Dutch Supreme Court receives preliminary questions on rent modification clauses
Published on 7th Feb 2024
Subdistrict courts have recently been ruling on lease agreements with a focus on unfair terms and modification clauses
In 2023, a large number of judgments were delivered on the question whether clauses in lease agreements are unfair within the meaning of the European Directive 93/13/EEC on unfair terms in consumer contracts. It is striking that the directive dates from 1993 and that it was only in 2023 that a multitude of rental law judgments – in particular from the Court of Amsterdam – have been rendered on this subject.
The clauses that were ruled on mainly concerned rent changes, contractual penalties, interest, extrajudicial collection costs, litigation costs and tenant changes.
The main line in the rulings of the subdistrict courts seems to be that a rent modification clause that is not regarded as a core clause (kernbeding) and has not been negotiated must be tested ex officio against the directive. The subdistrict courts will then test the fairness or unfairness of the rent modification clause, even if the clause is not the subject of a dispute.
What is 'unfair'?
In short, the subdistrict courts consider the rent modification clause to be unfair if it is not drafted in clear and understandable language and does not contain the grounds on the basis of which and the way in which the rent can be adjusted. These grounds must be a valid reason for the rent change. Prior to the rent change, the lessee must further be informed in a clear and comprehensible manner.
The clause tends to be unfair that is not based solely on the consumer price index (consumentenprijsindex), does not provide for an option to reduce the rent or does not stipulate that the lessee can terminate the lease in the event of a rent change. The moment a clause is deemed unfair, the entire clause must be retroactively disapplied and may not be applied in the future. Moreover – according to established case law of the Court of Justice of the European Union – it is then no longer possible to invoke a statutory scheme of supplementary law that would have applied in the absence of the term.
The strict application of this sanction to rent modification clauses creates a undesirable situation in practice. Lessees and lessors in the free sector are suddenly confronted with the far-reaching consequences of contravening the directive, which disrupts practice considerably. Is it desirable for lessors to be penalised to such an extent that they have to repay all overpaid rent to lessees retroactively? Are lessees then entitled to reimbursement of the overpaid rent for the period from the initial rent, or is there a limitation period attached to this? And what would be the effective date of that?
Amsterdam's preliminary questions
In order to break this area of tension and meet the need for clarity, on 11 January 2024, the Court of Amsterdam formulated preliminary questions (in addition to those already formulated) to the Dutch Supreme Court.
Is the clause providing for an annual increase in rent based on inflation (consumer price index) plus an additional possibility of increasing the rent by up to a certain percentage contrary to the directive, and what are the criteria for assessing this? And if so, should the far-reaching sanction be applied whereby the entire clause is to be regarded as unfair and, for that reason, annulled in its entirety or only in part?
If a rent modification clause is deemed unfair, does it mean that the indebtedness of any increase from the commencement of the lease lapses, creating a repayment obligation for the lessor to the lessee from the commencement of the lease and thus reverting to the initial rent, whereby the rent can never be increased in the future?
Does the court itself then calculate the amount of the lessee's claim against the lessor and, if so, how or from when? Does this also apply if the lessee is absent? And may the lessor express an opinion by deed as to what was paid in excess of the initial rent during the lease?
Does the lessee have a claim against the lessor for all the years over which rent was overpaid, or does the lessor have the option of invoking the statute of limitations on the repayment obligation and, if so, when does that limitation period start?
Or is the lessor entitled to rely on another ground to limit the lessee's recovery of the rent increases wrongfully paid?
Osborne Clarke comment
The Supreme Court generally aims to answer preliminary questions within six months. We are closely monitoring developments in this area and look forward to the Supreme Court's welcome judgment.
If you have any questions on this topic or other rental law issues, please feel free to contact one of our Osborne Clarke rental law specialists. They are happy to advise you regarding the various aspects of rental law from advice to litigation.