coronal dock dues. As a Christmas present, the Supreme Court answered these questions on 24 December 2021. The Supreme Court ruled on the basis of the rent reduction and on the calculation method that should be applied to divide the rent charges.
Unforeseen circumstance
The Supreme Court rules that the mandatory closure of 290 business premises as a result of the corona pandemic cannot be regarded as a defect as referred to in Section 7:204 (2) of the Dutch Civil Code. The Supreme Court does rule that there are unforeseen circumstances:
"The circumstance that a tenant whose turnover depends on public attendance cannot, or can only slightly, exploit the 290 business premises leased by him due to government measures in connection with the coronapandemic, is, in the case of a lease concluded before 15 March 2020, in the absence of concrete indications to the contrary, an unforeseen circumstance as referred to in Section 6:258 of the Dutch Civil Code on the basis of which the court may adjust the lease by reducing the rent."
A number of conditions are attached to be able to achieve a rent reduction:
- The lease agreement must be concluded by 15 March 2020;
- The company's turnover depends on the arrival of the public;
- Operation of the rented space is not possible or limited due to the governmental measures;
- There are no indications that the parties did take the effects of corona into account.
Calculation model Fixed charge method
If these conditions are met, the judge may grant a rent reduction. The Supreme Court has, due to the large number of cases where this occurs, given a model to come to a rent reduction. The starting point of this model is to divide the disadvantage caused by the government measures. According to the Supreme Court, this disadvantage is, as a rule, neither in the sphere of the tenant nor in that of the landlord and must therefore be divided. In this distribution, the 'Tegemoetkoming Vasteasten' (allowance for fixed costs) that the lessee has received from the government must also be taken into account.
The model has the following steps for calculating the rent reduction:
1) The agreed rent is expressed as a percentage of the total amount of fixed charges.
2) The portion of the TVL corresponding to that percentage to which the hirer is entitled shall be deducted from the amount of the agreed rent.
3) The tenant's loss of turnover is determined in percentage terms by comparing the turnover in the period for which the rent reduction is calculated (the lower turnover) with the turnover in a period before the coronapandemie (reference turnover). The reduction in turnover is then calculated using the formula: 100% - (100% x (the lower turnover : the reference turnover)).
4) In principle, the Supreme Court assumes an equal division of the disadvantage, unless a different division follows from reasonableness and fairness.
Based on the foregoing, the amount of the rent reduction is calculated according to:
agreed rental price - proportion of TVL attributable to rental) x percentage reduction in turnover x 50%
Example of sharing rental costs
Applying this model to an example tenant with a rent of € 4,500, total fixed costs of € 25,000, the TVL of € 10,000, with a achieved lower turnover of € 20,000 and the reference turnover € 100,000, gives the following calculation.
1) What percentage of the fixed costs are related to the agreed rent?
(100% x (€ 4.500,- : € 25.000,-) = 18%)
2) The corresponding percentage of the TVL shall be deducted from the agreed rent.
18% * € 10.000,- = € 1.800,-
3) The percentage decrease in turnover is calculated.
100% - (100% x (€20,000: €100,000)) = 80% drop in turnover
4) The disadvantage is shared equally between the tenant and landlord.
The above applied to the rent reduction formula produces the following results:
(€4,500 - €1,800) x 80% x 50% = €1,080 (24% of the agreed rent).
The tenant will therefore continue to pay (€4,500 - €1,080 =) €3,420 in rent per month.
Conclusion
Based on this calculation model of the Supreme Court, it is now predictable for tenants and landlords what a judge will rule on a rent reduction. This predictability allows tenants and landlords to reach solutions in consultation without having to go to court.
Do you have more questions about renting business premises or a rent reduction? Then please contact our specialist, Sebastian van den Brink.
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