Indexation clause surcharge for residential rent above 3% seems unreasonable: What to do?

On November 29, 2024, the Dutch Supreme Court issued an important ruling on the commonly used indexation clauses in lease agreements for liberalized residential properties. These agreements often included a clause allowing annual rent increases based on the Consumer Price Index (CPI) plus a fixed surcharge.

The Supreme Court has now ruled that a surcharge of 3% is considered reasonable. But what does this mean for existing and new lease agreements?

 

What Does This Mean for New Lease Agreements?

For new lease agreements, it is advisable to include a surcharge of no more than 3% in the indexation clause. This minimizes legal risks and avoids potential disputes with tenants.

 

What Does This Mean for Existing Lease Agreements?

1. Right to Rent Reduction and Restitution

Tenants with an indexation clause containing a surcharge above 3% can successfully challenge this clause in court. This may result in:

1. Rent Reduction: The clause is annulled, and any increases above CPI are reversed.
2. Restitution: Tenants are entitled to reimbursement for the portion of past rent increases deemed unreasonable since the start of the agreement.

2. Limited Future Rent Increases

If a surcharge clause is deemed unreasonable, it is invalidated entirely. This means that future rent increases can only be based on CPI, provided they remain within the legal limits. An unreasonable surcharge clause, such as 5%, will not be moderated to 3% but will be removed entirely.

 

What to Do About Existing Lease Agreements?

For landlords with existing lease agreements that include a surcharge above 3%, there are generally two options:

Option 1: Adjust Rent Proactively

You can reach out to tenants with contracts that include a surcharge above 3% and adjust the rent as if past increases had always followed CPI (without surcharge). This approach helps prevent potential legal conflicts or claims from tenants.

You can also propose amending the surcharge in the lease agreement to a maximum of 3%. However, tenants are not obligated to accept this adjustment.

Option 2: Take No Action

You may choose to wait for tenants to take action or for additional clarity regarding surcharges above 3%. Consider the following:

1. The Supreme Court has ruled that a surcharge of up to 3% is reasonable. However, this does not automatically mean that clauses with higher surcharges (e.g., 3.5%, 4%, or 5%) are deemed unreasonable. Future rulings from lower courts or even the Supreme Court may provide more guidance on this matter.
2. Judges can independently assess the reasonableness of a surcharge clause during legal proceedings, such as cases involving rent arrears. They may invalidate the clause, potentially affecting eviction or termination proceedings.

Our Preference 

Many of our rental agreements include an indexation clause of CPI + 5%. At this time, we deliberately choose to maintain these clauses. Why? Because there is still no certainty that an indexation of CPI + 5% is legally untenable.

If, in the future, this indexation is deemed unreasonable, the rent can still be adjusted retroactively. However, if you now invalidate the clause yourself, the additional indexation is permanently removed. This means you accept a lower rent increase, even if it is later determined that CPI + 5% is reasonable.

By choosing option 2, waiting, we keep open the possibility that no adjustment will be necessary. Option 1, proactive adjustment, leads to an immediate and certain loss. For this reason, we choose to maintain the current clauses until there is more legal clarity.

Conclusion

The ruling of the Supreme Court could have significant implications for rent indexation clauses with surcharges above 3%. For new rental agreements, it is advisable to include a maximum surcharge of 3% in the indexation clause to avoid potential legal risks.

For existing contracts, there are two options: proactively adjusting or waiting. We prefer to wait, as this leaves open the possibility that an indexation clause of CPI + 5% may be upheld. Proactive adjustment would mean immediately accepting a lower rent increase, even if higher surcharges are later deemed reasonable.

Whatever you choose, it is essential to carefully consider the legal and financial implications of your approach. If you have questions or need advice, feel free to contact us. We are happy to assist you.