Like all entrepreneurs right now, you will be wondering what measures you can take to get through this crisis. For many companies, after labour costs, housing is the largest expenditure. Can you stop paying your rent? Unfortunately, this is not possible. However, in this article we will provide you with advice to minimize the housing costs. You will receive legal tips from Laura Grijpma, senior counsel at Bird & Bird, and commercial advice from Erik Tijsma, partner at Solved, housing consultant exclusively for office tenants.
As mentioned above, housing costs are one of the largest expenditures for you as an office tenant. Obviously, this does not only concern the rent you pay, but also the additional costs of service, energy consumption and maintenance for example. Therefore, it is very worthwhile to investigate whether, and if so how, you can start saving costs in the short term.
ROZ rental agreement
It is most likely you have a lease agreement based on the model drawn up by the Real Estate Council (ROZ) for office space. This association of mainly real estate owners developed a model in 1996 which is considered ‘standard’ by many market parties. However, the basic tenancy agreement is unfavourable to you as a tenant. In addition, the applicable law concerning rent of office space is largely ‘regulating law’. This means that parties may deviate from the law. In contrast, mandatory law applies to the rent of residential or retail space and thus the interests of tenants are better safeguarded. It is important to also be aware that in this day and age, property owners are not eager to sponsor you. In short, you will have to take the initiative yourself.
Due to the declining turnover, many tenants are no longer able to pay the full rent. The ROZ lease contains no provision for these circumstances. Therefore, the best thing you can do is to talk to your landlord about the rent payment. For example, a lower rent could temporarily be agreed (while retaining your rental rights) or – if there is a quarterly payment during this period – monthly rent payments could be made. Obviously, it is also possible to discuss with your landlord a postponement or even expiry of rent payments, for example in exchange for a longer rental period. The landlord will generally be keen to keep you (longer) as a tenant. However, it is likely your landlord will request insight into your financial situation during these negotiations and will require extra securities (e.g. a bank guarantee) from you to prevent him from ending up empty-handed. Therefore, you should ensure you are well prepared before beginning negotiations. Moreover, if the landlord refuses to cooperate with one of these options, in principle you will be obliged to make the payments agreed in the rental agreement. Please note that the general provisions of the ROZ model also provide for penalties for incomplete and late payment.
If unfortunately the landlord is reluctant to cooperate, and you can prove that you can no longer afford the rent, then going to court is another option. As a tenant, based on ‘unforeseen circumstances’ (Article 6:258 of the Dutch Civil Code) you can ask the court to amend the lease or dissolve it in whole or in part. Normally, judges are reluctant to grant such a request; the unforeseen circumstances invoked by tenants (e.g. disappointing visitor numbers, an economic crisis or the failure to proceed with an urban development plan) are usually regarded as part of the tenant’s normal entrepreneurial risk. However, the current crisis caused by the Coronavirus is so exceptional that an appeal to ‘unforeseen circumstances’ with the aim, for example, of obtaining a postponement of rent payment could be successful. Furthermore, this possibility does not appear to be unlimited either. Working time reduction schemes and other government support will be introduced for companies that are disproportionately hard hit and the landlord’s burdens (e.g. mortgage charges, maintenance) will continue as usual.
Furthermore, parties in contractual relationships, such as a rental relationship, are always expected to act in accordance with the principles of reasonableness and fairness. The landlord’s insistence on the originally agreed rent payments, whilst a tenant has been severely affected by this crisis, could be considered unreasonable. However, non-payment of any rent by the tenant could just as easily be considered unreasonable. This balancing of interests may be different in the case of a lessee of retail or catering premises who has been obliged to close by the government and is therefore faced with a complete loss of turnover. In that case, the tenant’s interest is more likely to outweigh that of the lessor. However, this differs for most office tenants, because employees can also continue their work from home in many cases.
A practical problem with this judicial option is that the courts are also disadvantaged by the Coronavirus crisis and, for example, only hold court hearings in urgent cases. Undoubtedly, the crisis will also lead to further delays at the courts. Therefore, it is unlikely that a decision to amend the lease agreement due to unforeseen circumstances will be rendered quickly. However, this does not detract from the fact that initiating such proceedings can be a clear warning signal to the landlord. If the court rules that the current circumstances are so exceptional that the tenant can no longer reasonably be held to the original tenancy agreement and it must therefore be amended (retroactively), the lessor could be liable for the consequences of his unreasonable attitude. Our advice to tenants, but also to landlords, of office space is therefore to discuss the tenancy with one another and take each other’s reasonable interests into account.
Agreements in the tenancy agreement
Before starting a conversation with your landlord about the rent payments, we also advise you to read through the lease agreement, the applicable general provisions for office space (can be found on the ROZ website: https://roz.nl/) and any associated allonges (agreements made after the conclusion of the agreement); these may contain relevant agreements that you can use in your conversation with the landlord and can strengthen your negotiating position. The following points are important: