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21 Nov 2023 Unfair rent review clause?

The Amsterdam subdistrict court recently ruled on an issue where the question was whether the rent arrears claimed by the landlord should be paid by the tenant. During the term of the lease, by applying the agreed rent modification clause, the rent had almost doubled. Was the landlord's claim granted?

 The facts

Since 2005, tenants have been renting a house from landlord Bouwinvest for a rent of €865 per month.
The lease contains the following clause in article 10 sub j:
“The rent shall be increased for the first time on 1 July following the commencement date of the tenancy and annually thereafter on 1 July by a percentage to be determined by the landlord, being the percentage change in the monthly index figure for the month of February, of the Consumer Price Index (CPI), all households series, determined on the most recent time basis, calculated in accordance with paragraph II of this provision, plus a maximum of 5% (of the uplift percentage to be determined by the landlord).”

Meanwhile, Bouwinvest is claiming a rent of €1,534.75 per month.

By an earlier judgment dated 22 August 2022, the tenants were ordered by the subdistrict court to pay rent arrears. The claim for dissolution and eviction was conditionally granted by means of a so-called terme de grace.

In these proceedings, in brief, Bouwinvest claimed dissolution of the lease and eviction of the residence, ordering the tenants to pay the rent arrears of €4,425.27, plus extrajudicial costs, interest and legal costs. According to Bouwinvest, the tenants have imputably failed to comply with the (timely) payment of the rent. There has been a repeated breach of contract. Bouwinvest cannot be required to continue the lease any longer.

The tenants acknowledge that there are rent arrears. A variety of circumstances have caused payment problems. They would like to make payment arrangements and continue to live in the house.

 Unfair terms directive

The rental agreement at the centre of these proceedings was concluded with a consumer, so an ex officio assessment must be made under European and Dutch consumer law, in particular Directive 93/13 EC (Unfair Terms Directive).

It follows from the original rent compared with the rent claimed by Bouwinvest that the rent has been substantially increased.

The subdistrict court must assess ex officio whether the rent modification clause in the agreement is unfair within the meaning of the Unfair Terms Directive. When assessing the unfair nature of a clause, the issue is whether that clause, contrary to good faith, significantly disturbs the balance between the parties' rights and obligations arising from the contract to the detriment of the consumer. Here, all the circumstances surrounding the conclusion of the contract must be taken into account and all the other terms of the contract, taking into account the nature of the goods or services covered by the contract. The point of assessment should be based on the date the contract was concluded. Irrelevant for this test is therefore the actual application and performance of the clauses, or an explanation given afterwards.

Judgment of the Subdistrict Court

The clause in the lease agreement concluded with Bouwinvest is by its nature to be regarded as a clause intended to be used in several agreements. It cannot be regarded as a core clause. Neither has it been established that the clause has been negotiated.

Bouwinvest argued at the hearing that it takes the position that the rent review clause is not unreasonably onerous and that the interests of both parties are sufficiently taken into account.

It follows from case law that the European Court of Justice places far-reaching restrictions on the validity of price change clauses. Such a clause must be drafted in clear and understandable language, or be objectively determinable. The clause must contain the grounds on the basis of which and the manner in which the rent may be adjusted and these grounds must constitute a valid reason for the change in the rent. The rent modification clause must be included in the lease or the enclosed general terms and conditions.

Other circumstances that weigh in when assessing whether a clause is unfair are the following: whether the lease contains a clause stating that the rent adjustment clause may or may not also lead to a rent reduction and whether the lease stipulates that the tenant can terminate the lease if the power to change the rent is exercised, as well as whether the tenant, after being informed about the rent increase, has a real possibility to actually terminate or dissolve the lease.

In principle, a clause that regulates a change in the rent is fair when that change is based on the consumer price index and it is explained how the rent adjustment is calculated, or if the clause refers to the statutory rules on changing the rent. Under the present clause, however, in addition to an inflation-adjusted increase, it is also possible to claim a 5% increase each year on top of that. This significantly upsets the balance contrary to good faith to the detriment of the tenant as a consumer. Moreover, the stipulation does not meet the above-mentioned conditions either: the grounds on the basis of which and the way in which the rent can be adjusted are missing in the stipulation, as well as a valid reason for the annual adjustment of the rent by 5% above the inflation adjustment, leaving the tenant at the mercy of the landlord on this point.

The subdistrict court therefore held that the rent modification clause was unfair.

As a result of the unfairness, the aforementioned clause must be completely disapplied in view of the established case law of the European Court of Justice. Partial annulment or revision is not possible. Bouwinvest could therefore never invoke the clause and the rent was therefore not increased during the term of the lease. This means that the original rent of € 865.00 per month from the commencement of the lease must be assumed.

Conclusion

In view of the fact that the lease had existed since 2005 and that the rent had almost doubled compared to the original rent, the Subdistrict Court considered it sufficiently clear that there could be no rent arrears. It was evident that there was a considerable amount of rent arrears. At the hearing, the tenants had invoked set-off. The parties could calculate the exact amount of the set-off claim, namely the amount the tenants had paid to Bouwinvest minus the rent of € 865.00 per month, multiplied by the number of months the lease was in force. As long as this balance was positive, the tenants were entitled to claim set-off if they were sued by Bouwinvest for payment of the rent.

Because of the rejection of the main claim, the subdistrict court saw no reason for dissolution and eviction, not even solely on the grounds of not always paying the rent on time. So for the landlords, these proceedings ended very badly. Not only was the claim for payment of rent arrears rejected, no claim for payment of future rent instalments could be made for the time being.

Want to know more or need questions or advice on collecting rent arrears or your lease? Then feel free to contact one of our lawyers without any obligation. We will be happy to assist you!

SPEE advocaten & mediation Maastricht

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