The rent increase surcharge clause in residential lease agreements has been the subject of considerable legal debate for some time. Earlier, my colleague published a blog discussing a recent Dutch Supreme Court ruling (A Rent Increase Clause Providing for an Annual 3% Surcharge Is Generally Not Unfair), followed by another blog on a judgment of the Amsterdam Court of Appeal (Amsterdam Court of Appeal Holds a 3% Rent Surcharge Clause to Be Unfair; Landlord Must Demonstrate That the Surcharge Is Necessary). While the Dutch Supreme Court held that a 3% surcharge clause is generally not unfair, the Amsterdam Court of Appeal reached the opposite conclusion in a specific case, finding that a 3% surcharge clause constituted an unfair contractual term. In short, the Supreme Court's earlier judgment has not yet resulted in a uniform interpretation of surcharge clauses. Against this backdrop, the Amsterdam District Court intends to refer preliminary questions on this issue to the Court of Justice of the European Union.
The case.
A group of 19 tenants of the housing association Lieven de Key initiated legal proceedings against the housing association before the Dutch Supreme Court had ruled on the validity of rent surcharge clauses. In those proceedings, the tenants argue that the rent review clause in their tenancy agreements is contrary to EU law and should therefore be declared unenforceable. The clause consists of two components: an indexation clause linked to inflation and a surcharge clause allowing for an increase of up to 7%.
The tenants primarily request the District Court to declare the entire rent review clause unenforceable. If granted, this would mean that the rent could not be increased at any point during the term of the tenancy agreement. Alternatively, if the court considers that approach too far-reaching, the tenants seek a declaration that only the surcharge clause is unenforceable. In that scenario, the rent could only be increased annually by the applicable inflation rate.
Applying the Dutch Supreme Court's judgment to this case would mean that the tenants' primary claim should be dismissed and that only the surcharge clause would be declared unenforceable. The tenants, however, contend that the entire rent review clause should be set aside.
They argue that their tenancy agreements do not clearly distinguish between the indexation clause and the surcharge clause, as both increases take effect simultaneously. According to the tenants, the court should therefore assess the combined (cumulative) effect of both components. In their view, that cumulative effect exceeds acceptable limits and creates a significant imbalance to the detriment of the consumer, meaning that the entire clause should be declared unenforceable. Relying on the case law of the Court of Justice of the European Union (CJEU), they have requested the District Court to refer preliminary questions to the CJEU.
Among other arguments, the landlord submits that the surcharge clause serves a legitimate purpose, namely to allow the rent to keep pace with developments in the local housing market. The landlord further argues that the surcharge clause constitutes a core contractual term, to which the Unfair Contract Terms Directive does not apply. In addition, the landlord maintains that the clause does not create a significant imbalance between the parties.
The District Court has decided to grant the tenants' request to refer questions to the Court of Justice of the European Union. It has provisionally formulated six questions, which can be summarised as follows:
The parties will first be given the opportunity to comment on the precise wording of the proposed questions. The questions will then be formally referred to the Court of Justice of the European Union.
It is expected that the CJEU will take approximately 15 to 18 months to deliver its ruling. Only then will there be greater clarity as to how rent surcharge clauses in tenancy agreements should be assessed under EU law.
If you have any questions about this topic, please contact Joyleen Verhoek or one of our other specialists in the Real Estate & Public Law team.
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