COVID-19 justifies rent reduction. And salary reductions too?

The District Court of The Hague recently ruled that, because it is an unforeseen circumstance, the coronavirus crisis has caused a fundamental imbalance in a lease agreement between a restaurant owner and the lessor. The court found that this imbalance justifies a reduction in the rent.

The court based its ruling on the general law of obligations and, more specifically, on the doctrine of unforeseen circumstances or ‘imprévision’ (Article 6:258 DCC). Under this rule, the court may, at the request of a party, modify the effects of a contract if the unforeseen circumstances are such that “the other party, according to standards of reasonableness and fairness, may not expect the contract to be maintained in unmodified form”.

According to the court, the financial disadvantage brought on by the crisis should be split between the lessee and the lessor. The court decided to reduce the rent by 50% for the months when restaurants were completely closed by order of the government and by 25% for the period when restaurants were allowed to open, but with fewer seats. This would bring the agreement back into equilibrium.

Application to employment law?

Although the laws of tenancy and employment are different fields of law, it is conceivable that agreements under employment law, including collective labour agreements, have become unbalanced due to the financial loss that employers have suffered and are still suffering because of the coronavirus crisis. When it comes to employment law, the courts tend to tread carefully with Article 6:258 DCC. Now that the District Court of The Hague has designated the coronavirus crisis as an unforeseen circumstance in a rental case, this may prompt courts to consider this crisis as unforeseeable in employment law too. That is not the full story, however. To successfully apply to Article 6:258 DCC, the employer has to demonstrate why the unforeseen circumstance should not be entirely for its account.

Unlike the lessor in the rental case, the employer’s counterparty is not a commercial organisation, but a private individual: the employee. This would give the courts a reason to interpret the employer’s area of responsibility very broadly. That said, the law and legislative history do provide reference points for reconsidering the risk distribution between the employer and employee in exceptional situations. For instance, the legal right that employees have to a salary during illness is reduced from 100% to 70% and an employer can, under certain conditions, be exempted from its obligation to continue paying wages if work cannot be performed due to extraordinary natural circumstances, such as excessive rainfall.

The District Court of The Hague’s judgment may well prompt employers to have another go at getting a foothold for employment law under Article 6:258 DCC as well, but one thing is certain: the bar has been set high.

Merel Keijzer (mk@clintlegal.com / +31 20 820 0330)