1. Can tenants terminate leases early or enforce a rent holiday due to the COVID-19 pandemic?
The tenant may ask the court to modify the terms of a lease agreement (eg a rent holiday) or to (partly) terminate the lease agreement if there are unforeseen circumstances (onvoorziene omstandigheden) that are of such a nature that it would be unreasonable and unfair if the unaltered contract would remain in place.
The outcome of any such court hearing is difficult to predict as the court will have to consider:
- all relevant facts and circumstances;
- general Dutch-law principles (ie that parties should act reasonably and fairly in the given circumstances); and
- the interests of all the parties involved.
In principle, courts are reluctant to honour appeals under unforeseen circumstances. An economic crisis or an 'act of God' (overmacht) – a category into which the COVID-19 pandemic falls – are, in principle, considered circumstances that tenants must consider when entering into a lease.
Disappointing visitor numbers or a decline in turnover are generally considered as part of a tenant's normal entrepreneurial risk. Therefore, in principle, the tenant cannot enforce a rent holiday or terminate the lease agreement due to the COVID-19 pandemic.
However, it may be different if the tenant is prohibited from using the leased premises as a result of government actions. In such cases, it is more likely that the court will permit the the tenant's argument around unforeseen circumstances.
For more information on the types of premises that must be closed as a result of government measures, see our answer to question 3 below.
Finally, the foregoing does not detract from the fact that the tenant and their landlord can voluntarily agree upon different agreements or arrangements, in view of the special situation in which the world currently finds itself. A landlord may also benefit from a rent holiday request made by the tenant.
If a tenant is not able to fulfil their rent payment obligation and consequently enters into bankruptcy proceedings, both parties will be harmed.
2. What government and non-government measures have been put in place to help tenants?
Government measures as of 1 April 2020
The allowance for entrepreneurs in industries affected by COVID-19 (Tegemoetkoming Ondernemers Getroffen Sectoren COVID-19) entails a one-off allowance of €4,000 for medium-sized businesses that are directly affected by government measures adopted to fight the COVID-19 pandemic.
Recipients of this allowance may solely decide where to spend it on. In order to be eligible, the following criteria must be met.
- The company has no more than 250 employees.
- The code reflecting the main activity of the company is listed by the government as eligible for the allowance, examples of which are food retail, hair and beauty salons, event locations, saunas, swimming pools, fitness facilities, cultural venues (museums, theatres), driving schools, travel agencies and casinos. The government announced that various non-food retail activities will shortly be added to this list.
- The company must have a physical establishment in the Netherlands.
- The company must have at least one physical establishment with an address other than the address of the owner(s).
- The company is not subject to any insolvency proceedings.
- The company expects during the period 16 March 2020 to 15 June 2020 to: suffer a decrease in turnover of at least €4,000; and have fixed charges of at least €4,000 being payable (after having made use other government measures).
- The company has not received more than €200,000 in governmental support (de minimis) during the previous two fiscal years.
- The company is not a government company.
Non-government measures as of 1 April 2020
The following arrangements have been made for non-food retailers after negotiations between the sector organisations and retailers.
- Quarterly rents for Q2 starting on 1 April are converted into monthly rents.
- Where necessary, retailers receive suspension of payments from 1 April to 20 April.
- If rental invoices have already been sent, they will not be collected until 20 April.
- No fines or interests are charged on suspension of payments during crises months.
- Retailers do not have to comply with the operating obligation until the end of April.
- Stores without a substantial drop in turnover (25 per cent) shall not be eligible for support as referred to in the above.
After 20 April 2020, further negotiations will be held for a longer-term solution.
3. If tenants do not pay their rents and/or fail to meet the contractual obligation to use/operate business from the premises, what remedies does the landlord have?
If the tenant does not meet any of these obligations, the landlord may ask the court for permission to terminate (ontbinden) the lease agreement.
In these circumstances, the court will take into account, among other things, all relevant facts and circumstances (see our answer to question 1).
With respect to not fulfilling the rent payment obligation, based on case law, the court will give its consent in principle if the tenant is in default of its rent payment obligations for three months or more.
However, as the court will also consider the COVID-19 pandemic and any (negative) consequences thereof for both parties, it is difficult to predict the outcome of such court proceedings at this stage, particularly as it is unclear for how long the (government) measures relating to the coronavirus will be in place.
Furthermore, if the landlord has suffered any loss due to the non-performance by the tenant, the landlord can claim for damages. However, the landlord is – based on general Dutch-law principles – required to act reasonably and fairly in the given circumstances.
If the tenant is obliged to close the leased premises on the instruction of the government, neither the landlord nor the tenant will (in principle) be liable for the closure.
In this respect, the Dutch government has announced that all schools, restaurant and other catering establishments, sports and fitness clubs, swimming pools, saunas, sex clubs and coffee shops should remain closed until (at least) 28 April 2020.
Tenants who operate such business cannot be held liable by the landlord for the closure of such leased premises.