rental law lawyer in Amsterdam

Rent Business premises: Substitution at 7:290 BW business premises

If a company wants to sell its business, it usually has an interest in also being able to transfer the lease to the buyer. But what if a landlord does not agree to the takeover of the contract? The law provides for so-called ‘substitution’ in the case of medium-sized business premises. This is a legal arrangement that may force a lessor to cooperate with the contract takeover. But that is not without conditions.

Substitution

Tenants of medium-sized business premises for, for example, retail, bars, restaurants, hotels, catering and craft businesses (Section 7:290 of the Civil Code) enjoy more protection than tenants of other business premises such as office spaces (Section 7:230 of the Civil Code). For example, not only is it more difficult for the lessor of a medium-sized business space to terminate the lease with the tenant, but under certain circumstances the lessor may even be forced to agree to a new tenant if this is in the interests of the previous tenant. This arrangement is included in Section 7:307 of the Dutch Civil Code, and is also known as substitution.

The underlying idea behind these regulations is that the value of a medium-sized business is largely linked to the location where the business is located. As a rule, these companies have built up a permanent clientele and provide the premises with the necessary inventory to receive their clients. If a potential buyer is unable to make use of those acquisitions and/or facilities because the lease contract is not continued, the sales value of the company decreases significantly. It is for this reason that a scheme has been set up specifically for medium-sized business premises that seeks to protect these interests.

Conditions

If a lessor does not voluntarily cooperate in the takeover of the contract, the lessee of a 7:290 BW business premises may apply to the subdistrict court for authorisation to put the new lessee in his place as lessee. A judge will assess such a request against the following criteria:

1) There must actually be a transfer of the business.

The primary objective of the contract takeover must be that the business is actually taken over and continued. If the new tenant takes over a supermarket, but does not have an interest in the inventory or the staff as well as current supply contracts, the claim for substitution will be rejected by the court. In this example, the new tenant is actually starting a new business and therefore there is no business transfer.[1]

2) The tenant has a substantial interest in the transfer.

This may include illness or reaching retirement age, as a result of which the tenant can no longer continue the business. Serious financial problems can also be of major importance. An example of a claimed interest that was not judged by the court to be sufficiently important was a tenant’s claim that he no longer saw any opportunities for growth despite the fact that his business in its current form was profitable[2].

3) The new tenant must be able to provide sufficient guarantees for the fulfilment of the obligations arising from the lease.

The fact that a lessor may be forced to accept a new lessee constitutes a major infringement of the freedom of contract. For this reason, it is very important that sufficient guarantees can be provided that the new tenant is able to fulfil the obligations arising from the lease. In addition to sufficient solvency, factors such as reliability and how an entrepreneur has acted in the past are also important.

Weighing up the interests

If the tenant meets all the above conditions, the substitution will in principle be granted. Nevertheless, all the circumstances of the case will be taken into account in the final balancing of interests. This may therefore mean that the court does not agree to the substitution despite the fact that the tenant meets all the conditions. The judge will have to weigh the interests of the lessor against the interests of the (former) lessee. An example of a landlord’s interest may be that a newly proposed tenant does not contribute to an intended necessary new impulse for a shopping centre. This could be a reason to reject the request for substitution.

Tips for tenants and landlords

– As the lessee, submit the claim for substitution in time and do not wait until the business is transferred.

– As lessee, ensure that the conditions are met with certainty. This means having an interest in nominating a reliable and solvent new tenant.

– It is very important for the landlord that the new tenant explicitly takes note of all agreements made with the old landlord. It is therefore probably wise to put verbal agreements with the old tenant on paper before agreeing to take over the contract.

– As the lessor, do not hesitate to put forward your own specific interests in the event of a lawsuit. In particular, the balancing of interests is extremely casuistic in nature.

Do you have any further questions about substitution? Please feel free to contact M2 lawyers for advice.

Lawyer Ginio Beij (beij@m2advocaten.nl)

 

Rent Business premises: Substitution at 7:290 BW business premises

crossing sign

Lease of business premises: Lease contract does not automatically pass in the event of a change in legal form

Starting entrepreneurs often start as a one-man business or VOF (general partnership) and then, when turnover increases, switch to another legal form such as a BV (limited liability company). The lessor is not always informed of this change, let alone explicitly asked for permission. In principle, this means that the lease will not have been transferred to the new legal entity either. What are the possible consequences of this?

An entrepreneur will not always ask explicit permission from the lessor if a new company structure is formed. A lessor will often not make a problem of this. At least, as long as the rent continues to come in.  But the fact that the landlord continues to receive these payments does not automatically mean that the landlord has agreed to the contract being taken over by the new legal form.[1] This distinction is particularly relevant if the new legal form is no longer able to pay the rent as was shown in the following case study.

 Case study

An existing VOF entered into a tenancy agreement with the landlord.[2] The tenancy agreement was concluded for a period of five years and then extended for another five years. During this period, the VOF changes its business structure. The VOF becomes a BV (Limited liability company) and informs the lessor of this by letter. The lessor does not respond to the contents of the letter and continues to receive the rentals transferred by the BV. A few years later the BV goes bankrupt. However, the lessor states that he has never concluded a lease agreement with the BV and holds the former partners of the original VOF jointly and severally liable for the overdue rent payments. The partners argue that the VOF no longer exists and that they also informed the lessor of this by letter. Now that the lessor has not objected in all that time, they have assumed that the lessor has agreed to the takeover of the contract. According to them, the lessor can therefore only appeal to the (bankrupt) BV.

Contract takeover (6:159 Dutch Civil Code)

The court must assess whether in this case a contract was taken over as referred to in Section 6:159 of the Dutch Civil Code. In short, has the lease been legally transferred to the BV? According to Section 6:159 of the Dutch Civil Code, the following conditions must be met for a contract to be taken over:

– A deed in which the tenant transfers his legal relationship to the new tenant;

– Unambiguous cooperation of the lessor in the takeover of the contract (however, this cooperation does not necessarily have to be in writing).

In the case at hand, there was a deed showing that the VOF wished to transfer the lease to the BV, but the lessor never unambiguously cooperated in a contract takeover. It is true that the tenant wrote to the lessor, but the lessor then never explicitly stated that he agreed to a takeover of the contract. The former partners were therefore still jointly and severally liable for the rent arrears.

Incidentally, if a partner leaves the company, he remains jointly and severally liable as long as the lease is continued unchanged by his former partners.[3] It is therefore important for the retiring partner that the landlord explicitly agrees to the contract being taken over by the former partners so that the retiring partner is relieved of his liabilities.

Conclusion

Tenants of business premises would do well to ask the landlord’s explicit consent if they want the lease, and hence the liability, to be transferred to the new legal form. For a lessor, on the other hand, it is important to gain a good understanding of the financial position of this new legal form before agreeing to a contract takeover.

Are you looking for legal support in the transfer of your business to another legal form or has your tenant changed legal form and would you like to seek legal advice? Feel free to contact M2 Advocaten.

Attorney at law Ginio Beij (beij@m2advocaten.nl)

 

1] Hof Amsterdam 12 November 2013, ECLI:NL:GHAMS:2013:5220

2] Rb Dordrecht 30 July 2012, ECLI:NL:RBDOR:2012:BX5073

3] Ho f ‘s-Hertogenbosch 16 September 2014, ECLI:NL:GHSHE:2014:3642

vintage phote grocery store

Business space rental: Deviating terms for retail and catering premises

Tenants of medium-sized business premises (7:290 BW) enjoy more rent protection than tenants of other business premises such as offices (7:230a BW). The idea behind this is that a shop or food establishment usually attaches more value to the specific location, for example for public familiarity. In principle, the tenancy agreement cannot deviate from this rent protection either, unless a judge agrees with the deviating clause. This blog provides an overview of the legal framework surrounding the deviating clause and its durability in court.

Legal framework

The statutory provisions relating to 290 business premises (7:290 to 7:310 Dutch Civil Code) are of so-called semi-prescriptive law. This means that it is not allowed to deviate to the detriment of the tenant. In case it does happen, the deviating clause is in principle voidable. Nevertheless, there may be situations in which not only the lessor but also the lessee has an interest in deviating from what is permitted under the statutory provisions, for example to make a more flexible lease contract possible. Examples of possible deviations:

– Deviation from the statutory lease terms (usually 5+5 years).

– Deviation by agreeing that termination of the lease can take place without notice or judicial review.

– Deviation from the possibility to request a rent review (7:303 BW) after the end of the lease period.

In these cases it is permitted to deviate from the statutory provisions, but the clause will have to be approved by a judge (7:291 paragraph 2 of the Dutch Civil Code). Therefore, a tenant’s consent to deviate is not sufficient. This is to prevent that a tenant can be put under pressure by the landlord to agree to the clause.

The judge uses the following criteria for approval:

– The tenant’s rights are not materially affected by the deviating clause.

– The tenant’s social position is so strong compared to the landlord that he has no need for reasonable protection.

Exception

With regard to substitution (Section 7:307 of the Dutch Civil Code) no approval can be requested for a deviating clause. The possibility for a tenant to sell his business including the rental rights is considered so important that a deviating clause is not allowed. Therefore, the court cannot give its approval to a clause that excludes substitution.

Subsequent approval

In practice, it regularly happens that the parties agree on a deviating clause and do not ask the court for approval. The question is, of course, what happens when the parties later disagree on the derogating clause.  A judgment of the Supreme Court has shown that judicial approval can also be given retrospectively. The question is whether, in such a situation, the court would still be inclined to rule that the tenant’s rights have not been substantially affected now that the tenant sees reason at that moment to want to waive the deviating clause. After all, approval of the deviating clause usually takes place with the tenant’s consent. It seems that the risk for the lack of prior approval lies mainly with the landlord.

Limitation period for reliance on voidability

In spite of the above, there is still an advantage for the landlord if he enters into a deviating clause with his tenant without the approval of the court. Pursuant to Section 3:52 of the Dutch Civil Code, the right of the lessee to invoke the voidability of the stipulation lapses after a period of 3 years after the lessee has invoked this ground for nullification. Usually this will be 3 years after the rental agreement has been entered into with the deviating clause, but under certain circumstances this can also be another time (see this previous blog of M2 Advocaten).

Conclusion

Legal practice shows that court approval depends on many different factors. In a judicial assessment of the deviating clause, the most important thing is that the tenant’s interests are not too much harmed. The tenant’s position is also important. A deviating clause will be less likely to be approved if the lessee is an independent entrepreneur, while in case of an internationally operating chain there will be considerably more room for the lessor to include a deviating clause.

Are you looking for advice in drawing up a deviating clause or a petition for approval of the deviating clause?  Please feel free to contact M2 Advocaten.

Lawyer Ginio Beij (beij@m2advocaten.nl)

 

Building with store - Herenstraat

Landlord misses out on rent review after renovation of property

An owner of a retail property has his property rebuilt, which increases its surface area. He agrees with the tenant that the rent nevertheless remains the same. If the owner subsequently finds out that his property can now yield much more rent, he wants to have the rent revised (increased). However, the court ruled that he had in fact agreed a rent reduction with the tenant by asking the same rent for a larger space and that at least five years must elapse before the rent can be revised again. The lessor then misses out on many euros in rent. What is the exact situation?

As early as 1974, a retailer enters into a lease agreement for the rent of a retail property with accompanying storage space. In 2014, the property will be renovated, increasing the surface area of the retail space by 26 square meters. It is agreed that the rent will remain the same. In 2015, however, the owner finds out out through a real estate agent that, given the booming property market, his property could now yield tens of thousands of euros more in rent per year. This is also not strange now that the retailer has been paying only steadily more rent since 1974. The owner then asks for a rent review.

On the basis of Section 7:303 of the Dutch Civil Code, it is possible for a landlord (or tenant) to request a rent review. This means that every five years, since the last rent determined by the parties has started or has been claimed in court (or after the end of the first rental period), the current rent can be checked against the average rent of comparable business premises in the area and, if necessary, the rent can be adjusted accordingly.  The owner states that the rent was last adjusted in 2005. More than five years have elapsed since then, so the owner states that a rent review can now be carried out at a more market-based price.

The court ruled differently. Now that the refurbishment in 2014 has increased the retail space by 26 square meters, and the parties have agreed to leave the rent unchanged, a rent reduction has effectively been agreed, according to the court. After all, as a result of the expansion of the retail space, the retailer has paid no less than 15.5% less per square metre. Now that there has recently been a rent change introduced by the parties, the owner can only invoke the rent review from Section 7:303 of the Dutch Civil Code again after five years. Whether the rent has been increased or decreased in the past five years is irrelevant. In short, in this case the owner could not request a rent review again until 2019.

It is somewhat understandable that the owner made a mistake here. After all, the total rent was the same and did not seem to have changed. How could the owner have prevented this? The answer is quite simple. The owner should not have explicitly agreed with the retailer that the rent would not be increased. This concrete agreement is in fact the basis for the opinion that the parties have agreed on a reduction of the rent. The owner should therefore have requested a rent review immediately after the renovation without first agreeing with the retailer that the rent would remain unchanged.

As a landlord, do you want to request a rent review or are you, as a tenant, dealing with a rent review and do you have any questions about this? Please feel free to contact M2 Advocaten.

Lawyer Marius Rijntjes (rijntjes@m2advocaten.nl)

 

alimony indexing

Indexing rent afterwards, is that okay?

Many (standard) leases include an indexation clause. This means that the rent can be increased once a year according to a method of indexation stipulated in the agreement.

Sometimes the landlord does not apply the indexation clause in practice. Suppose the landlord has forgotten to apply the indexation for 4 consecutive years. The question then arises whether the landlord is allowed to catch up with this in one go. This would mean that the tenant would have to pay a substantially increased rent in the future, which would be increased by 4 years of indexation. In addition, the tenant would also have to pay ‘overdue’ rent over the past 4 years.

That sounds unreasonable at first sight. Nevertheless, the rule in case law is that the landlord may, in principle, indexate with retroactive effect, see, for example, the judgment of the Amsterdam Court of Appeal of 10 April 2012 (read here). The reasoning behind this is that the landlord’s right to indexation has not been lost as a result of legal processing. Just sitting still is not sufficient for the administration of rights, additional circumstances are required. However, the period during which the landlord can claim back overdue rent is limited to 5 years, because such claims become time-barred after 5 years. (Please note that this limitation only applies to the collection of the overdue rent, not to the possibility of determining an increased rent for the future on the basis of indexation).

The landlord may therefore index the rent afterwards. But a good legal rule does not come without exception. Under certain circumstances, it may be unacceptable to index retrospectively according to standards of reasonableness and fairness. A recent example played in the District Court of Overijssel of 13 December 2016 (read here). In this case, landlord Nettorama had leased part of its supermarket space in 1983 to a tenant who sold bread, cheese and nuts there. The lease contained an indexation clause.

The indexation clause had never been applied by Nettorama, but in 2015, i.e. 32 years after the start of the agreement, Nettorama wanted to implement it. This would mean that the tenant would have to pay € 3,100.45 per month instead of € 1,000. Also, over the past 5 years no less than € 114,362.50 in overdue rent would have to be paid.

The Subdistrict Court considered this unreasonable. In addition, the Subdistrict Court pointed out that Nettorama provided an annual settlement of the rent, without the indexation, and that the tenant was therefore entitled to trust that Nettorama would no longer be entitled to the indexation.

As far as I am concerned, this reasoning of the Subdistrict Court is rather thin, because the mere provision of an annual statement does not mean that a landlord waives his right to claim indexation. Nevertheless, the outcome of these proceedings is satisfactory, because the payment of € 114,362.50 after 32 years is too much of a good thing.

The main rule, therefore, is that the landlord may index afterwards, unless the District Court Judge thinks it really is too much.

Ginio Beij (beij@m2advocaten.nl)

Suspension of rent due to defects? Tenant watch out!

In practice it happens regularly. A tenant who is fed up with it. Whether it is residential or business accommodation, there are defects that cannot be solved. There are leaks, there is draught, the rented property is far too hot or too cold. Despite several reminders, the landlord does nothing about it. And then what?

The solution that many tenants choose if they think it takes too long? Just not paying the rent for a while. If the landlord repairs the defect, the rent will be paid in retrospect. The means a temporary suspension of the rent payment.

In itself that sounds logical. What better way to persuade the landlord to take action than by hitting them in the wallet?

Nevertheless, a tenant should handle this carefully. According to established case law, rent can only be suspended if the defect is serious enough. In addition, it is important that the suspension must be proportional to the loss of rental enjoyment. If, despite a defect, it is still possible to use the rented property, it is not permitted to suspend the rent altogether. In practice, however, it often happens that the tenant completely suspends the rent.

A judgment of the District Court of North Holland, published at the beginning of this year, shows an example of how things can go wrong for the tenant. The ruling concerned business premises that were rented to a car rental company. At a certain point, a fire started in the rented premises, after which the business premises were damaged. A few months after the fire, the smoke and soot damage was repaired. However, the renter had suspended the entire rental payment, even after the repair, due to the cause of the defect. It had been established that the damage had occurred because the lessor had installed fire-resistant doors that did not close sufficiently.

The court, however, found this entire suspension to go too far. In general, the fact that the fire-resistant doors did not close properly was no reason to suspend the rent in full. It came down to the fact that the tenant had to pay the full rent with interest and fines. Read the entire judgment here.

Are you in doubt whether you can suspend the rent or do you want to know what other possibilities there are for remedying defects? Feel free to contact us.

Lawyer Ginio Beij (beij@m2advocaten.nl)

 

 

Landlord suffers damages as a result of police action against tenant. Who bears the damage?

If damage lies outside the normal social risk or the normal business risk of the lessor, the State is in principle liable for the damage suffered by the lessor. This recently occurred in a case before the Court of Appeal in The Hague. It concerned the following case.

A landlord has leased business premises to tenant. In 2012, the police raided the leased premises, finding drugs. The tenant has been convicted in connection with this. The raid caused damage to the facade of the rented property.

In first instance, the State was ordered to compensate the landlord for the damage suffered. The State appealed against this judgment.

The Court of Appeal held that a different distribution of the damage may take place, or that the obligation to pay compensation may be cancelled or maintained altogether, if “fairness demands this because of the varying seriousness of the mistakes made or the other circumstances of the case” (the fairness correction).

In addition, Section 6:101(2) of the Dutch Civil Code provides that in the case of damage caused to an item held by a third party for the injured party (as in the case of rent), the circumstances attributable to the third party shall be attributed to the injured party.

If the tenant had been the injured party, the State could have invoked 100% of its own fault to defend its obligation to pay compensation. The State attaches to this the conclusion that there is no longer any room for the application of the fairness correction resulting in the State having to compensate any damage after all. The State argues that it follows from Section 6:101(2) of Book 6 of the Dutch Civil Code that no circumstances on the part of the injured party may (no longer) be taken into account in the context of the equity adjustment. The Court of Appeal did not agree with this.

The Court of Appeal pointed out that “other circumstances of the case” may also play a role in the fairness adjustment, such as in this case the circumstance that the lessor cannot be blamed for the conduct of his lessee, or the choice of a particular lessee. Based on this, the Court concludes that an equity correction of 100% must be applied, i.e. the State must cover all the damages.

This judgment does justice to the principle that damage that lies outside the normal social risk or the normal business risk of the lessor is, in principle, eligible for compensation.

Overall, it is good for landlords to know that in such cases they will be compensated for their damages and will not suffer as a result of their tenant’s conduct.

Want to know more? Feel free to contact us.

Marius Rijntjes (rijntjes@m2advocaten.nl)