Key money

Many tenancy agreements contain a clause under which the tenant must pay a one-off amount to the landlord on conclusion of the tenancy agreement, for example, rental costs or administration costs. When is charging such costs allowed? An Amsterdam subdistrict court asked the Supreme Court for a preliminary ruling on this issue.

Article 7:264 (1) of the Dutch Civil Code provides the following:

Any stipulation made in connection with the conclusion of a rental agreement concerning living space, not concerning the rental price, insofar as an unreasonable advantage is agreed upon for the benefit of one of the parties, shall be null and void.

The question is how this article should be interpreted. It is clear from the legislative history that the legislator wanted to protect the tenant against abuse of power by the landlord, because the tenant is in an unequal position in relation to the landlord and, due to scarcity in the market, will be inclined to accept every proposal made by the landlord.

In 2012, the Supreme Court already considered in the Ymere/Nellestein judgment that "an unreasonable advantage" should be taken as a starting point if there is no or negligible quid pro quo for the stipulated advantage.

This is because the tenant has not benefited, or has benefited insufficiently, from the consideration provided by the landlord to justify an additional payment. However, it is difficult to draw the line between reasonable and unreasonable compensation.

In the case that the Subdistrict Court had to decide, a housing corporation had charged the tenant €200 in administrative costs upon entering into the tenancy agreement, €13.50 of which was for a nameplate. The tenant claimed back the administration costs (with the exception of the name tag) and took the position that the provision under which administration costs were due to the landlord pursuant to Article 7:264 of the Dutch Civil Code was null and void, because an 'unreasonable advantage' for the landlord had been agreed.

According to the landlord, there was no question of an 'unreasonable advantage' because the costs related to work actually carried out and costs actually incurred, including the costs associated with the termination of the contract by the old tenant, the scheduling of maintenance of the property and finding a new tenant. According to the landlord, an 'unreasonable advantage' only exists if the landlord abuses a weaker position of the tenant by stipulating an advantage in return for which he does not perform at all or only performs a negligible service.

The Subdistrict Court put questions to the Supreme Court in relation to the interpretation of the aforementioned 2012 Supreme Court ruling.

According to the Supreme Court, the starting point from Ymere/Nellestein implies that if there is no or negligible quid pro quo for the stipulated benefit, there is an 'unreasonable benefit', unless special circumstances dictate otherwise. In addition, the costs charged to the tenant must be offset by a performance by the landlord from which the tenant benefits. This benefit must justify that the tenant gives the landlord the advantage.

If the landlord's performance exclusively or largely serves his own interests, there is no such benefit. Nor is there any such benefit if the landlord performs a service which he is obliged to perform under the terms of the contract or the law even without the clause, or which is otherwise part of normal property management. After all, the tenant is then paying for something he would also get without the clause.

Furthermore, the Supreme Court emphasises that it must be examined in two steps whether the advantage stipulated by the landlord is reasonable or not:

  1. Firstly, the nature of the landlord's consideration for that benefit must be assessed: if the tenant does not derive any benefit from it that could justify the stipulated benefit, then the benefit will not be reasonable.
  2. If the nature of the service does not, in principle, preclude the charging of rental costs, it will have to be assessed whether the costs are reasonable in terms of amount.

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According to the Supreme Court, this cost-benefit analysis must in principle be made for each separate consideration provided by the landlord. This way it is clear how much the tenant exactly pays for the consideration. This is different if the total amount paid by the tenant is reasonable in view of all the counter services provided by the landlord.

These principles apply equally to free-sector and social leases.

The foregoing will not bring much certainty. The Supreme Court has further explained the framework, but individual cases will continue to be debated on the application of Section 7:264 of the Dutch Civil Code. It is expected that in this case the Subdistrict Court will rule that the amount of €13.50 is reasonable, because it is in return for a concrete consideration from the housing association, namely the name tag. The administration costs do not provide any benefit to the tenant and will, in all likelihood, be regarded as unreasonable. To that extent, the provision in the lease will be null and void.

Would you like to know more or do you have questions about your position as a tenant or landlord? 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.

SPEE advocaten & mediation Maastricht