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If fewer customers come to a shop or catering business due to government measures, the operator does not have to pay the full rent. Tenants are entitled to a rental discount, which depends on the amount of turnover they lose. The Supreme Court, the highest Dutch court, determined this last Friday. Four questions about the long-awaited judgment.
1 What was the case about?
Since the outbreak of the corona pandemic in March last year, real estate owners and affected entrepreneurs have been arguing about the right to a rental discount. Although countless entrepreneurs and landlords have since reached an agreement, many negotiations have not yet been settled. Lawsuits are underway across the country.
In one of these, before the subdistrict court in Roermond, the Supreme Court was asked for advice this spring. The dispute arose between a real estate owner and brewer Heineken. The beer giant acts as an intermediary there: Heineken rents a building and rents it out to a catering operator. After the pandemic broke out, the brewer announced that the subtenant did not have to pay rent for two months. The owner of the property in question disagrees. In Heineken’s proposal, the group and the landlord each pay half for the rent discount, while in many other cases the owner himself also bears part of the pain. The landlord believes that should be the case here too.
Read alsoRetailers and real estate entrepreneurs are once again arguing about rent discounts
2 What has the Supreme Court now determined?
First of all, that an affected tenant is entitled to a discount. There was no unequivocal answer to this in case law, according to the Supreme Court in an explanation. The government’s measures to contain the pandemic are an “unforeseen circumstance” that tenants and landlords did not take into account when they signed their contracts, according to the highest court.
According to the Supreme Court, this does not only concern forced closures, but also loss of turnover as a result of government advice to citizens. Situations like this have happened several times, says Marcel Evers of the INretail retail association. “Shops were allowed to remain open, but at the same time the government called on people to avoid inner cities as much as possible.”
In addition, the Supreme Court is also coming up with a model to calculate how much discount a landlord must give. Tenant and landlord share the pain in this. In the example of a retailer whose turnover has decreased by 80 percent, the entrepreneur is entitled to a rental discount of 40 percent. That sum must, however, be corrected for the amount he received from the Fixed Charges Allowance (TVL), the government scheme that is partly intended to be able to continue to pay the rent.
3 Who is this a win for?
The trade associations for retailers (INretail) and catering (KHN) reacted with satisfaction to the decision of the Supreme Court. It is good that there is “finally clarity”, KHN thought. “We see this as a gain for the retailers, especially because it creates a lot of clarity,” says Evers of INretail. With another forced store closure, this judgment “couldn’t have come at a better time”. Still, not much has changed, according to rental law lawyer Tomas Steenmetser of Lexence, who advises the association for institutional real estate investors (IVBN). Dividing the pain “is in line” with how many judges are already ruling.
The landlords also see favorable elements in the decision for them, says Frank van Blokland of IVBN. An example is how the TVL should be included. In some cases at lower courts it was regarded as extra turnover, in other courts as a reduction in fixed costs. The Supreme Court now opts for the second option. As a result, rent discounts can sometimes be considerably lower than in the first case, lawyers expect.
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Read alsoWho will pay the rent if the cafes and shops remain empty?
4 Have current disputes been settled with this?
That is doubtful. “It is still too early to be really excited,” said Van Blokland. “There are still too many uncertainties.” For example, the judgment states that, depending on the ‘capacity’ and ‘financial position’ of the tenant or landlord, it is possible to deviate from the half-half division. According to Steenmetser, this could be done in a case in which the tenant or the landlord is much stronger than the other. To do this, however, the case must first come to court.
Another lack of clarity, about which the Supreme Court does not say anything, is to what extent turnover from internet sales is included in the calculation of the loss of turnover. “It is a pity that the Supreme Court is not clear about this,” says Steenmetser. “That is a discussion that will still be held in the lower court.”
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