A clause in rental contracts for residential properties that allows the Dutch real estate investor Bouwinvest to increase rents each year by inflation plus 5% is unfair and therefore null and void, according to two judges in the Netherlands.
In their verdicts, the judges said Bouwinvest’s indexation clauses in the rental contracts with two private tenants were invalid because the maximum allowed indexation is too far removed from actual inflation realised over the span of the rental contracts in question.
In one of the cases concerned, the tenants had lived in the property since 2005. They initially paid €865 per month in rent, which has since increased to €1,534 as a result of annual indexations.
Bouwinvest had brought the case before a judge because the tenants were in arrears amounting to €4,425.
The judge said the indexation clause was not balanced, as it was significantly to the detriment of the tenants because of the provision that rents could be increased by an additional 5% on top of inflation without Bouwinvest having to provide a reason.
As a result, the judge declared the indexation clause invalid. “This means that the rent to be paid is the original rent of €865, from the start of the rental agreement until today,” the judge said.
Bouwinvest is therefore indebted to the tenants who paid too much in rent for years, according to the judge, who allowed them to stop paying rent until the balance is even.
Bouwinvest declined to comment on the case, instead referring to a declaration by the Dutch association for institutional real estate investors (IVBN) which noted that not all rental agreements for residential properties are similar.
“The impact of these verdicts on portfolios with rental properties is therefore difficult to estimate,” IVBN said.
Bouwinvest did not always increase rents with the maximum allowed percentage. In 2020, for example, it temporarily froze rents because of the COVID pandemic.
Also this year, Amvest, which has healthcare scheme PFZW as its shareholder, had its indexation nullified in court.
The court concluded that an indexation clause stipulating an additional increase on top of inflation of up to 3% for a residential property was unfair. An increase of up to 5% on top of inflation for the parking space that was part of the property was also deemed invalid.
This article appeared originally in Pensioen Pro, IPE’s Dutch sister publication. It has been translated and adapted for IPE Real Assets by Tjibbe Hoekstra.
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