24 March 2020

The Effect of Force Majeure following Corona measures

Category: Catering law

The Corona measures in the Netherlands cause the Dutch café and restaurants to close. The ROZ (Dutch Real Estate Council) model is used for most rental agreements of hotels, restaurants and retail outlets. This model sets out the general provisions for the lease of retail space and other business premises (also used in the hotel and catering industry). In order to determine when something is at risk or for the account of the tenant or the lessor, you should first consult these general provisions. This is also true for problems caused by the governmental measures imposed in the context of COVID-19.

These ROZ provisions however do not regulate a force majeure situation. As a result, the tenant and landlord are dependent on the provisions of the law, namely Article 6:75 of the Dutch Civil Code:

A shortcoming cannot be attributed to the debtor if it is not due to his fault, nor is it for his account by virtue of law, legal act or generally accepted views“.

A governmental measure in connection with COVID-19, such as the temporary closure of the catering industry, will be qualified as force majeure and is not for the sole risk of the lessee or lessor – it affects both these parties. You could argue that the consequences should be divided 50/50 between the tenant and the landlord in line with the principle that shared grief is half grief.

When will the Dutch tenant be in default?

The tenant is not in default (and therefore does not commit a breach of contract) if the government has ordered him not to open his business, as is currently the case in the hotel and catering industry. In that case, the tenant cannot fulfil the operation obligation. Accordingly, not using the rented property is not considered a breach of contract. The landlord cannot then oblige the tenant to open its premises. The tenant will have to prove however that he is temporarily unable to pay the rent as a result of force majeure. If he can prove this, then the shortcoming (temporary inability to pay) cannot be attributable to him. This means that in the event of temporary force majeure that cannot be attributed to the tenant, the lessor will not succeed in terminating the lease for such a reason. In the event of definitive force majeure, the lessor will be able to dissolve the agreement.

Damage limitation measures by the tenant in the case of force majeure

This does not mean that the tenant can remain inactive with impunity after the damage has manifested itself – Article 6:101 of the Dutch Civil Code offers the possibility of attributing all or part of the damage to the tenant if the tenant should have prevented (further) damage by reporting the defect to the lessor in a timely manner that would have enabled the lessor to take the necessary measures to repair the defect and to prevent (further) damage. Insofar as the tenant himself is under an obligation to take damage limitation measures, this argument may also play a role in the attribution of the damage pursuant to Section 6:101 of the Dutch Civil Code. If the hotel and catering services cannot take place in the business premises, it may be possible to do business via other means with which the tenant can still earn income and pay the rent. A reasonable alternative to (partially) acquiring income is to take a serious look at the rental amount.

Termination of a (catering) rental agreement due to temporary non-payment of rent

In the judgement of the Hoge Raad (HR) on 20 January 2006, NJ 2006, 80, rov. 3.6. – it has been assumed that if an ‘obligation for an indefinite period of time’ has not been fulfilled for some time, subsequent ‘retroactive’ fulfilment of the obligation is not possible. However, this is interpreted differently in the case of force majeure. According to the Supreme Court, in order to be able to make use of the possibility to dissolve the rental agreement, there must be a “shortcoming of sufficient weight”. This is not easily the case if the shortcoming results from a force majeure situation. A landlord could therefore seize the temporary unpaid rent as an opportunity to terminate the rental agreement. The court will however assess the (temporary) situation on the basis of reasonableness and fairness and apply leniency if a tenant has temporarily paid no rent or less rent because he was forced to close his business as a result of COVID-19 measures imposed by the government. For a reduction of rent during a force majeure situation, read further.

Using a bank guarantee or setting-off the deposit of the tenant

The landlord could use the bank guarantee or deposit to retrieve unpaid rent. However, the tenant may object if he believes he is not obliged to pay the full rent as a result of the force majeure situation. The tenant and landlord could agree that the rent guarantee can be used to pay half of the current rent amount. This could provide a temporary solution.

Premature termination of a (hospitality) rental agreement

Premature termination of the rental agreement by the tenant in the event of a non-permanent force majeure situation can lead to the tenant being liable for damages.

Article 24 of the ROZ stipulates the following general provision:

24. The tenant is obliged to compensate the landlord for all costs, damage and interest resulting from a premature termination of the rental agreement, unless the parties have agreed otherwise in writing or unless there is an attributable shortcoming on the part of the landlord. Such costs and damage shall also include: the rent due plus turnover tax on the agreed remaining rental period; the costs of the goods and services to be supplied by the lessor which including heating costs; insofar as the lessor is obliged to purchase these goods and services from third parties after termination of the rental agreement, the costs of re-letting; and all costs incurred and to be incurred to collect the damage, both judicially and extra judicially, including the costs of legal assistance.

Premature abandonment of the leased business premises by the tenant

If so, articles 23.5 and 23.6 of the ROZ lay down the following general provisions:

23.5 If the tenant has terminated the use of the rented premises before the end of the rental agreement, the lessor shall be entitled, at the expense of the tenant, to gain access to the rented premises and to take possession of it, without this constituting a defect.

23.6 All items that the tenant has apparently relinquished by leaving them in the rented premises upon actually leaving the rented premises may be removed, sold and/or destroyed by the landlord at the tenant’s expense and at the landlord’s discretion, without any liability on its part.

Recourse to unforeseen circumstances of the COVID-19 crisis: amendment or termination of business premises rental agreements

Pursuant to Article 6:258 of the Dutch Civil Code, the court may, due to unforeseen circumstances, alter the consequences or effects of an agreement or dissolve the agreement entirely or in part. This article is mandatory law and can therefore not be excluded in the general terms and conditions of a rental agreement. This article is not hastily applied by the court however and is only applied in limited circumstances. In my opinion, the judge will be able to assume that the consequences are for the account of the parties in a 50/50 ratio and the standard of reasonableness and fairness will play an important role in the judge’s assessment. The article can offer a solution for the temporary adjustment of the agreement by the Dutch Courts, if the parties do not reach an agreement themselves; the ruling can be made with retroactive effect.

If you have any questions about rental agreements, please contact the Blenheim Hospitality Desk.