In this article, we would like to answer three frequently asked questions about the rights and obligations of tenants and landlords: about a decline in turnover, the closure of leased office or retail space, and preventive measures.
I am a tenant and notice a significant decline in my turnover (due to -for example, a decline in the number of visitors- as a result of corona. Am I eligible for a rent reduction?
The short, and most likely, answer to this question is: no. According to Dutch tenancy law, a tenant of office or retail space and other business premises within the meaning of Section 7:290 of the Dutch Civil Code (hereinafter: retail space) can only claim a rent reduction in the event of a 'defect’ (gebrek) of the leased space. The Corona virus, including all its consequences, does not meet the conditions to be considered a 'defect'.
What is considered to be a ‘defect' in respect of the leased space?
Most leases under Dutch law are based on the standard ROZ model and its associated general provisions (hereinafter: GP). Under Dutch tenancy law, a tenant can only claim a rent reduction in court in the event of a 'defect' in respect of the leased space. A 'defect' is a condition or characteristic of the leased space or any other circumstance that cannot be attributed to the tenant and as a result of which the tenant does not have the enjoyment of the leased space that it could expect. In addition, the GP stipulate that a defect does not lead to a claim for rent reduction, unless in case of a serious failure that is attributable to the landlord or the landlord's failure to remedy such defect within a reasonable term.
Are disappointing visitor numbers or a decline in turnover 'defect'?
No. A recession, economic crisis or an 'Act of God' (overmacht) are, in principle, regarded as circumstances that tenants must take into account when concluding a lease. Such circumstances are generally regarded as part of a tenant's normal entrepreneurial risk, as the absence of such circumstances cannot reasonably be expected by the tenant. They cannot as such be regarded as a defect.
The Corona virus can be considered an 'Act of God'. Disappointing visitor numbers or a decline in turnover as a result of the Corona virus are, therefore, not a 'defect', and as a tenant you cannot claim a rent reduction.
Only when the disappointing number of visitors has to do with the specific contractual relationship between landlord and tenant, this may be different, for example when a turnover-related rent is agreed upon, or when the landlord has guaranteed certain visitor numbers (which is the exception rather than the rule in the market practice of retail contracts). In that case, a tenant could successfully claim a rent reduction.
The foregoing does not detract from the fact that the tenant and the landlord can voluntarily agree upon different agreements or arrangements, in view of the special situation in which the world currently finds itself.
I am a landlord/tenant of office or retail space. Can I hold the landlord/tenant liable for damage suffered if the leased space, or the entire shopping mall or office building, is closed because of the Corona virus?
A closure can occur according to, roughly, two scenarios: (i) the landlord/tenant decides on its own initiative to close the leased space, (ii) the government imposes a closure.
Closure as a result of a government measure
To date, there has been no general government measure in the Netherlands ordering the closure of a shopping centre or office space in its entirety. However, the government has proclaimed that all schools, catering establishments, sports clubs and fitness clubs, saunas, sex clubs and coffee shops should remain closed until (at least) 6 April 2020. Additional measures may apply locally. If a landlord/tenant is required by order of the government to close the leased space, the landlord/tenant will in principle not be liable for this. This is a circumstance which, in accordance with common opinion, should probably not be for the landlord's/tenant’s account. Since if the landlord were not to take this measure itself, the tenant would still be obliged to close the leased space. Also under the GP, the tenant is obliged to follow government instructions and, as an employer, is also obliged to ensure a safe working environment. This means that it may not expose the employee to the risk of contamination by the Corona virus. Under these circumstances, the landlord cannot invoke the operating obligation included in the GP (which means that a tenant must use the leased space himself).
Closure by the landlord on its own initiative
Although, under the standard ROZ agreement, the landlord has no active obligation to take measures against the Corona virus, it may – from the principle of being a good landlord - still be desirable to take measures to mitigate damage.
For example, in the event of a confirmed case of Corona infection, a landlord may wish to close the premises, despite the fact that the National Institute for Public Health and the Environment (RIVM) or the Municipal Health Service (GGD) does not advise or prescribe closure. A decision to close of one's own accord may, under certain circumstances, be attributable to the landlord and, therefore, lead to a certain degree of liability. It is, therefore, advisable to keep closure as limited as possible in such a case. It is difficult to predict how long this period will be and it is a purely medical aspect. It is, therefore, advisable to consult the RIVM/GGD for advice.
Also in this case, the tenant is in principle not entitled to a rent reduction (unless there is a defect that the landlord does not remedy in time). The tenant could initiate proceedings and file a claim for damages. The standard ROZ agreement does, for that matter, exclude compensation for indirect damage and loss of profit.
Moreover, based on the standard ROZ agreement, the tenant itself does have an active obligation to prevent damage to goods/persons. In that context, it is difficult to imagine that a tenant - under the given circumstances - will object to a (temporary) closure in order, for example, to have the building and the leased space properly disinfected.
Closure by the tenant on its own initiative
Due to a duty of care towards its staff and/or its customers, we also see that tenants themselves choose to voluntarily close the leased space, even if they have not been instructed to do so by the government. Some tenants choose to do so because, among other things, keeping the leased space open in the event of disappointing visitor numbers is more expensive than closing the leased space. Under the current circumstances, we believe that landlords will then not be able to claim performance of the operating obligation, to impose fines or to file a claim for damages. Based on reasonableness and fairness, as well as the duty to mitigate damage suffered by the tenant, we can hardly imagine that a landlord will object to a such a (temporary) closure.
What preventive measures can a landlord/lessee take or require from its landlord/tenant, or its employees? Can people be obliged to have themselves tested for the Corona virus?
Preventive action is very important in sectors where there is a lot of customer contact.
The Dutch tenancy law principles of 'good landlord' and 'good tenant' apply as a starting point for preventive action. Both the landlord and the tenant should take adequate measures and keep each other informed.
Relationship between 'good tenant' and 'good landlord' and preventive measures
The GP do not impose any active obligations on a landlord to take preventive measures in the event of a viral infection. In light of this, however, it is important to note that both the landlord and the tenant have an obligation to act vis-à-vis each other as 'good landlord' and as 'good tenant', in accordance with the requirements of reasonableness and fairness, which apply to all contractual relationships governed by Dutch law. A landlord may, therefore, reasonably be required to inform its tenants of the relevant measures prescribed by the government - through the RIVM - and to take the (precautionary) measures prescribed by the same institution to the extent that this is within its power. This particularly applies in the case of 'multi-tenant use' of a building, or when a leased space generally attracts many visitors, such as shopping centres, hotels and restaurants (although the latter are currently closed by order of the government). Conversely, we believe it is reasonable to expect tenants to take adequate measures to prevent or limit (the spread of) the Corona virus and, as noted above, the GP (and the law) stipulate that a tenant may not cause damage to the building, to other tenants or to third parties.
Requesting to undergo testing is allowed, but may not be obliged
In the context of 'good landlord', it is conceivable - in parallel with being a good employer - in certain circumstances to ask (employees of) tenants to undergo testing before re-entering the leased space. However, this can only be done when there are urgent reasons to suspect a possible infection, for example because persons may have been in contact with infected colleagues/persons or may have recently visited areas that have been affected above-average by the Corona virus. In that context, it is advisable to immediately give tenants a reason for the request. When making such requests, careful attention should be paid to privacy-sensitive information such as names, positions or medical test results; on the basis of the General Data Protection Regulation (GDPR), these data may not be stored or retained.
A landlord cannot oblige the tenant's staff to have themselves tested. After all, there is no direct relationship between the landlord and these persons. The ROZ lease agreement does not provide instruments to deny these persons access to the leased space. Of course, it can make a moral appeal to its tenants.
CONCLUSION: be a good landlord/tenant and take preventive measures
In accordance with common opinion, the impact of the Corona virus appears to be mainly at the tenant's risk. This of course also depends on the circumstances of the case and any further agreements that may have been made between the parties.
For both the tenant and the landlord it is in any event advisable to take preventive action and take measures to limit the damage on the basis of the principle of 'being a good tenant/landlord'.
We note that the Dutch court has (fortunately) not yet ruled on a similar case. We shall, therefore, continue to monitor developments closely and would like to keep you informed of the latest state of affairs. If you have any questions about this article or if your question has not been answered in this article, please do not hesitate to contact Pauline Leegwater (firstname.lastname@example.org or +31 (0) 20 578 59 73) or Marloes Voorrips (email@example.com or +31 (0) 20 578 50 80).