At the Supreme Court a few weeks ago, the central issue was whether parties to a contract can make an arrangement for the dissolution of that contract that deviates from Art 6:265(1) of the Civil Code, in particular the unless provision contained therein.

What was at stake here?

The parties had entered into a lease agreement in relation to a hotel.In the lease.

The landlord guaranteed that the current operation of the hotel, restaurant, swimming pool, wellness, etc. met all requirements of public health, fire safety, other safety in the broadest sense of the word and all possible government regulations in the broadest sense of the word, and that support equipment in the broadest sense for the operation of the hotel and the associated hospitality industry functioned properly according to common standards.

If the landlord did not or did not fully comply with one or more of these guarantees and/or there was a breach, the landlord would forfeit an immediately payable penalty of €50,000.00 per breach and the tenant would have the right to terminate the agreement with immediate effect, without prejudice to the tenant's right to additionally claim compensation for all damages suffered as a result of termination (including loss of turnover and costs of legal assistance).

The tenant took the position that there had been breach of several warranties given by the landlord in the lease and held the landlord liable for breach of the warranties, among other things, and summoned the landlord to pay (an advance on) damages and penalties. Subsequently, following correspondence between the parties, the tenant dissolved the lease and declared that it would cease operating the hotel as of the same date.

In the subsequent proceedings, the tenant claimed to order the landlord to pay contractual penalties and damages. In the counterclaim, the landlord claimed, inter alia, to rule that the tenant's termination of the lease was without legal effect and to order the tenant to compensate the landlord for the damage suffered and to be suffered by the landlord as a result of the termination.

Section 6:265 DCC

Section 6:265(1) of the Civil Code provides that any failure by a party to perform one of its obligations gives the other party the power to dissolve the contract in whole or in part, unless the failure, in view of its special nature or minor importance, does not justify such dissolution with its consequences.enzij de tekortkoming, gezien haar bijzondere aard of geringe betekenis, deze ontbinding met haar gevolgen niet rechtvaardigt.

Ruling of subdistrict court and court of appeal

In the opinion of the subdistrict court, the landlord had breached two guarantees, namely the guarantees regarding fire safety and the proper functioning of support equipment. Next, the subdistrict court ruled that dissolution was not justified in view of the nature and extent of the breach, the nature of the lease and the landlord's interest in its continuation. The dissolution invoked by the tenant therefore had no legal effect and the landlord was entitled to claim compensation from the tenant for damages suffered as a result of the dissolution.

The court of appeal also answered in the negative the question whether the declaration of dissolution had taken effect. The court of appeal put first and foremost that the main rule and the unless clause in Section 6:265 (1) of the DCC together express the substantive rule of law that, in short, only a shortcoming of sufficient weight gives a right to (full or partial) dissolution of the contract. This standard is based on reasonableness and fairness. When assessing whether a shortcoming is of sufficient weight to justify dissolution, all circumstances of the case must be taken into account, including the nature of the contract.

Supreme Court ruling

In cassation it was complained that the court of appeal wrongfully ignored the fact that Section 6:265 (1) of the Dutch Civil Code is of regulatory law and that the parties are therefore free to deviate from it. With the guarantee obligations and the dissolution clause as included in the lease contract, the parties deviated from the unless provision of Section 6:265 (1) of the DCC. Having held that the landlord had breached the warranty provisions, the court of appeal therefore erred in examining the tenant's authority to dissolve the contract on the basis of the unless provision of Section 6:265(1) of the Civil Code.

This complaint succeeded. Section 6:265(1) of the Civil Code is of supplementary law. Therefore, according to the Supreme Court, the parties are in principle free to deviate from it by agreement. In this case, the parties agreed that if the landlord did not or not fully comply with one or more of the warranties included in the lease, the tenant would be entitled to terminate the contract with immediate effect. In the court of appeal's uncontested opinion in cassation, the landlord breached the warranty obligations. Whether the tenant's declaration of rescission was effective should therefore be examined on the basis of what the parties had agreed in that regard.

The judgment of the Court of Appeal was therefore overturned by the Supreme Court.

Parties should therefore be aware of the consequences of deviating from the law. Whereas in case of a minor default, dissolution may not have legal effect, this may be the case when deviating from the unless clause.

Do you have questions or need advice about your lease? If so, please feel free to contact one of our lawyers. We will be happy to assist you!