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The Civil Code, in particular contract law, gives contracting parties a great deal of leeway to shape the form and content of their legal relationship. Most of the provisions in the Civil Code are of a regulatory nature. This means that the provisions only apply in areas not contractually regulated by the parties themselves. When concluding a contract, parties may deviate from the provisions in regulatory law. In a number of areas, especially where one contracting party needs protection against the other, the legislator has created mandatory or semi-mandatory rules. There are cases, especially where parties enter into a long-term contractual relationship, when provisions are requisite to protect the party that is more vulnerable financially. Tenants’ rights contain large number of provisions to that aim. The Rent Act broadly consists of two main elements, protection from eviction, and rent control. In terminating the lease, the lessor is restricted to a small number of grounds defined by law.
Lease of residential spaces
A residential lease may be terminated only through a dissolution by the court or through mutual consent. A statutory notice period applies. The lessor has a notice period of minimum 3 and maximum 6 months. The lessee has a notice period of minimum 1 and maximum 3 months.
In The Netherlands, a lease agreement is difficult to terminate without the tenant’s consent. Residential tenants enjoy a great deal of protection under Dutch law. Unless the lessee agrees in writing to the lease termination initiated by the lessor, the lessor has to petition the court to set a date for the termination of lease. This petition will only be heard if the lessor cites a reason that is included in the very limited list of legal grounds for lease termination. Legal grounds for terminating a lease are:
The court may grant compensation to the lessee, should the lease agreement be terminated due to the lessor urgently needing the property for own use, or in order to realise a land use plan. This payment is not considered damages, but an allowance for moving expenses and settling-in costs. The law states a minimum amount of EUR 5 799 (2014 index). The minimum amount is set by Ministerial Decree, and is annually adjusted for inflation.
The lessee and the lessor will often enter into a fixed term lease, where they agree on the length of the lease. According to Dutch law, even a fixed term lease agreement will fall under the rules for lease of residential spaces. This means that such a lease agreement does not expire automatically, but will have to be terminated.
Lease of retail spaces
The Dutch Rental Act makes a distinction between residential and commercial leases, the latter being shops, restaurants, hotels and office premises. This differentiation is highly significant, in defining the rights and obligations of the lessee and the lessor, as well as determining how the lease may be terminated.
Shops, restaurants and hotels
The lessee of a shop, restaurant or hotel is often financially bound to a given location. The lessee has regular clients, which makes it difficult to move his business to another location without suffering significant losses. The premise of the legislation in the Netherlands is that the lease agreement of a shop or restaurant must have a minimum fixed term of five years. This applies even if the parties enter into an indefinite term lease agreement. The lease agreement is valid for five years and upon expiration, it is renewed for a second term of five years. Should the lease agreement have a fixed term that is longer than five years and shorter than ten years, it is renewed for a second term, of such length that the two terms in total will add up to ten years. If the lease is not terminated after ten years, it will continue for an indefinite term. The notice period is minimum one year or as much longer as the parties have agreed. Should the tenant opt for early termination of the lease, he does not need to give the grounds for the termination. A termination notice by the lessor is null and void, if it fails to mention the grounds for termination. How the termination of the lease is formulated is therefore of vital importance! To terminate a lease at the end of the 5th year, only two grounds are possible.
A. the conduct of business of the lessee has not been in accordance with that of a good lessee;
B. the lessor urgently needs the space for own use (including renovation but excluding sale).
For terminating the lease after a period of ten years, there are additional grounds:
C. refusing a reasonable offer;
D. to realise a valid land use plan;
In addition, the weighing of interests can also lead to the termination of the lease agreement. The reasons listed in points A to D, are so-called mandatory grounds for termination. If the court finds that the grounds for termination fulfil the legal criteria, then the court is obliged to terminate the lease without a weighing of interest.
However, a fixed term of five plus five years is not always justified, for instance in case the lessee first wants to assess if his company is sufficiently viable. This is often the case for start-up companies that might want to make use of a two-year term, in order to assess whether the company is a success and is profitable enough. For this lease category with a term less than two years, no special mandatory notice requirements apply. A formal notice and grounds for termination are irrelevant in this case. If the term of a lease agreement is shorter than two years, it expires at the end of the agreed term. The lessee of a shop or a restaurant with a lease term of two years or shorter does not benefit from rent control.
Dutch Rent Act does not contain provisions for the termination of lease of office spaces. Nor does it contain a statutory notice period. Terminating the lease agreement of an office space is therefore relatively easy. There is only one complication.
After the end of the lease term, the former lessee’s obligation to vacate the premises is suspended by operation of law. Even though the lease agreement is validly ended, the obligation to vacate the leased premises is suspended. This suspension period lasts two months and ends after the term of the eviction notice. The notice must be explicit, express and unambiguous (and therefore precisely worded). It must be given in writing. It is wrong to presume that the protection from eviction does not apply to office spaces, in cases where the lease agreement ends at the prearranged fixed term. Even in a case like that, the lessor needs to give an eviction notice. Once the eviction notice has been given, the lessee has a two-month suspension period, during which he may petition the court to lengthen the suspension period. If the court agrees, the eviction may be postponed for one year. The suspension period may be expanded twice, each time with one year. Therefore, the total length of the suspension period is a maximum of three years. As the above shows, the only protection afforded to tenants of office spaces is the protection from eviction.
Tenants enjoy a great deal of protection in The Netherlands. Residential tenant enjoy the most protection, followed by tenants of shops, restaurants and hotels, with the least protection afforded to tenants of office spaces.
Originally, this issue was to contain information about both corporate law and real estate law. Unfortunately, there was not sufficient space in this issue to address both topics. Corporate law will therefore be addressed in an upcoming issue.