On 21 January 2021, the District Court of The Hague ruled in proceedings on the merits that a tenant actually has to pay less rent retroactively, during the duration of the government measures because of Corona. The tenant had invoked unforeseen circumstances because it had to close its catering establishment.
First, we briefly discuss contingencies. Then how this affects existing (rental) agreements and, finally, more on how this will affect current and future contract negotiations.
An unforeseen circumstance exists if a circumstance is of such a nature that, according to standards of reasonableness and fairness, a party cannot be expected to continue to perform the contract unchanged. ‘Unforeseeable’ means that the parties did not (and did not intend to) foresee the possibility of the circumstance in question arising, for example by including a clause relating to that circumstance. Or that the parties did not tacitly take that circumstance into account in the contract, for example in view of the nature of the contract and the fact that the contract was concluded between commercial/professional parties.
Among other things, according to generally accepted principles, the unforeseen circumstance must not be attributable to the party invoking it.
Even if a circumstance were to be for a party's account and risk according to the common law, a serious disruption of the value ratio could still allow a successful invocation of contingencies.
The judge on the merits ruled that there was a contingency, namely by ruling:
"In view of what has been considered above, the corona crisis, in view of its extent and its consequences for the economy and society, must therefore be regarded as an unforeseen circumstance within the meaning of Section 6:258 of the Civil Code. The parties did not discount this pandemic and its consequences in the lease agreement concluded between them, nor could they mutually expect each other to do so (see, inter alia, Amsterdam Court of Appeal, 14 September 2020, ECLI:NL:GHAMS:2020:2604)."
In our view, there is certainly a case to be made here.
Given the severity and duration of the government measures, the court ruled that it would be unreasonable to place the burden of their consequences on just one party. An argument was made regarding the disruption of the balance of value. In such cases, a comparison is made between a party’s obligation under normal circumstances and that party’s obligation in the light of the government measures in question.
However, it is important to note that only one disruption to the balance of value must be sufficiently serious to persuade a court to uphold a claim based on unforeseen circumstances. That requirement is not easily met.
By being able to prove the providing effects of the government measures, the tenant was able to convince the court to grant the contingency claim. The tenant will have to pay less rent during the period the relevant government measures are in force.
The ruling by The Hague District Court concerned the lease of premises in which a catering business was operated.
However, the ruling may also have implications for other tenancy agreements that have nothing to do with the hospitality sector. Examples include the hire of a machine that can no longer be used due to government measures, the hire of cars, the hire of bicycles, the hire of printers, etc. Other examples include the hire of sports pitches, the hire of commercial premises, etc.
The Hague court's ruling may give the tenant an extra push to actually try to force adjustment of existing leases. This by invoking unforeseen circumstances.
The Hague court's ruling may also have implications for agreements other than lease agreements. The doctrine of unforeseen circumstances applies to all kinds of contracts.
Examples include a contract for the sale of, say, a house, a contract for the sale of shares in a company, a guarantee issued, a loan agreement, etc.
In the case of such agreements too, a party may invoke unforeseeable circumstances arising from the coronavirus pandemic or government measures.
Many parties have already made arrangements with each other as a result of the government measures. For instance, arrangements have been made to suspend rent, temporarily pay less rent, suspend payment of invoices, temporarily reduce the need to purchase products, etc.
What if a party still invokes unforeseen circumstances in court to challenge those arrangements or the underlying agreement?
It is therefore highly likely that this does not constitute a force majeure event. After all, the parties entered into the agreement at a time when the coronavirus pandemic and government measures were in place.
Nor is a claim based on a serious imbalance in the consideration likely to succeed. This is because the other party to the contract has also made concessions.
The Hague court's ruling will almost certainly result in landlords, suppliers, vendors, etc. including a comprehensive article on the impact of a pandemic/epidemic on the contractual relationship with the other party. For example, it may include what circumstances are not considered unforeseeable. It can also include what the consequences are when an unforeseeable circumstance does occur.
Tenants, buyers, purchasers, etc. will have to be aware of this. They will have to study the contract and the general terms and conditions even more carefully to avoid unpleasant surprises afterwards.
In negotiations, pandemics/ epidemics as well as any government measures in this regard will become a standard agenda item. The parties will have to consider at an early stage how this should be arranged.
If you wish to invoke contingencies, are faced with a contracting party invoking contingencies or intend to enter into an agreement, get timely and knowledgeable advice. We will be happy to help you.