Does the (sub)tenant/franchisee still pay a competitive rent for the leased business space? If not, payment of a market rent can be claimed in a further rental price determination procedure. You should be well prepared for this, because the a further rent determination procedure can sometimes lead to a surprising outcome. A claim for a rent increase can ultimately result in a rent reduction and vice versa. The manner in which a rent must be determined in more detail is laid down in Article 7:303 paragraph 2 of the Dutch Civil Code.
“When determining the rent in more detail, the court takes into account the average of the rents of comparable industrial premises on the spot, which occurred in a period of five years prior to the day on which the claim was instituted. Each rent thus included in the comparison is converted according to the general development of the price level from the day on which that rent applied until that of the filing of the claim. If it is not possible to provide the court with the data required for the application of this standard, the court will make an estimate on the basis of the data available to it, using that standard as a guideline as much as possible.”
The law initially assumes free pricing at the start of the lease. The franchisee as tenant and the franchisor as (main) landlord can agree on the initial rent that they consider reasonable in their negotiations about the lease. An interim rent increase can also be agreed upon. This interim rent increase usually takes the form of an annual indexation scheme. Furthermore, the lessee/franchisee and the lessor/franchisor can agree on a rent that depends on the turnover of the lessee/franchisee as the operator of the company established in the rented object. This has been happening more and more in recent years. In particular when renting out retail space in shopping centres.
In the further rent determination procedure, the lessor/franchisor can claim a higher rent than the rent that is effected by the indexation scheme. When determining the rental price in more detail, the court will base itself on the market price.
Further rent determination can also be useful for the tenant/franchisee. The tenant/franchisee who pays a rent that is too high compared to the level of the market price, can have this set at a lower level through further rent determination.
“On-site business space” refers to business space within the same shopping area as the rented property. If this is not available, comparison properties further away are eligible, for example in another shopping center or another (A1) location. Comparable properties outside the municipality of the rented property can also be looked at. The criterion is that it must be comparable. The question of whether or not a business space is comparable to the rented property depends on many factors, such as accessibility, the flow of passers-by, the presence of a large department store, the size of the building or the level of facilities.
The law and jurisprudence assume that only the rent for the object is subject to further rent determination. There is no room in the tenancy law for business premises for a change in other remuneration components, such as service costs, deliveries and services or promotion contributions. This means that the basic rent of the object is the only correct basis for the comparison in a further rent determination procedure. In case law, basic rent is understood to mean the single periodic payment for the sole use of the hull industrial space.
A further rent determination procedure is only possible after the first fixed term of the lease has expired. Usually this is five years. It is also possible to start a further rent determination procedure in the event that, with the approval of the subdistrict court judge, there is a lease with a different initial fixed term that is longer than two years but shorter than five years.
Before a further rent determination procedure can be started, an expert opinion must be drawn up in joint consultation between the tenant/franchisee and the landlord/franchisor. An expert opinion is also necessary for the admissibility of the claimant. The purpose of this requirement is to promote serious prior consultation between the lessee/franchisee and the lessor/franchisor and to prevent unnecessary further rent determination procedures. After all, the appointment of the expert in itself already requires consultation. On the basis of the expert advice, the lessee/franchisee and the lessor/franchisor can assess for themselves how great the chance of success is in a further rent determination procedure. Moreover, this prevents a party that initially wanted to bring about a rent increase ultimately being confronted with a rent reduction.
Ludwig & Van Dam franchise attorneys, franchise legal advice