Rent reduction due to lockdown?

Publication date: 28 December 2021
The Dutch Supreme Court has determined when coronavirus measures entitle to a rent reduction. And how such a reduction must be calculated. When are you or your tenant entitled to lower rent? And how do you calculate it?

lockdown

On 24 December 2021, the Supreme Court of the Netherlands answered questions about the impact of the lockdown for the rent of shops, hotels and restaurants. As a result, they have to close down completely or partially and the question is who is to bear the consequences legally: tenant, landlord, or both parties? And if the parties have to share the pain, how does a rent reduction have to be calculated? The Supreme Court’s answer is in line with previous rulings on this subject.

Lockdown due to coronavirus is no defect

The first question is whether the forced closure of hotels and catering businesses is a defect of the leased property. In that case the inability to use the leased property could also be for the landlord’s account. According to the Supreme Court, lockdown is no defect. Defects concern matters that the landlord can remedy and that is not the case here. This immediately brushes aside the second question. As it is no defect, it does not have to be determined how rent reduction should be calculated on this ground.

Lockdown is an unforeseen circumstance

The third question is whether a forced closure is an unforeseen circumstance that should not only be borne by the tenant. According to the Supreme Court, this is the case. Before 15 March 2020, when entering into a lease agreement for catering and retail space, it was not foreseeable that the government would close down shops and restaurants. Therefore, it is unreasonable for landlords to want tenants to pay the full rent. Even if they have agreed in the rent agreement, by means of an exoneration clause, that the tenant is not entitled to rent reduction in the event of a defect. After all, the lockdown is no defect. Even in the case of a partial turnover lease, there may still be an entitlement to rent reduction due to lockdown.

Please note: For leases concluded after 15 March 2020, a lockdown is not necessarily an unforeseen circumstance. In that case, it should be considered whether the parties have included this possibility in their negotiations.

Calculation of rent reduction

The fourth question is how parties have to calculate the rent during lockdown. Starting point is that tenant and landlord have to share the consequences of the lockdown 50/50. This leads to a calculation model according to the fixed costs method with the following steps:

  1. The rent is expressed as a percentage of the total fixed costs.
    Example: Rent is EUR5,000 and fixed costs are EUR 25,000. The rent constitutes 20% of the fixed costs.
  2. De Reimbursement of Fixed Costs (TVL) is included in the calculation of the rent. Deduct the part of the TVL that is intended for the rent from the rent.
    Example: TVL is EUR 10,000. 20% of this is EUR 2,000. Rent is EUR 5,000 – EUR 2,000 = EUR 3,000.
  3. Calculation of turnover loss due to the corona pandemic. Compare the turnover during the lockdown with the turnover during a comparable period without lockdown. The formula for this is 100% – (100% x (lower turnover : reference turnover)).
    Example: Turnover January – March 2021 = EUR 5,000 (lower turnover). Turnover of January – March 2019 = EUR 25,000 (reference turnover). Formula: 100% – (100% x (EUR 5,000 : EUR 25,000)) = 100% – (100% x 0.2) = 100% – 20% = 80%.
  4. The disadvantage resulting from the coronavirus measures is to be distributed equally between the parties. Multiply the part of the rent that is not covered by TVL by the percentage of loss of turnover and then multiply by half.
    Example: EUR 3,000 x 80% x 50% = EUR 1,200. So in this case the tenant is entitled to rent reduction of EUR 1,200, or 24% of the original rent of EUR 5,000.

Depending on the circumstances of the parties, the court may decide on a different distribution on grounds of reasonableness and fairness.

Real estate and rent lawyer

Do you have any questions about the consequences of the lockdown for the rent of your retail or catering property? Do you have a dispute with a tenant or landlord and are you looking for legal advice? The real estate specialists at Russell Advocaten will be happy to assist you. Please contact us:

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