Judge curbs rent increase in free sector

On August 3, the cantonal judge in Amsterdam ruled on an unfair rent price change clause (ECLI:NL:RBAMS:2023:4800). The clause in question allowed the landlord to...

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On August 3, the cantonal judge in Amsterdam ruled on an unfair rent price change clause (ECLI:NL:RBAMS:2023:4800). The clause in question allowed the landlord to increase the rent annually based on the consumer price index, with the option to increase the rent by up to an additional 5%.

The dispute arose because the tenants were in arrears. Due to various circumstances, the tenant had run into financial problems. Therefore, the landlord wanted to terminate the lease and also claimed payment of the arrears, while the tenants wanted to make a payment arrangement. The landlord had increased the rent annually. Because the lease had been running for 18 years, the rent had almost doubled compared to the originally agreed rent.

The cantonal judge cannot order the landlord to agree to a payment arrangement. But the cantonal judge could do something else. Because it concerns a lease agreement between a company and a consumer, the cantonal judge must ex officio test the rent price change clause against Directive 93/13/EEG on unfair terms in consumer contracts. Even if none of the parties in the proceedings have invoked this legislation.

Article 3(1) of the Directive provides that a term in a contract which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer. Terms that give the company the right to unilaterally increase the price of its product or service will not easily be valid. It must be clear to the consumer under what conditions the price change clause can be invoked and there must also be a valid reason for the price change. In addition, the consumer must have the right to terminate the contract in the event of a price change.

The cantonal judge then examined the rent price change clause and ruled that the price change clause did not meet the requirements. For example, the grounds on which and the manner in which the rent could be adjusted were missing in the clause. The link with inflation could still be followed, but in addition, the landlord could implement an additional increase of up to 5% without any grounds. As a result, the tenant was at the mercy of the landlord.

The cantonal judge therefore ruled that the clause must be completely inapplicable. And because European case law does not allow for partial retention of an unfair provision, the landlord could also not claim the inflation correction. The result was that all rent increases implemented during the term of the lease (18 years) were not valid and the original rent still applied. Because the rent had almost doubled, the cantonal judge ruled that a rent advance had arisen, instead of a rent arrears. Therefore, the landlord’s claim was dismissed. And the tenant can withhold the rent for a long time and offset it against the advance that has arisen.

This ruling is of great importance to all parties that use rent price change clauses in lease agreements with private individuals. In a rental dispute, the judge tests this type of price agreement of his own accord against European regulations. Even if the tenant does not invoke this legislation in the proceedings. Landlords who rent on a large scale based on this type of rent price adjustment clauses, can, as a result of the European rules on unfair terms, even immediately run into liquidity problems. Tenants with a lease contract under which the landlord is entitled to increase the rent further than the inflation correction, can massively suspend the payment of the rent. The consequences of this ruling are therefore far-reaching and real estate investors will face major financial challenges.

What is striking about this ruling is that there had already been a lawsuit between the landlord and the tenant. In that case, the tenant was ordered to pay, including all implemented rent increases. The judge ruled that a previous judgment, in which the test against unfair terms had not been carried out, should not stand in the way of the application of European law. The result is that even a previous judgment does not stand in the way of a full assessment of the entire rental relationship.

Could this have been prevented? Certainly. Because the Unfair Terms Directive has been in existence for a long time and it has also been known for many years that judges are obliged to protect consumers on the basis of this legislation, even if the consumer does not invoke it in a procedure.

What is the lesson? Companies that want to give themselves an extra advantage in ‘the small print’ over a consumer, must be aware that such an agreement is not valid. Actually, we knew that a long time ago: those who want to have the bottom of the barrel, still get the lid on their nose.