The Amsterdam subdistrict court recently ruled in a number of cases that an agreed rent increase clause in residential premises was unfair. This concerned a rental agreement concluded with a consumer, so that an ex officio assessment by the court had to be made in the light of European and Dutch consumer law, in particular Directive 93/13 EC (Unfair Terms Directive). This gave rise to preliminary questions to the Supreme Court on the scope and consequences of the annulment of an unfair rent increase clause. The question of whether a specific clause in a lease contract is unfair, namely a clause providing for full reimbursement of legal costs, has now arisen again before the Amsterdam subdistrict court.

Proceedings

This case concerned a dispute between a housing association and a tenant of a parking space. The landlord claimed, among other things, dissolution of the contract with eviction of the leased premises, payment of an amount of €482.50 including extrajudicial costs and a user fee until the actual eviction as well as an order that the tenant pay the legal costs. The tenant did not appear in the proceedings.

The tenancy agreement included the following clause on the legal costs:

“’11.1 All costs incurred for the execution of this agreement, including administration costs, as well as all judicial and extrajudicial costs, incurred by the landlord in case of non-compliance with any provision of this agreement or the law by the tenant, shall be borne by the tenant.”

Ex officio review of unfair terms

The contract at the centre of these proceedings had been concluded with a consumer, so the court had to test it ex officio against European and Dutch consumer law, in particular Directive 93/13 EC (Unfair Terms Directive).

The subdistrict court ruled on this as follows;

“When assessing the unfair nature of a term, the issue is whether that term, contrary to good faith, substantially disturbs the balance between the parties’ rights and obligations arising from the contract to the detriment of the consumer (Article 3(1) of the Directive). This should take into account all the circumstances surrounding the conclusion of the contract 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. Furthermore, the applicable rules of national law should be taken into account if the parties would not have reached a settlement.”

Clause owing court costs unfair?

With regard to court costs, the subdistrict court found the clause to be unfair for the time being:

“Under Article 11.1, all legal costs incurred by the landlord are borne by the tenant, whereas according to established case law, a full court cost order is only made in extraordinary circumstances. In the vast majority of cases, the liquidation rate is applied, awarding a limited lump sum. Although the court has the power under article 242 of the Code of Civil Procedure (Rv) to mitigate, ex officio, amounts stipulated for the reimbursement of legal costs, the plaintiff could also invoke article 11.1 in cases where the court cannot or should not ultimately pass a (final) judgment on these costs. This is the case, for example, when parties engage in settlement negotiations during proceedings or in the event a settlement is reached between parties after subpoena. In those cases, the landlord has incurred court costs that it can charge in full to the defendant under the clause in Article 11.1. But even if the court did make a ruling, the landlord can claim payment of the full legal costs with reference to the clause, even though it has no title to do so. The clause is therefore unreasonably onerous and unfair within the meaning of the Directive and must therefore be disapplied. In the opinion of the subdistrict court, it must follow that no legal costs can be awarded. After all, the subdistrict court may not supplement the unfair clause in the contract between the parties by applying rules of supplementary or mandatory law. In the opinion of the Subdistrict Court, awarding legal costs in accordance with the statutory regulation cannot be seen in any other way than that the (application of the) rule from Section 242 Rv replaces the contractual regulation on legal costs.”

Landlord’s position

In the summons, however, it was argued by the landlord that a clause as included in article 11.1 is not unfair, because article 242 Rv gives the court the power to mitigate legal costs ex officio, so that there is no risk of disturbing the contractual balance. Case law also supports this view

Briefly, the rationale for these decisions was that legal costs are only incurred when proceedings are conducted, while the court can then mitigate the stipulated legal costs ex officio. There is therefore no real risk of disturbing the contractual balance.

Preliminary questions

However, it seemed to the subdistrict court that the landlord's position misunderstood that the clause should be judged according to the moment the lease was concluded. The clause leaves open the possibility for the landlord to claim full legal costs at some point before the court rules. Mitigation of those costs by the court is therefore out of the question. This is also a real risk, as many tenants will pay the (alleged) claims to avoid continuing legal proceedings, without realising that part of the claims are based on an unfair term. However, even if the court has mitigated the legal costs in a judgment, the landlord can claim full legal costs with reference to Article 11.1. Even then, there is a real risk that the tenant will pay in order to get rid of the case. Moreover, the landlord can have a payment made by the tenant deducted from the (full) litigation costs it believes it owes, after which the judgment gives title for the remaining claim. As such, the clause in Article 11.1 does lead to the contractual balance being upset.

In view of the fact that different opinions and rulings are given on this issue and taking into account that legal costs are an issue in almost all cases, the subdistrict court deemed it appropriate to put the following preliminary questions (legal questions from a court to a higher court about the interpretation of a legal rule) to the Supreme Court on this issue:

1. Should a clause between a trader and a consumer providing that the consumer who fails to perform the contract must pay all legal costs be regarded as an unfair term within the meaning of the Directive?
2. If the answer to the first question is in the affirmative, does this have the effect that not only should the litigation costs clause be disapplied, but that litigation costs can no longer be awarded at all?

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Conclusion

The subdistrict court has given the parties the opportunity to comment on the questions to be put to the Supreme Court. Next, it remains to be seen how the Supreme Court will answer these questions.

Would you like to know more or do you have questions about your position as a tenant or landlord? If so, please feel free to contact one of our lawyers without any obligation. We will be happy to assist you and keep you informed of further developments!