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Rent reduction and suspension of rent because of the Corona virus

30 March 2020
Real Estate - Corona/COVID-19 Legal Helpdesk - Construction and Real Estate

All restaurants, bars, places of entertainment, sports and fitness clubs, hairdressers, physiotherapy practices and also a large number of retail companies have closed their doors (at least until 6 April 2020). The majority hereof by government order, but there are also retailers and other companies that have voluntary closed their shop(s). They have decided to do this in order to protect their employees and visitors, to comply with government recommendations and / or due to a very high decrease in the number of visitors and – as result thereof – the turnover.

Financial consequences of the Corona virus

Associations of retailers and real estate owners are discussing a solution (in the medium and long run) for the financial consequences of the Corona virus. They came to a (temporary) solution on 24 March 2020: suspension of the rent payment until at least 20 April 2020. This should give tenants in the retail sector some financial breathing space. In addition hereto, landlords should (i) not collect invoices that already have been sent, (ii) waive any agreed obligation to operate and (iii) not charge any penalty (interest). Tenants in the retail sector whose turnover decrease is less than 25% are not eligible for this solution. What also helps is that the emergency measure of the Ministry (one-time contribution of € 4,000 net) has been broadened: also retailers and entrepreneurs in the non-food sector can claim are covered by the measure. They can register for this at the Netherlands Enterprise Agency as per 30 March 2020.

Is a rent reduction possible?

Can a tenant, from a legal point of view, claim a rent reduction and / or is it allowed to suspend the rent payments these circumstances? On this subject, a lot of blogs and opinions are written the last two weeks. Grounds for rent reduction could be:

(i) a “defect” (art. 7:204 par. 2 DCC) under the lease agreement, which prevents the tenant from having the enjoyment that it may expect from the leased object at the start of the lease, whilst the reason for this cannot be attributed to the tenant or;

(ii) “unforeseen circumstances” (art. 6:258 DCC), whereby the lease agreement should not remain unchanged according to the standards of reasonableness and fairness, under the condition that the unforeseen circumstances are not for the tenant’s account.

On the other hand: the landlord is also in a situation of force majeure. The closure of restaurants, bars, hairdressers, etc. is partially forced by government order. In many lease agreements (such as model agreements of ROZ, the Council for Real Estate), rent reductions based on a defect are often excluded and it is also not permitted to suspend (rent) payments.

Because the statutory right of suspension has usually been excluded in lease agreements, unilateral suspension (i.e. without the permission of the landlord or through the courts) is a shortcoming under the lease agreement. The consequence can be a fine, interest and / or the landlord making use of collateral provided by the tenant (such as a bank guarantee or deposit).

When closing on your own initiative (without government order), it should also be remembered that lease agreements often include an obligation to operate and that consultation with the landlord is advisable before closing.

Remain in consultation with each other

Tenants and landlords both don’t want (debt collection) procedures and there is something to be said for both sides. What also makes the current situation very unusual, is the fact that the access to the courts is currently very limited due to the Corona crisis (only few hearings are taking place, because the courthouses are also closed).

It is of great importance for tenants and landlords to enter into and to remain in consultation with each other (not only through the aforementioned interest groups of retailers and real estate owners) The following applies to tenants: come up with a good and honest substantiation why it is not possible to pay the rent due. For landlords: be reasonable, but try to recognize cases of abuse. How big is the actual decrease of the turnover and is it entirely caused by the Corona crisis? And do increased sales through the internet not compensate this? For both tenants and landlords: think about a fair and realistic apportionment (now and in the future). What fixed costs does the landlord have (security costs, advance payment for energy, etcetera) and what can the tenant (really) pay?

If you want to know more about this or need help, Anton van den Heuvel and Nydia de Winter of Ploum’s Construction & Real Estate Team are gladly willing to assist.

A follow-up to this article was published on April 14, 2020. You can find this sequel here.