Can a landlord force a tenant to pay a higher rent by terminating a commercial lease?

The Supreme Court recently considered whether a landlord, in the case of a lease of commercial premises under Section 7:290, can terminate a lease agreement for an indefinite period solely in order to receive a higher rent from another party. The Supreme Court drew a clear line: this cannot simply be used as a means of pressure.

What was the issue here?

This case centred on commercial premises in Amsterdam that had been leased by Ahold since 1989. The lease was initially for ten years and was subsequently renewed several times. Since 2019, there had been a lease for an indefinite period at a rent of, most recently, approximately €488,000 per year.

The parties had been in discussions since 2019 regarding an increase in the rent and the conclusion of a new lease. Ahold had proposed that the rent be determined in proceedings under Article 7:303 of the Dutch Civil Code. The landlords did not agree to this. Another market party was prepared to pay a rent of €775,000 per annum for the commercial premises. The landlords entered into a conditional lease agreement with this party.

In June 2021, the landlords terminated the lease with effect from 1 July 2022, offering Ahold the opportunity to match the rent of €775,000.

Ahold did not agree to the termination and proposed setting the rent at €541,650 per year. The landlords rejected this and ultimately brought proceedings under Article 7:296(3) of the Dutch Civil Code seeking termination of the lease agreement and eviction from the premises.

Judgment of the Subdistrict Court and the Court of Appeal

Both the Subdistrict Court and the Court of Appeal dismissed the landlords’ claims.

According to the Court of Appeal, the legal system does not permit a notice of termination aimed solely at obtaining a higher rent:

Under the statutory provisions for Article 7:290 commercial premises, the tenant enjoys protection against termination in the sense that the lease may only be terminated on the basis of grounds for termination exhaustively listed in the Act, including the balancing of interests pursuant to Article 7:296(3) of the Dutch Civil Code (if the tenancy agreement has lasted ten years or longer). On the other hand, the landlord has the option, after a certain period, to claim a rent review on the basis of Article 7:303 of the Dutch Civil Code. This creates a balance in the sense that, on the one hand, the landlord cannot terminate the tenancy for a considerable period, but on the other hand, if necessary, can effect a rent adjustment by claiming a rent review through the courts to the rent level of comparable commercial premises, which may have risen in the meantime. In the statutory provisions, the legislator has expressly opted for an adjustment to the rent level of current tenancy agreements for comparable commercial premises in the locality, and not for an adjustment to market value in the sense of the price level at which new tenancy agreements are concluded at the time of the rent review.

In 1995, a bill proposing to opt for adjustment to market value after all was not accepted by the legislature, and in 2003, the revised statutory provisions for Article 7:290 commercial premises did not opt for a change in that direction either. It is unclear why the former Article 7A:1631(2)(c) of the Dutch Civil Code was not reinstated in the 2003 statutory provisions. There are no indications that the legislature thereby intended to extend the possibility of termination to cases where the tenant’s interest lies exclusively in a rent increase. The rule in Article 7:296(4)(c) of the Civil Code, which provides that an offer to enter into a new tenancy agreement may not serve to increase the rent, has been retained in the Article 7:290 provisions, and this is difficult to reconcile with such an extension. That retention rather indicates that the legislature intended that a notice of termination aimed at a rent increase should not lead to termination even from 2003 onwards. Otherwise, the rule in Article 7:296(4)(c) of the Dutch Civil Code could, after all, simply be circumvented in that way.

It must be inferred from the foregoing that the legislature intended to maintain the system of Article 7:290 on commercial premises and the balance it embodies between protection against termination and rent review during the term of the tenancy agreement. Against this background, when weighing up the interests pursuant to Article 7:296(3) of the Dutch Civil Code, the mere interest in obtaining a higher rent cannot lead to the termination of the lease agreement because the law provides for a rent adjustment mechanism.

On the basis of the foregoing, the starting point is that the landlords’ interest in being able to increase the rent is not sufficient to lead to the termination of the tenancy agreement.

Judgment of the Supreme Court

The landlords did not accept this and subsequently appealed to the Supreme Court, but the Supreme Court agreed with the Court of Appeal and dismissed the appeal.

According to the Supreme Court, it followed from Article 7A:1631(2), preamble and under c, (former) Civil Code, in force until 1 August 2003, it followed, according to the Supreme Court, that the landlord’s termination of the tenancy agreement—which had been extended after the expiry of the first term—was void if such termination was intended to bring about an increase in the rent.

This implied a prohibition on the landlord terminating the agreement in order to secure a higher rent by such indirect means. Consequently, the landlord no longer had two options for increasing the rent. The landlord could only make use of the direct route, also available to the tenant, of having the rent determined by the court.

Art. 7A:1631a lid 2, onder 4, (oud) BW bevatte daarnaast een – met het huidige art. 7:296 lid 4, onder c, BW overeenstemmende – toewijzingsgrond die inhield dat de rechter de opzegging in ieder geval toewees indien de huurder niet toestemde in een redelijk aanbod tot het aangaan van een nieuwe overeenkomst met betrekking tot het gehuurde, voor zover dit aanbod niet een wijziging van de huurprijs inhield. In de toelichting op deze bepaling werd over de zinsnede “voor zover dit aanbod niet een wijziging van de huurprijs inhoudt” het volgende opgemerkt:
“De toevoeging aan de beëindigingsgrond (…) vloeit voort uit het verbod voor de verhuurder huurprijsverhoging door opzegging te realiseren.”

Although the first ground for nullity was repealed in 2003 (Article 7:296(4)(c) of the Dutch Civil Code, which provides that a reasonable offer for a new tenancy agreement may not consist exclusively of a rent adjustment, has been retained in current law), this was not intended to alter the legal system in force up to that point.

Conclusion

It must be inferred from the structure of the law and its legislative history that it is not possible to terminate a tenancy agreement for commercial premises under Article 7:290 on the basis of Article 7:296(3) of the Dutch Civil Code, solely for the purpose of securing a higher rent. For this purpose, the landlord may resort to the procedure under Article 7:303 of the Dutch Civil Code. Under this provision, the court may determine the rent. This also applies to a lease for an indefinite period, such as the one at issue in these proceedings.

Landlords wishing to receive a higher rent in line with market rates cannot therefore enforce this through termination. They must rely on the rent review procedure.

Do you have any questions or would you like advice on rent reviews, termination options or other tenancy matters? Please feel free to contact one of our solicitors. We are happy to assist you!