Price indexation causes trouble for hotels in the Netherlands

The principle that real estate value grows with inflation is one of the important factors behind real estate investment in the Netherlands. Because the yearly rent or franchise payment in most lease and franchise agreements is automatically linked to the price index (CPI) of Statistics Netherlands (CBS), this means that the rent/franchise payment follows the increased inflation index. Hence, if parties have not agreed on a cap of the yearly price index, tenants or the franchisee must pay the increased rent in full. Last year, the CPI was between 6.2% and 14.5% with an average of 10%.

In the wake of the COVID-19 pandemic, these high CPI indices represent another challenge for hoteliers. Is there any relief for hoteliers given that CBS has accepted a new calculation method for arriving at the CPI per June 2023, or can landlords refer to the fundamental principle pacta sunt servanda (i.e. agreements must be kept)?

First court case: unforeseen circumstances, reasonableness and fairness

Tenants are increasingly asking landlords or the courts to adjust/mitigate rent increases. Tenants base their claims on the argument that the high CPI is a ground for unforeseen circumstances or is contrary to the principles of reasonableness and fairness, and they refer to the new CPI calculation, which now also looks at existing energy contracts instead of new energy contracts, and to a preliminary court ruling in the court of The Hague (ECLI:NL:RBDHA:2023:8786). Do these parties have a point? 

To us it follows from this court case and another non-published court case, increases in energy prices, because of among other things the war in Ukraine, are not unforeseen circumstances that should lead to a change in the indexation provision. The ROZ General Conditions explicitly states how rent indexation will be calculated. This applies if the CPI has been relatively low for many years, but also if it was that high, as it was last year.

In our opinion, an appeal by the tenant to unforeseen circumstances that are of such a nature that unchanged maintenance of the indexation provision cannot be expected will have little chance of success today. A tenant, however, may be able to argue that an appeal to the indexation provision by the landlord is unacceptable according to standards of reasonableness and fairness.

It must be stated that necessary restraint must be observed by courts when assessing whether an appeal to the indexation provision is unacceptable according to standards of reasonableness and fairness. An appeal to the indexation provision is contrary to reasonableness and fairness if there are demonstrably unacceptable consequences for this specific tenant. This is determined based on all the circumstances of the case. Only if the consequences of the CPI are sufficiently serious and unacceptable for a specific tenant (e.g. a large burden on the exploitation of the tenant's business, a significant drop in turnover or other serious circumstances) can an appeal be made that the indexation provision, according to the standards of reasonableness and fairness, is unacceptable.

Note that the above observations are based on current case-law, including a non-published court case (for a no preliminary relief proceeding). 

If other points of view or court decisions follow or for advice on how case-law as it now stands can affect your Netherlands-based business, contact your CMS client partner or these local CMS experts.