In order to prevent spreading of the coronavirus, attempts are made to limit the gathering of large groups of people in one place. During the Tokyo marathon only 176 athletes participated instead of the expected 40,000, conferences are being cancelled around the world and in big cities museums and other tourist attractions remain closed. Depending on how the virus develops, it is possible that these measures may further intensify. This could also lead to the closing of public locations such as shopping malls or outlet centres. What if a lessor decides to entirely close a shopping mall because of the coronavirus, whether or not following government orders: can the lessee of an individual retail space then claim rent reduction or damages?
What if a lessor decides to entirely close a shopping mall because of the coronavirus, whether or not following government orders: can the lessee of an individual retail space then claim rent reduction or damages?
Section 7:204 of the Dutch Civil Code (“DCC”) defines a ‘defect’ to a leased property as a condition or feature of the leased property or any other circumstance not attributable to the lessee, as a result of which the lessee cannot enjoy the leased property in the way he was entitled to expect. A defect may therefore concern a direct defect to the leased object itself, but also other circumstances that limit the enjoyment of the leased property. In this case, the lessee cannot use his business premises due to the closure of the shopping mall and as a result he no longer enjoys the leased property. The existence of a defect is under the condition that the defect must not be attributable to the lessee according to generally accepted practice. For the determination of a defect, attribution to the lessor is not relevant.
The lessor is obliged to remedy a defect, unless it is impossible to remedy the defect or it cannot be required of the lessor. In this case, sections 7:207 and 7:208 DCC are particularly relevant. These sections provide the lessee with the option to claim rent reduction or damages as a result of the defect, provided that for a claim for damages it is required that the defect must be attributable to the lessor. This requirement does not apply to a claim for rent reduction. If it is assumed that the closure of the shopping mall is not attributable to the lessee according to generally accepted practice, the lessee may claim a reduction of the rent as a result of this defect.
As observed above, the consideration as to whether the defect can be attributed to the lessor is relevant for the determination of the right to damages, and is given further substance in section 6:75 DCC. Following this section a failure cannot be attributed to the debtor (the lessor) if it is neither due to his fault nor the debtor is accountable for it by law, agreement or according to generally accepted practice. This is popularly termed ‘force majeure’.
In this (yet) hypothetical situation, the first relevant aspect is whether the lessor has closed the shopping mall by orders of the government, or whether he has decided to do so of its own accord further to advice from a government body such as the Joint Health Service. If the lessor follows mandatory government orders by closing the shopping mall, this can hardly be held against him.
This may be different if the lessor decides to close the shopping mall of its own accord. In this situation, the General Conditions belonging to the ROZ-model for retail space seem to offer a solution (for the lessor). These General Conditions (versions 2008 and 2012) provide explicitly that the lessor shall not be liable for any damages resulting from a defect, and add – equally importantly – that the lessee cannot claim rent reduction, barring exceptions. In other words: the obligation of the lessor is limited to remedying the defect (as far as possible) and the lessee is basically left empty-handed. Given the popularity of the ROZ-models, this exclusion of liability of the lessor will apply in a great number of leases.
Regarding leases that are not drafted on the basis of the ROZ-model, it will have to be considered (in any case) whether similar arrangements have been made that limit the liability of the lessor as a result of a defect. If not, the question remains whether the defect in question must be for the account of the lessor or the lessee according to ‘generally accepted practice’. Time will tell whether this question will remain hypothetical or if a discussion about it will actually become necessary.
Should you have any questions, please contact our Lease Law Team.
