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  • Real Estate
  • 03-02-2017

We all know the maxim that “tenancy agreements are not terminated by sale”. But that does not mean that obligations pursuant to the tenancy agreement are automatically transmitted to a legal successor. What is the situation as regards a preferential tenancy right or an option to rent?

Section 7:226 of the Dutch Civil Code [BW] regulates what is often referred to as “tenancy agreements are not terminated by sale”. The first subsection states that the rights and obligations of the lessor pursuant to the tenancy agreement are transmitted to the party acquiring the property and to the party acquiring an independent right of usufruct, a ground lease, or the right of superficies. The transfer of the immovable property must take place under particular title and it must involve a transfer of legal ownership.

Section 7:226 Civil Code applies regardless of the purchaser’s knowledge of the existence and content of the tenancy agreement when concluding the purchase agreement. This means that the purchaser may be confronted with a tenant after signing the purchase agreement for the immovable property. That does not mean, however, that the purchaser has absolutely no protection.

Pursuant to the third subsection of Section 7:226 Civil Code, the purchaser is only bound by the provisions of the tenancy agreement that directly concern having the use of the property in return for a consideration payable by the tenant. It is this subsection that, on the one hand, provides protection for the purchaser but which also, on the other, raises a number of questions. Which provisions are and which are not directly related to the rented property and what is reflected in the consideration payable?

The current third subsection of Section 7:226 Civil Code enshrines previously applicable case law. The Dutch Supreme Court [Hoge Raad] already ruled in 1923  that Section 7A:1612 (old) Civil Code only covered “rental” [huur], meaning that the provision only regulates succession in respect of the rights and obligations concerning the enjoyment of an item during a certain time and for a certain price, and that the legal succession provided for in Section 7A:1612 (old) Civil Code does not therefore comprise any provisions such as those concerning the right to buy a property. The option to purchase or the preferential right of purchase are only transmitted if it is clear that this has been allowed for in the size of the rent.

The parliamentary history of the current Section 7:226 Civil Code deals with the question of what provisions directly concern having the property in return for a certain consideration. The legislature deliberately chose not to accept any general rule that the requirement of sufficient connection has been complied with in the event of an option to purchase. “…what must be decisive is whether the purchase option actually falls within the description in Section 226(3) and in particular whether the option has influenced the extent of the consideration payable by the tenant.” 

In its ruling of 15 June 2007 in the KBB Vendex/Cas case, the Supreme Court confirmed the previous case law to the effect that a preferential right of purchase is not transmitted on the basis of Section 7:226 Civil Code. According to the Supreme Court, that might be different if the amount to be paid periodically by the tenant comprised not only a usage fee but also a payment for the eventual acquisition.

In practice, the basic assumption is usually that a preferential tenancy right or tenancy option is transmitted pursuant to Section 7:226 Civil Code. A preferential tenancy right or tenancy option is so common that in actual practice it is practical for it to be transmitted, in principle, to the purchaser. But is that actually the case?

In a ruling published on 26 January 2017, the Amsterdam Court of Appeal (“Court of Appeal”) ruled that the first tenancy right in question had been transmitted to the acquiring party. In support of its ruling, the Court of Appeal found – in line with the above – that only “provisions … that are directly connected to having the use of the property in return for a consideration payable by the tenant” are transmitted and that when “assessing whether that situation arises, both the content of the provision and the circumstances of the case are taken into account”. The Court of Appeal found that the requisite direct connection was present.

It is interesting that in its adjudication the Court of Appeal does not seem to consider the allowance made in the rent for the first tenancy right to be crucial, given that it found that it could not be determined whether the tenant would have paid a different rent if the first tenancy right had not formed a component of the tenancy relationship.

Instead, the Court of Appeal ruled that the first tenancy right in question forms part of the enjoyment that the tenant is entitled to expect from the rented property pursuant to the tenancy agreement. The Court of Appeal determined this based on the unchallenged assertion by the tenant that the first tenancy right in question was an important condition when concluding the tenancy agreement because the tenant expected to continue to grow and wanted to have the possibility of expanding its business. The Court of Appeal considered it highly plausible that the first right of rental in question did play a role in the negotiations regarding the tenancy agreement.

Although the Court did not find that a preferential tenancy right or tenancy option, in principle, is transmitted, that will - on the basis of the abovementioned ruling - normally be the case in practice, given that since it is not obvious that a landlord will provide a preferential tenancy right or tenancy option without the tenant stipulating that as a condition.

A different finding by the Court of Appeal would have resulted in tenancy agreements frequently needing to be transmitted on the basis of Section 6:159 Civil Code, with the disadvantage that cooperation by the tenant is required for the transmission.

Footnotes:

1. Supreme Court, 5 January 1923, NJ 1923, p. 305.
2. Dutch House of Representatives [Tweede Kamer], Session Year 1999-2000, 26089, No. 6, Memorandum of Reply [Nota naar aanleiding van het verslag].

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