Can a landlord terminate the tenancy to secure a higher rent?
What happens if a landlord wishes to terminate the tenancy agreement solely because another party is willing to pay a higher rent?
In this article, we discuss the protection afforded to tenants of retail premises and other 7:290 commercial premises when a landlord attempts to increase the rent indirectly. We explain which legal rules apply, what the Supreme Court has ruled on this matter, and what this means in practical terms for your business.
Rent protection for commercial premises: the legal framework
Dutch tenancy law offers tenants of small business premises (Article 7:290 of the Dutch Civil Code) robust protection. One of these protective mechanisms is the statutory rent review procedure. Both the tenant and the landlord may, at specified intervals, request an adjustment to the rent on the basis of Article 7:303 of the Dutch Civil Code. In doing so, the court considers the average of the rents for comparable commercial premises in the locality over a period of five years. This system prevents rents from rising or falling dramatically from one moment to the next.
In addition, the law provides for a closed system of grounds for termination. A landlord cannot simply terminate the lease of commercial premises. The law provides an exhaustive list of situations in which termination is permitted. One of these grounds is the so-called general balancing of interests, which only applies once the rental agreement has lasted ten years or longer (Article 7:296(3) of the Dutch Civil Code). The key question is: may a landlord invoke this balancing of interests if his sole aim is to secure a higher rent?
Higher rent as grounds for termination: what does the court say?
A specific case brought this question to the fore. A landlord wished to part ways with his tenant because a third party was prepared to pay approximately €775,000 annually – over €250,000 more than the current tenant. The landlord invoked the balancing of interests and sought termination of the tenancy agreement.
The Court of Appeal ruled that this claim could not succeed. The reasoning was clear: the legal system does not permit a landlord to terminate the tenancy agreement with the sole motive of collecting a higher rent. The Supreme Court in the Netherlands confirmed this position and dismissed the landlord’s appeal in cassation.
The background: why the law blocks this route
The underlying principle is that a landlord may not pursue two avenues simultaneously to achieve a higher rent. The direct route is the rent review procedure, whereby the court can adjust the rent on the basis of objective criteria. The indirect route – terminating the tenancy in order to re-let at a higher price – has been deliberately closed off.
Under the old law, a notice of termination aimed solely at increasing the rent was even expressly declared null and void. Although this specific ground for nullity was removed from the law in 2003, the parliamentary history shows that the legislature did not intend this to constitute a substantive change of course. The protection remained intact.
This is underlined by another statutory provision (Section 7:296(4)(c) of the Dutch Civil Code). This stipulates that a reasonable offer for a new tenancy agreement may not consist solely of a rent adjustment. If a landlord were able to terminate the tenancy through a balancing of interests in order to secure a higher rent, this protective provision would be easy to circumvent. That is precisely what the legislator sought to prevent.
What does this mean for you as a business owner?
The conclusion is clear: a landlord wishing to charge a higher, market-based rent must follow the statutory rent review procedure (Articles 7:303 and 7:304 of the Dutch Civil Code). Terminating the tenancy agreement is not a permissible route for this – not even in tenancy relationships that have existed for decades and are now ongoing for an indefinite period.
For tenants of retail premises, hospitality premises and other Section 290 commercial premises, this offers an important safeguard. You cannot simply be evicted from your business premises because a competitor or another party is willing to pay more. Your position as an existing tenant is protected by a coherent legal system that prevents rent increases from being enforced through the back door.
Practical tips for tenants and landlords
For tenants:
● Have you received a notice of termination from your landlord? Always check whether the stated reason falls under one of the statutory grounds for termination.
● Do not simply agree to termination. Have the notice reviewed by a tenancy law solicitor before taking any action.
● Do you disagree with a proposed rent increase? You can ask the court to set the rent based on comparable commercial premises.
For landlords:
● Do you wish to increase the rent under a current tenancy agreement? Follow the statutory rent review procedure.
● Seek advice in advance on the possibilities and limitations regarding rent adjustments for commercial premises.
Conclusion
Tenancy law protects business owners against arbitrary termination of their tenancy agreement. The desire to receive a higher rent is not a valid reason for terminating the tenancy. Landlords wishing to increase the rent must follow the prescribed legal procedure. This provides tenants of commercial premises with the stability they need to continue their business. Do you have any questions about the developments mentioned above, or do you have other legal queries regarding tenancy law? Our specialist solicitors will be happy to assist you.
