The Court of Appeal of The Hague was recently presented with a case for review in which the central issue was whether an estate agent had failed to fulfil his obligations under a mediation and management agreement concluded with a landlord. The subdistrict court held that the estate agent had not done well and dissolved the agreement. Did the court of appeal agree with the subdistrict court?
A landlord had entered into a mediation and management agreement with an estate agent. This agreement included, among other things, that the estate agent would mediate in finding a tenant for a property owned by the landlord in return for payment as well as perform management activities regarding the property in return for payment. The written agreement specifically mentioned the collection and administration of rent payments, the identification and monitoring of any arrears, the taking of legal action against the tenants in consultation with the landlord if necessary, and the handling of all correspondence necessary for management.
The broker subsequently found tenants who rented the property from 19 September 2019 to 30 September 2020 at an upfront initial rent of €1,295 per month. The landlord paid the broker €1,152.53 for mediation and €319.17 for management.
The tenancy agreement ended on 30 September 2020. The tenants then had rent arrears of €9,250. On the landlord's claim, tenants were ordered to pay the said amount and legal costs by default judgment dated 11 March 2021. The tenants had no known residence or domicile inside or outside the Netherlands and the landlord was unable to collect the rent arrears.
Subdistrict court proceedings
The landlord then commenced proceedings in the subdistrict court against the estate agent because he felt that the estate agent had failed to fulfil his contractual obligations. Among other things, he claimed payment of management and mediation costs from the estate agent, the costs of the default proceedings against the tenants and payment of the rent arrears.
The subdistrict court ruled that in the screening of tenants (the mediation), the estate agent had failed to fulfil her duty of care towards the landlord. This also applied to financial supervision (management). The agreement with the broker was dissolved and only a small part of the landlord's claim was awarded. The subdistrict court saw no reason for compensation (as damages) for the unpaid rent, as the landlord already had a title to collect the rent from the tenants. The Subdistrict Court considered that the landlord's unsubstantiated claim that there was no chance of recovering the rent did not change this. The landlord was not satisfied and appealed.
Judgment of the court of appeal
Pursuant to Section 7:401 of the DCC, the property agent must observe the care of a good contractor in his activities. The criterion here is whether the property agent has acted as a reasonably competent and reasonably acting professional would in the given circumstances. According to the court, the broker had not fulfilled this duty of care.
The essence of the broker's work is that he assesses in advance whether the potential tenants can (continue to) pay the rent on time and in full. This is to some extent an assessment. A professional mediator, who moreover makes it known that he does 'thorough screening' and that the verified information gave a positive picture, may be expected to make this assessment on sound, verifiable, grounds. This has been lacking.
It was clear that one tenant had no (permanent) job to fall back on and that he had only started working as a self-employed person shortly before entering into the lease. According to the extract from the Chamber of Commerce, this tenant's work involved masonry and pointing, for which he had negotiated the rather modest amount of €20 per hour. The other tenant had no job or income at all at the time. Tenant (verification) documents covered only a short period (5 weeks) during which billing was very variable, between €136.50 and €760.50 per week. Moreover, there was no evidence that the invoices presented had actually been paid.
All this formed an extremely shaky basis for the commitment to pay the (hefty) rent of almost €1,300 per month. In any case, there was no evidence to show actual income (nor any employment that could provide any certainty). The circumstance that certain information would not have been verifiable did not relieve the estate agent of the obligation to gather 'hard facts' on which to base a legitimate expectation that the rent would be paid in full each time. If such verification is not possible, then such a tenant should not be contracted unless the broker clearly pointed out the risks, which was not the case here.
In addition, the court held that the broker had also failed in his management duties. It was established, that the tenants had been late in paying the rent from the beginning of the lease and that as early as December 2019, there was an underpayment of rent. This had only worsened during the remainder of the lease. Only in January 2020 had the rent still been paid in full, but this had not cleared the rent arrears for December 2019. The estate agent did not respond in a timely and adequate manner at the time, including by sending reminders to the wrong address. The broker had also never (even after the landlord's insistence) attempted to get the tenants to leave early. According to the court, the estate agent had performed his management duties insufficiently professionally and inadequately.
Dissolution and damages
Dissolution of the brokerage and management agreement was therefore appropriate.
Upon dissolution of the agreement, pursuant to Section 6:271 of the Civil Code, the services already received must be undone reciprocally.
The nature of the landlord's performance, namely the payment of €1,152.53 (mediation costs) and €329.17 (management costs) could easily be reversed. This was different for the management and mediation services provided by the estate agent. These services could not be reversed. According to the law, instead, a fee had to be paid by the landlord in the amount of the value of the service provided by the broker at the time of receipt.
The court determined the brokerage service provided by the broker to be zero. It was far below par and mainly caused the landlord inconvenience. The broker was ordered to repay the mediation fees in full. Management was awarded an amount of €79.17 by the court.
The court further ruled that, in principle, the landlord was entitled to damages for the property agent's breach of contract. After all, through the actions of the estate agent, the lease had been concluded with less solvent tenants, after which the estate agent also failed to adequately keep his finger on the pulse when the tenants quickly built up substantial payment arrears. The circumstance that the landlord obtained a guilty (default) judgment against the tenants did not relieve the estate agent of its obligation to pay damages for this reason. In any case, the tenants were obliged to compensate the landlord for the entire rent arrears. This did not apply to the estate agent. After all, if the estate agent had done his job properly, it was still possible that eventually (for a completely different reason) something would have gone wrong with the rent payments. After all, even with careful screening of new tenants, there is no certainty that the rent would always have been paid in full. In short, the extent of the damage attributable to the landlord could not be accurately determined and was estimated by the court. Considering all the circumstances of the case, the damage was estimated by the court at €5,000.
Do you have questions or would you like advice regarding non-performance of an agreement and resulting damage? If so, please contact one of our lawyers without obligation. We will be happy to assist you.