Still entitled to index-linked rentals after years have passed?
Commercial leases generally contain provisions stipulating that the rent is index-linked annually. What happens when there has been no indexation for several years?
The parties to a commercial lease are free to agree on the rent and on any indexation of the rent if they wish to do so. The sample leases and general provisions drawn up by the Dutch Real Estate Council (“ROZ”) provide for indexation in Clause 4 of the lease and Clause 18 (ROZ-2012 for commercial space as defined in Section 7:290 of the Dutch Civil Code) and Clause 17 (for office space and other commercial space as defined in Section 7:230a of the Civil Code) of the general provisions. These clauses basically provide that the agreed rent will be index-linked to reflect the changes in the monthly consumer price index ("CPI") published by Statistics Netherlands.
Alternatively, indexation may take place at a fixed rate. We have also seen cases where although the rent is linked to the CBS price index only part of the resulting increase is charged, with the tenant for example paying the first 3% and only half the amount over and above 3%.
Moreover, the general provisions applicable to the ROZ sample contracts provide that the index-linked rent is payable even if there has been no separate notification of the rent increase. It should be added that the general provisions do not allow a downward revision of the rent either. The tenant does not stand to “gain” from the indexation. So what happens if the landlord forgets to charge index-linked rent?
In a recent decision, the Amsterdam Court of Appeal has held that even if no separate notification has been made by the landlord or incorrect invoices have been sent, the tenant may not rely on the landlord doing away with the indexation.
The case involved a lease signed by parties in 1997 and which provided that the rent was to be index-linked annually, for the first time on 1 May 1998, and that the adjusted rent also applied if the tenant had not been notified of the adjustment. No rent adjustment was made from 2000 onwards and the landlord sold the commercial space in 2009. The new landlord then took the position that it had a right to be paid rent arrears (as from 2009) on the basis that the rent had been index-linked. The tenant argued exhaustion of rights.
Dealing with the case at first instance, the Sub-District Court found that the landlord had exhausted its rights and could no longer claim payment of rent arrears. The landlord appealed that decision. The Court of Appeal has held that the tenant accepted the payability of the annual indexation because the lease included a clause saying that the rent would be index-linked annually. As regards exhaustion of rights, the Court went on to find that only in exceptional cases could this argument be considered to be valid and the failure not to index-link the monthly rent over a long period of time did not qualify as such a circumstance. Essentially, the case revolved around what the tenant had been justified in expecting based on the landlord's deliberate and undeliberate behaviour and statements.
According to the Court of Appeal, the tenant had a responsibility of its own in terms of keeping track of the amount in rent payable by the tenant. This was not altered by the fact that the landlord was a professional property manager.
The tenant was ordered to pay the index-linked rent for a period of five years starting from the date when the landlord notified that it was claiming payment of that rent. The right to indexation for prior years had been statute-barred. However, the rent calculation was based on the indexations from 2008 and so the tenant was faced with a 32% rent hike.
That said, it can sometimes go the other way, as shown in a decision by the Overijssel Sub-District Court of 13 December 2016, published in WR 2017/49 and RVR 2017/22. In this case, the landlord had failed to charge indexation for 32 years. That is an exceptionally long period of time. Exactly where the cut-off point is remains unclear.
In the meantime, landlords should make sure that they index-link their rent. And tenants should be alert and not count themselves rich. Paying the "old" rent may not prevent the landlord from index-linking the rent at a later stage.