First ruling on rent reduction for the catering industry during COVID

4 May 2021

On 27 January 2021, the Subdistrict Court in The Hague was the first to rule, in so-called proceedings on the merits, on the question of whether a hotel and catering business owner, as a tenant, is entitled to a rent reduction as a result of the forced closure of his hotel and catering business due to the Corona crisis. The ruling states that this entrepreneur only has to pay 50% of the rent during the lockdown. This ruling is not only important for restaurant and café owners, but also for shopkeepers throughout the country.

Rent suspension versus rent reduction

There is a clear line emerging in case law that a tenant of catering or retail premises is entitled to a rent suspension, whereby the suspended rent (usually between 25-50%) must still be paid at a later date. So, it was not (yet) about a reduction of the rent. This had to do with the fact that these earlier lawsuits were all interim injunction cases, in which only provisional judgments are pronounced and the judge cannot say anything about a reduction/rebate of the rent. This is different in a so-called proceedings on the merits. Hence the relevance of this recent ruling by the Subdistrict Court of The Hague.

COVID necessitates rebalancing of lease agreements

The Subdistrict Court in The Hague based its ruling that this restaurant operator only has to pay half the rent during the lockdown on the opinion that, in view of its scale and consequences for the economy and society, the corona crisis must be regarded as an unforeseen circumstance. The tenant and the landlord have not factored this pandemic and its consequences into the agreements as laid down in the lease. Due to the corona crisis and the government measures taken, there is a fundamental imbalance in the lease. As a result, the landlord may not demand an unaltered continuation of the rental agreement. In other words, the landlord may not require the tenant to continue paying the full rent. The fact that the landlord has agreed to a rent suspension does not make this any different: the tenant is entitled to a rent reduction.

Rent reduction of 50%

The Subdistrict Court in The Hague ruled that the consequences of the corona crisis must be divided equally between the tenant and the landlord during the period in which the tenant had to cease all operation of his catering business. Thus, a rent reduction of 50%. This then relates to the period from 15 March 2020 up to and including 31 May 2020, as well as the period from 15 October 2020 up to and including the moment that the closure measure ends. During these periods, the catering industry is closed, except for the possibility of collection and delivery. For the period that the hotel and catering industry was able to resume operations in part - 1 June 2020 to 15 October 2020 - the court imposed a 25% reduction in the rent. Also in that period, there were the necessary restrictions for the catering industry, such as the number of seats for guests, as a result of which there was still a considerable loss of turnover.

Loss of turnover as a requirement

However, the tenant had to prove that he had suffered loss of turnover as a result of the corona crisis. The catering entrepreneur was able to do so on the basis of annual accounts for 2018 and 2019 and bank statements and "mobile wallet  payments during the periods of closure mentioned. In this case, the entrepreneur in the catering business had indeed received government support, but this was insufficient to continue paying the rent. Moreover, according to the Subdistrict Court, the government support is not exclusively intended for paying the rent, but also for paying other fixed costs.

Rent reduction with retroavtive effect

Unless a tenant and its landlord have already made conclusive agreements about rent payment in corona time, a retroactive rent reduction can (probably) also be claimed. This is another important consequence of this judgment.

Judgement also relevant for retailers

It is also relevant that this ruling not only gives ammunition to the hotel and catering industry, but also to shopkeepers. After all, the judgments of this Subdistrict Court can be applied on a one-to-one basis to the question of whether shopkeepers are also entitled to a rent reduction, especially during the period that shops were forced to close their doors. With this decision in the main action, it is all the more obvious that shopkeepers, if they can demonstrate their loss of turnover due to Corona and the restrictive measures, are also entitled to a rent reduction.