Interpreting a perpetual clause relating to a financial contribution
In principle, the rights and obligations stipulated in a contract are only binding on the parties to that contract. ‘In principle’ because there are many conceivable exceptions which a purchaser of real estate may encounter. One such exception is the perpetual clause.
A perpetual clause is an agreement that includes an obligation to impose the obligations in the agreement on a subsequent owner. What happens when discussions arise concerning the substance of those obligations and how they have to be interpreted? The Netherlands Supreme Court decision of 2 February 2018 indicates that the answer depends partly on who is requesting the interpretation.
The Netherlands Supreme Court has regularly issued opinions on how agreements should be interpreted and in doing so has formulated standards, including the familiar ones listed below:
- The Haviltex standard:
according to which interpretation is based not only on the literal text of the clause, but also what the original parties could legitimately conclude, based on the standards of reasonableness and fairness, from one another’s statements and actions, in which respect all of the circumstances of the case play a role.
- The collective bargaining agreement standard:
in which, in principle, the phrasing of the provisions, read in light of the entire text, is decisive. This standard was created in case law in respect of a collective bargaining agreement [collectieve arbeidsovereenkomst, or cao], but it is also applied to other agreements that impact the position of third parties without the latter having had any control over the substance.
Given that a perpetual clause is also intended to apply to parties other than the original contracting parties, you might think that – once a new party becomes involved – such a clause would not be interpreted according to the Haviltex standard. The Netherlands Supreme Court decision of 2 February 2018, however, indicates otherwise.
The case prompting the decision regarded a holiday park. The common areas of the park (paths, reception area, etc.) were originally owned by X. X struck an agreement with the first bungalow purchasers on the payment of a park fee for the maintenance of the common areas and shared facilities. This agreement was made part of a perpetual clause that was included in the transfer deeds for the bungalows. Y later acquired the common areas. Later, some of the bungalows were transferred, with the obligations of the perpetual clause being duly imposed on the new bungalow owners. The rights under the perpetual clause were ceded to Y. At some point, a difference of opinion arose between Y and various bungalow owners regarding the substance of the perpetual clause. One of the bungalow owners was one of the original owners.
The Supreme Court held as follows. The Haviltex standard applies when interpreting what was agreed between the original parties, but it also applies to the relationship between the original owner of the bungalow and X’s legal successor(s) (to whom the rights which X could derive from the clause were ceded).
This is another example that shows how important it is to make clear stipulations about agreements, especially, given their nature, when perpetual clauses are involved since they can remain in effect for years and impact many other parties.