COVID-19 measures may be ground for rent reduction. However, the tenant will have to prove that his revenues and turnover have been reduced significantly.
In an earlier post we discussed that a reduction of revenue and turnover due to coronavirus measures can be ground for a rent reduction. In the meantime, new judgements have clarified this issue. When is a tenant entitled to rent reduction? How much will the reduction probably be?
Most judges consider the COVID-19 crisis and the measures taken by the government to be unforeseen circumstances. This means that there may be a ground for adjusting the rent. Even if changing the rent has been explicitly excluded in the rental agreement. The pandemic and the measures are unforeseen, therefore these could not have been included in the rental agreement and the general terms and conditions.
The judge is not obliged to adjust the rent in case of unforeseen circumstances. The judge will consider whether retaining the current rent is still acceptable according to the standard of reasonableness and fairness. To prove that the rent has to be reduced the tenant will have to demonstrate with financial data how much the revenues and turnover have been reduced and that there are no other means available to pay the rent. If the landlord does not want a rent reduction, he will have to prove that the loss of income is not acceptable to him.
The judge will usually assume there is reason to adjust the rent, if there is a substantial reduction of turnover and revenue. In that situation, professional parties will in principle have to share the pain. If there are no revenues left, this will in practice lead to a rent reduction of 50%. Depending on the circumstances, another amount of rent may be set by the judge.
Especially in situations like these, turnover rent can be an option. In that case, parties will share the loss of revenue/turnover. Jurisprudence shows that the judge will take account of turnover rent when calculating the amount of rent to be paid. However, using turnover rent as part of the rent will not preclude an adjustment of the fixed rent by the judge.
Do you as a tenant of office, retail or hospitality space want to know whether you are entitled to a reduction of the rent? And, as a landlord, if you need to agree with a proposal for lowering the rent? Do you want us to draft an agreement with turnover rent? Or do you require the assistance of a lawyer in issues concerning real estate and rent? Please contact us:
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