The position of the landlord under the WHOA

Since the Dutch Act on the Confirmation of Private Agreements (WHOA) came into force on January 1, 2021, restructuring law in the Netherlands has received a significant boost. For companies that are in financial difficulty but are fundamentally viable, the WHOA offers a route to reaching an agreement with creditors without going into bankruptcy. This article is part of a series of background articles on the consequences for specific creditors. This article focuses on landlords.

Landlords in the WHOA context: creditor and contractual partner

Landlords occupy a special place in the restructuring process because they wear several hats. After all, in addition to being a contractor (due to the current lease agreement), the landlord is often also a creditor (due to rent arrears). The landlord also often has a (major) interest in the continued existence of the company, whether or not in a slimmed-down form. This dual role entails specific risks and rights.

The WHOA gives debtors far-reaching options that they would not normally have. For example, a tenant (the debtor) can unilaterally propose changes to or termination of current agreements, including rental agreements. This directly affects the interests of landlords who are faced with rent reductions, termination, or suspension of their contractual rights.

During the WHOA process itself, the company must demonstrate that it is fulfilling its current obligations. This means that the rent must be paid to the landlord in accordance with the contractual terms, normally before the start of the new month.

Unilateral amendment or termination? Only under certain conditions

It is important to emphasize that the WHOA does not provide carte blanche to arbitrarily amend or terminate the lease agreement. If the landlord and tenant cannot reach an agreement, the court can assess the reasonableness of the agreement and determine whether the proposal is fair and balanced. In practice, this means:

• The landlord must be included in the agreement if he is affected by the proposed restructuring.
• Termination of the lease through the agreement is only possible if it is “reasonably necessary” for the continued existence of the business. The tenant must prove this.
• Compensation for damage caused by premature termination – known as vacancy damage – is in principle mandatory, unless the landlord agrees to less.

In addition, if the landlord is not a party to the agreement, the lease agreement remains in full force. The WHOA cannot impose a compulsory agreement on third parties outside the agreement who are not involved in the process.

Practice: what are the biggest risks for landlords?

1. Rent discounts or payment deferrals

Landlords may be faced with substantial discounts on current rent or a large portion of outstanding rent may be waived. Discount percentages on outstanding debts—including the landlord’s rent claim—of more than 90 percent are not out of the question.

2. Termination of the lease agreement

The WHOA allows for the lease to be terminated, with payment of compensation. The landlord has limited grounds for defense as long as the court rules that the agreement is balanced and all legal requirements have been met. The termination fee must also be included and paid upon termination. This is often a consolation prize, as this fee may also be subject to a discount.

3. Cooling-off period

In a WHOA process, the court may impose a cooling-off period during which the landlord cannot exercise his rights, such as termination or eviction. This can further undermine the position of landlords, especially if they are already facing rent arrears.

How can landlords protect themselves?

Although the WHOA is clearly debtor-oriented, landlords are not completely powerless. A few points to consider:

• Act early: if there are signs that a WHOA is being prepared, it is important to seek legal advice and, if possible, enter into consultation. At such a time, it is also possible to agree on a modified lease with the tenant, so that the lease is not included in the WHOA agreement and the tenant, for example, surrenders part of the space, or the lease terms become more favorable in exchange for a longer lease term.
• Determine voting strategy: if the landlord is classified in a class of creditors, it is crucial to coordinate voting behavior with other landlords or creditors.
• Negotiating a bank guarantee or group guarantee when entering into the lease. It is now clear that a landlord involved in WHOA proceedings can still rely on a guarantee provided by a third party on behalf of the tenant. This allows the landlord to recover at least part of the damage from the bank or, for example, a parent company. (see: ECLI:NL:RBAMS:2023:569)
• Monitoring procedural safeguards: failure to comply with the legal steps can undermine homologation. This is where things often go wrong, for example when landlords are classified in the wrong category, when incorrect terms are used, or even when the tenant is not actually at such a high risk of going bankrupt. It is therefore important for landlords to be on their toes if they become involved in a WHOA process, in order to safeguard their interests as effectively as possible.
• A significant disadvantage for tenants is that if the lease agreement has to be terminated, this can only be done with a homologated agreement. This means that the court must explicitly grant permission for the termination of the lease agreement. In most cases, debtors will strive to reach a deal with 100% agreement in order to avoid costs and uncertainty.
• Finally, consultation with your tenant is crucial if the tenant’s continuity is of great importance. In practice, the creditor will try to reach an agreement on the necessary adjustments to the lease agreement. By conducting these negotiations and having you, as the tenant or landlord, assisted by a professional in this field, it is possible to limit the damage as much as possible.

What are the consequences if the lease is actually terminated or if I receive a proposed amendment?

If the tenant does terminate the lease and submits it to the court for approval, vigilance is also required.

The lease ends on the date the agreement is approved (accepted) by the court. This is followed by a notice period, which is submitted at the tenant’s instigation. The notice period must be reasonable, but it is now generally accepted that a period of (at least) three months is reasonable.

Conclusion: Caution is advised, but no reason to panic

The WHOA fundamentally changes the playing field for landlords, but it doesn’t disenfranchise them. Approval can override lease agreements, but only if strict conditions are met. It’s crucial for landlords to stay alert, assess their contractual position, and take timely action as soon as a WHOA procedure arises.

At Fruytier Lawyers in Business, we assist debtors, creditors, and landlords with WHOA procedures. Contact one of our attorneys for tailored strategic advice. You can contact us by email, phone or fill out the contact form for a no-obligation initial consultation.We’re happy to discuss your needs.