Like all entrepreneurs right now, you will be wondering what measures you can take to get through this crisis. For many companies, after labour costs, housing is the largest expenditure. Can you stop paying your rent? Unfortunately, this is not possible. However, in this article we will provide you with advice to minimize the housing costs. You will receive legal tips from Laura Grijpma, senior counsel at Bird & Bird, and commercial advice from Erik Tijsma, partner at Parella, housing consultant exclusively for office tenants.
As mentioned above, housing costs are one of the largest expenditures for you as an office tenant. Obviously, this does not only concern the rent you pay, but also the additional costs of service, energy consumption and maintenance for example. Therefore, it is very worthwhile to investigate whether, and if so how, you can start saving costs in the short term.
ROZ rental agreement
It is most likely you have a lease agreement based on the model drawn up by the Real Estate Council (ROZ) for office space. This association of mainly real estate owners developed a model in 1996 which is considered ‘standard’ by many market parties. However, the basic tenancy agreement is unfavourable to you as a tenant. In addition, the applicable law concerning rent of office space is largely ‘regulating law’. This means that parties may deviate from the law. In contrast, mandatory law applies to the rent of residential or retail space and thus the interests of tenants are better safeguarded. It is important to also be aware that in this day and age, property owners are not eager to sponsor you. In short, you will have to take the initiative yourself.
Rent payment
Due to the declining turnover, many tenants are no longer able to pay the full rent. The ROZ lease contains no provision for these circumstances. Therefore, the best thing you can do is to talk to your landlord about the rent payment. For example, a lower rent could temporarily be agreed (while retaining your rental rights) or – if there is a quarterly payment during this period – monthly rent payments could be made. Obviously, it is also possible to discuss with your landlord a postponement or even expiry of rent payments, for example in exchange for a longer rental period. The landlord will generally be keen to keep you (longer) as a tenant. However, it is likely your landlord will request insight into your financial situation during these negotiations and will require extra securities (e.g. a bank guarantee) from you to prevent him from ending up empty-handed. Therefore, you should ensure you are well prepared before beginning negotiations. Moreover, if the landlord refuses to cooperate with one of these options, in principle you will be obliged to make the payments agreed in the rental agreement. Please note that the general provisions of the ROZ model also provide for penalties for incomplete and late payment.
Unforeseen circumstances
If unfortunately the landlord is reluctant to cooperate, and you can prove that you can no longer afford the rent, then going to court is another option. As a tenant, based on ‘unforeseen circumstances’ (Article 6:258 of the Dutch Civil Code) you can ask the court to amend the lease or dissolve it in whole or in part. Normally, judges are reluctant to grant such a request; the unforeseen circumstances invoked by tenants (e.g. disappointing visitor numbers, an economic crisis or the failure to proceed with an urban development plan) are usually regarded as part of the tenant’s normal entrepreneurial risk. However, the current crisis caused by the Coronavirus is so exceptional that an appeal to ‘unforeseen circumstances’ with the aim, for example, of obtaining a postponement of rent payment could be successful. Furthermore, this possibility does not appear to be unlimited either. Working time reduction schemes and other government support will be introduced for companies that are disproportionately hard hit and the landlord’s burdens (e.g. mortgage charges, maintenance) will continue as usual.
Furthermore, parties in contractual relationships, such as a rental relationship, are always expected to act in accordance with the principles of reasonableness and fairness. The landlord’s insistence on the originally agreed rent payments, whilst a tenant has been severely affected by this crisis, could be considered unreasonable. However, non-payment of any rent by the tenant could just as easily be considered unreasonable. This balancing of interests may be different in the case of a lessee of retail or catering premises who has been obliged to close by the government and is therefore faced with a complete loss of turnover. In that case, the tenant’s interest is more likely to outweigh that of the lessor. However, this differs for most office tenants, because employees can also continue their work from home in many cases.
A practical problem with this judicial option is that the courts are also disadvantaged by the Coronavirus crisis and, for example, only hold court hearings in urgent cases. Undoubtedly, the crisis will also lead to further delays at the courts. Therefore, it is unlikely that a decision to amend the lease agreement due to unforeseen circumstances will be rendered quickly. However, this does not detract from the fact that initiating such proceedings can be a clear warning signal to the landlord. If the court rules that the current circumstances are so exceptional that the tenant can no longer reasonably be held to the original tenancy agreement and it must therefore be amended (retroactively), the lessor could be liable for the consequences of his unreasonable attitude. Our advice to tenants, but also to landlords, of office space is therefore to discuss the tenancy with one another and take each other’s reasonable interests into account.
Agreements in the tenancy agreement
Before starting a conversation with your landlord about the rent payments, we also advise you to read through the lease agreement, the applicable general provisions for office space (can be found on the ROZ website: https://roz.nl/) and any associated allonges (agreements made after the conclusion of the agreement); these may contain relevant agreements that you can use in your conversation with the landlord and can strengthen your negotiating position. The following points are important:1. Expiry date
Rental agreements are generally concluded for a fixed period, e.g. 5 years. In principle, this means that at the end of this rental period you have the right to terminate the rental agreement. Perhaps this is imminent and can be used.
If you wish to continue to (partially) rent the current office space, it is worthwhile discussing an extension with the landlord. This benefits both parties: the landlord gets a longer lease and therefore more security, and you, as the tenant, can use this to reduce the rent or perhaps give m2 back.
2. Termination date
Normally the notice period of the rental agreement is 12 months. Therefore, be aware as to not unintentionally end up in a new rental period.3.Subletting
Another way to reduce costs is to sublet (part of) your office. Whether this can be realised depends on many factors, such as the location, the requested rent and the level of completion. In addition, in principle, you must obtain prior written consent from the landlord; this is included as standard in the applicable general provisions. If you have not made specific agreements about this in the tenancy agreement, the landlord may refuse this permission, for example because he himself has vacancy in the building and therefore prefers to let those spaces first. If you ignore this and sublet regardless, you risk a fine based upon the applicable general provisions.
4. Break options
Break options are regularly included in leases. A break option gives you, as a tenant, the opportunity to terminate (part of) the lease during the term of the lease, with or without payment of a penalty. These break options are regularly forgotten by tenants. Therefore, it is vital to look in the original tenancy agreement and not only in the summary of the tenancy agreement.
5. Exploitation obligation
An exploitation obligation is a standard provision in the lease. This means that the rented property must be kept in full use during the rental agreement. The background of this provision is twofold: vacancy in a building has a negative commercial effect and space that is not used is often not properly maintained. In view of the government’s obligation to work from home, it is of course no longer possible to (fully) exploit the leased property, but a landlord can (again) maintain this during ‘normal’ times. In order to avoid unpleasant discussions about this with your landlord, it is therefore advisable to ask the landlord for a temporary exemption from this exploitation obligation and to make clear agreements regarding the duration.
As an extension of this, you may consider temporarily closing unused parts of your office. This will of course make a considerable difference to your energy consumption and cleaning costs. In principle, however, you will need to consult with the owner/landlord beforehand in order to obtain written permission for this.
6. Market rent review
A final option to provide relief is a clause that allows both parties to adjust the rent to the market value. However, you should be well informed in advance about the operation of this clause, as even though the crisis will put pressure on the real estate market, this does not mean that it will work to your advantage.
In summary
As an office tenant, you do not immediately have contractual or legal rights to stop or (partially) suspend the rent because of the financial consequences of the Coronavirus crisis for your company. This should be discussed with the landlord and together form a solution. For example, the option of possibility of temporarily lowering the rent or service charges, or even exemption from rent payment in exchange for an extension of the rental period. In addition, the tenancy agreement may also offer possibilities for (early) termination or subletting. In all cases, it is useful to be informed in advance in order to be able to start the discussion with the landlord.
We hope to have given you several tools to keep the costs of your accommodation during this period to a minimum. As always, the specialists of Bird & Bird and Parella (see https://www.parella-group.nl/) will be happy to give you tailored advice. We wish you a lot of strength in the coming months.