In the last few years, following the financial crisis that began in 2007-2008, the Dutch real estate market has benefited considerably from continued economic growth, the availability of (international) capital and low interest rates. Due to low interest rates and high returns (when compared to other investment types) investors are keen to invest in real estate. Rental homes have grown into the largest investment type.
The coronavirus has taken its toll on the Dutch real estate market. As a result, the number of real estate transactions has decreased and most negotiations have been put on hold. The volume of transactions and investments are declining. Experts expect that if this situation persists, it may lead to decreases in value. Value, at least for the most vulnerable sectors, is directly related to (expected) rental income.
For retail, value was already under pressure as of last year. For offices and industrial space, this effect will come a little later and will depend on the actual impact on the economy.
House prices rose by 7.3 percent in April 2020. In addition, more transactions took place compared to twelve months previously. But if consumer confidence declines, the sale of homes decrease and prices of (owner-occupied) homes rise less quickly, this will affect the value of rental homes. Even if there are shortages.
Are there any emergency and/or interim measure regarding Commercial Lease Agreements in the Netherlands?
In the context of the Corona crisis, the Minister of Environment and Housing discussed with the landlord organizations, which together rent out 80% of the homes in the Netherlands, how landlords should deal with this situation. The landlord organizations have agreed to temporarily not evict tenants from their homes. In addition, emergency legislation has come into force that makes it possible to extend temporary leases.
Many landlords of business premises are confronted with non-paying tenants or tenants who want to postpone or moderate payment. The government has not yet drawn up any rules on this subject. It is up to the parties if they are willing to make an arrangement. In the negotiations, the parties will have to respect reasonableness and fairness. On the grounds of reasonableness and fairness, the parties are obliged – even if they are confronted with unforeseen circumstances that significantly increase the performance obligation of one of the parties – to act as reasonable people towards each other and therefore to take each other’s legitimate interests into account. If the negotiations go wrong and the parties have to go to the civil court, a judge may decide on the basis of these grounds as well.
Is it possible to cancel, suspend or modify the Lease Agreements conditions due to the COVID-19 crisis?
In principle, the Corona crisis does not affect the tenant’s obligations to pay the rental instalments under the lease. If necessary, the tenant and landlord will have to make additional arrangements to bridge this period of crisis.
In some cases, a contracting party may invoke force majeure. Force majeure may be defined in your contract. What falls under force majeure is in that case a matter of interpretation of the agreement. If your agreement does not contain a force majeure clause, you or your contracting party can fall back on the statutory force majeure clause. It is important to realize that if your contracting party invokes force majeure, you will not necessarily be left empty-handed. The first question to be answered is whether there really is force majeure. For example, there is a difference between a case in which it is absolutely impossible for a party to comply and a case in which compliance is extremely difficult for a party. It is important to consider this on a case-by-case basis. If the performance is objectionable, but not impossible, then an appeal to force majeure may not be successful. However, this will depend to a large extent on the circumstances of the case.
Furthermore, force majeure does not, in principle, stand in the way of the dissolution of your agreement. Dissolution does not require fault on the part of the parties. The restrictive effect of reasonableness and fairness plays a significant role in this and this will have to be considered on a case-by-case basis.
In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?
In the Netherlands, material adverse change (MAC), material adverse event (MAE) clauses are not yet standard in a Dutch real estate transaction. In Dutch law, several provisions of the Dutch Civil Code (such as Article 6:248 and 6:258) recognize that an agreement can be modified due to being considered unreasonable in certain circumstances, on account of unforeseen circumstances. However, the courts are generally reluctant to intervene in transactions on this basis. Recently, a decision from the Netherlands Commercial Court (NCC) recognized that circumstances surrounding Covid-19 can be an unforeseen circumstance, specifically in the context of an M&A transaction. However, in this case, in which a LOI required the purchaser to pay a fee for withdrawing from the transaction (and the purchaser did so), the fee was not modified or dissolved, due to the application of standards of reasonableness and fairness in the case at hand.
What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?
This will depend on the cancellation policies of the business or service provider in question. If the consumer is cancelling the reservation, the terms of the booking will largely be determinative. As an example, Airbnb allows for accommodation reservations made on or before 14 March 2020, with a start date between March 14 and June 30 2020, to be canceled prior to arrival or commencement.
For package holidays (a combination of at least two different types of travel services for the same trip or holiday bundled together by one (Dutch) tour operator) consumers enjoy a greater degree of protection. If a trip cannot take place due to a force majeure, which can be the case with Covid-19, the tour operator has to provide suitable arrangements of equal or higher value (or lower value with a price reduction) according to article 7:504 of the Dutch Civil Code. If the consumer does not accept this proposal, the tour operator is obliged to restitute the complete sum that was paid for the holiday.
What effects does the current situation have on ongoing construction projects and contracts?
The government has started phasing out the measures imposed to prevent the spread of Covid-19. When it was still uncertain to what extent the government would impose measures, we saw in our construction law practice that Covid-19 exoneration clauses were being negotiated. An example being a clause that stated that partial payments would be suspended until such time as the work could be continued.
Under general contract law, I think all contracting parties have discovered how important a force majeure clause is.
Which courts have jurisdiction, what are the expected trial times and what are the costs?
Some disputes will not be able to be resolved by the parties, and legal proceedings will have to be initiated.
Depending on who the parties are, the civil judge or the administrative judge will have jurisdiction to rule on the dispute. If the parties are private parties (or a government acting in the capacity of a private person), the civil court will generally have jurisdiction. If the dispute concerns real estate property, then the court in the district where the property is located also has jurisdiction, in addition to the court in the district of the defendant’s domicile.
What financial assistance packages or ways to mitigate the financial impact have been adopted?
The Dutch government has taken various measures to make things more bearable for entrepreneurs. For as long as necessary, this package provides support worth billions of euros each month. The measures ensure that companies can continue to pay their staff, offer the self-employed a temporary solution and enable chash to remain in the companies through a relaxed tax regimes, compensation and extra credit opportunities.
For example, through the SME Credit Guarantee Scheme, the Dutch Ministry of Economic Affairs and Climate Policy has guaranteed loans to enable companies to borrow money more easily. Companies can apply for the scheme via participating banks and other credit institutions. The credit guarantee has been expanded to 75% of the credit provided by the credit institution (most usually, a bank). The government guarantee accounts for 90% of this credit guarantee. As of May 15, more than 3000 companies had taken advantage of this government guarantee.
Additionally, financial assistance has been provided by some of the major Dutch banks, who have allowed for payment pauses on mortgage payments. As of 15 May, over 18,000 consumers had made use of these payment pauses, totaling over EUR 72 million.