Didam I as a reason not to cooperate with a tenant’s substitution request?
The subdistrict court recently ruled on a case where the municipality wrongly believed that the Didam I rules prevented its cooperation with a substitution request (Article 7:307 Dutch Civil Code) from one of its tenants. The tenant asked the municipality to substitute the buyer of its business in its place.
The municipality of Soest refused to cooperate because, according to the municipality, the rules of the Didam I ruling stood in the way.
Substitution means, briefly, that a new owner of the business operated in the leased premises is substituted in the lease contract for the old owner. This is only possible when the leased premises qualify as business premises within the meaning of Article 7:290 Dutch Civil Code. The existing lease continues and the same conditions remain applicable.
If the landlord does not want to cooperate, substitution can be claimed in court under Article 7:307 Dutch Civil Code. The court must assess several requirements. First, there must be a transfer of the business operated in the leased premises. Second, the tenant (or another operating the business) must have a compelling interest in substitution. Third, the new tenant must provide sufficient guarantees: the new tenant must show that they can fulfill all agreed obligations and pay the rent on time. If these three requirements are met, the court will weigh the landlord’s interest in rejection against the tenant’s interest in granting the claim.
In Didam I, the Supreme Court ruled that a public body may not sell (or otherwise make available under private law) real estate directly to a single interested party. The public body must observe written and unwritten rules of public law, in particular the general principles of good governance and the resulting principle of equality. This means the public body must offer opportunities to all (potential) interested parties. When there are multiple interested parties, the public body must set up a selection procedure.
In the Didam I ruling, the case concerned the sale of real estate. However, the ruling applies to all powers conferred on a public body under civil law. So also if a public body wants to lease, grant land in long lease, etc.
In a recent judgment, the subdistrict court considered the relationship between substitution and the rules from the Didam I ruling. The municipality, as landlord, argued that it could not agree to a substitution request because “under the rules of the Didam I ruling we must offer opportunities to other (potential) interested parties to compete for the position of tenant.”
The municipality primarily argued that the rules of the Didam I ruling mean that Article 7:307 Dutch Civil Code must be set aside entirely. Applying that article would conflict with the principle of equality, according to the municipality.
The subdistrict court ruled that the judge may not test a formal law, such as Article 7:307 Dutch Civil Code, against general legal principles under established Supreme Court case law.
The municipality also argued that the Didam I rules have a place in the balancing of interests in a substitution claim. The municipality substantiated this by stating that granting the claim results in a contract transfer under Article 6:159 Dutch Civil Code and that its cooperation is necessary for this. According to the municipality, this is a power conferred on it under civil law and therefore the Didam I rules apply to Article 7:307 Dutch Civil Code.
The subdistrict court did not follow the municipality. It ruled that substitution is not a pure contract transfer and that the municipality’s cooperation is not necessary because the judicial authorization replaces that cooperation. The subdistrict court concluded that the rules of the Didam I ruling do not apply to substitution as referred to in Article 7:307 Dutch Civil Code.
Do you have questions about substitution or the Didam I ruling? Then contact Joyleen Verhoek, Real Estate attorney.
This blog was created with the assistance of Koen van Galen (student intern).
Would you like an overview of updates and blogs in your mailbox every month? Then sign up for our newsletter!
