Article 226 of Book 7 of the Dutch Civil Code (“DCC”) states that the maxim “lease trumps sale” applies to – among other things – the transfer of property to which a lease applies. This article was included in the law to protect lessees. The underlying thought is that lessees must be able to continue to enjoy property they lease even after the owner alienates the property. This provision does not explicitly provide that article 226 of Book 7 DCC also applies in cases involving the transfer of part of a property to which a lease applies, so what happens in such cases? The Dutch Supreme Court recently rendered a judgment on this issue in a Caribbean case.
That judgment concerned a case in which a party leased a parcel of land in Sint Maarten having an area of 797 m² based on a lease concluded with the owner of the parcel. After concluding the lease, the owner transferred part of the parcel having an area of 241 m² to a third party. Thus, in the case at hand, the original lessor alienated part of the leased parcel. A building was constructed on the part of the parcel that was transferred.
The acquirer cancelled the lease and demanded payment of the rent for the duration of the lease. In the proceedings, the lessee sought a declaratory decision stating that the tenancy relationship between the original lessor and lessee had continued by law and that the lessee only owed rent to the original lessor, or that the rent had to be divided proportionately between the original lessor and the acquirer and stating the date of the division. In the first instance, the lessee’s claims were dismissed. In short, the court of appeal ruled that the original lessor remained the lessor because article 226 of Book 7 DCC did not apply in the case of partial transfers. The court held that it would have been logical for the lessor and the acquirer to make arrangements regarding the lease.
The Supreme Court held that it seemed to follow from parliamentary history that the legislature did not intend article 226 of Book 7 DCC to apply to cases involving transfers of parts of leased properties, which meant that said provision did not protect lessees against acquirers of such parts. However, the legislature had explicitly provided for a legal basis which protects lessees against acquirers of rights of leasehold, rights of usufruct and rights of superficies associated with parts of leased properties. According to Parliamentary Papers II 1999-2000, 26 089, no. 6, p. 34, such cases fall within the scope of article 227 of Book 7 DCC. Application of that provision means that the lease with the original lessor remains intact and that the holder of a restricted right must refrain from any use that affects the lessee’s rights. However, parliamentary history does not show that the legislature intended not to protect lessees from successive acquirers of parts of leased properties. In such cases, denying such protection could affect the purpose of article 226 of Book 7 DCC. For that reason, the Supreme Court held that it must be accepted by means of an extensive interpretation of article 226 of Book 7 DCC (or, where relevant, by analogous application of article 227 of Book 7 DCC) that lessees are protected in cases involving a partial transfer of a leased property. An extensive interpretation of article 226 of Book 7 DCC could lead to the tenancy relationship being divided into two (or more) leases. It must be assessed on a case-by-case basis whether such a division yields a sensible result.
Based on the relevant circumstances, the Supreme Court failed to see why application of article 226 of Book 7 DCC would not lead to a sensible result in the present case. Consequently, the Supreme Court ruled that the lease regarding the entire parcel had been divided into two leases as a consequence of the transfer of ownership of part of the leased property.
Lastly, the Supreme Court ruled that in the case of a division of a lease pursuant to article 226 of Book 7 DCC, the lessee can pay the rent due to the original lessor and be discharged from its obligations, so long as it has not taken cognizance of the transfer of title. This no longer applies once the lessee has been informed of the alienation. However, as from the moment of being informed of the transfer of title, the premise is that the lessee is entitled to suspend his payment obligations until the lessors jointly, or each separately but uniformly, notify him as to how the original price must be divided.
Although the Supreme Court has now made it clear that article 226 of Book 7 DCC also applies to partial alienations of leased properties, it must be examined on a case-by-case basis whether dividing the lease in question leads to a sensible result. Unfortunately, the judgment does not provide any further explanation as to how it must be determined whether this is the case. That assessment must in any event be premised on the lessee enjoying protection, where the lessee needs protection.
We advise parties involved in transfers of parts of leased properties to explicitly pay attention to the division of the relevant leases.