Too-small lot issue grounds for compensation?

The Zeeland-West Brabant District Court recently ruled that the developer’s standard clause indemnifying them for so-called over- or underperformance does not apply. This means that the developer is held fully liable and obliged to pay compensation to the buyer of the plot.

Background

When buying a house or commercial property that has yet to be built, the issuance of plots frequently leads to problems. Especially in large-scale projects, the sale takes place via provisionally marked out plots. When measuring the actual situation, the size usually differs from the previously determined size, because the actual situation differs from the plan drawn up in advance. There may also be unforeseen circumstances that cause a lot to differ in size.

In order to still have certainty about the purchase price in advance, it is usually agreed for this difference in size, the so-called over- or under-size, that there can be no settlement of the purchase price afterwards. This is in the interest of both the buyer and the seller; after all, the buyer also runs the risk of having to pay extra if the lot turns out to be larger in reality. This is a standard provision that is included in almost every purchase agreement for a lot.

The ruling

In this particular ruling, the standard clause was qualified by the court as a general condition. The court noted that the condition had not been negotiated, the clause had not been notified in advance and was also included in all of the developer’s agreements.

This general condition had been used by a professional party towards a consumer and, in the opinion of this court, qualifies as an unfair and unreasonably onerous clause. The reason lies in the fact that the consumer not only has to take for granted a small deviation from the lot, but (in theory) can also get little out of a much smaller lot, without any form of compensation.

The court assesses damages in proportion to the square footage price in the agreement, times the number of “missed” square feet.

Possible solution

One solution for project developers may be to limit the exoneration (indemnification). Ideas for this have not yet been tested by a court, but it is not inconceivable to follow the guideline used by the Council of Arbitration for Construction. There, an undersize of up to 5% is generally not seen as a problem, an undersize of between 5% and 10% leads to compensation depending on the circumstances, and more than 10% almost certainly. That compensation then does not apply to the first 5%, but only to the excess.

Advice

Do you have questions about the above developments or do you have other legal questions about real estate law? Our specialized lawyers will be happy to assist you. You can contact one of our lawyers by mail, telephone or fill in the contact form for a free initial consultation. We will be happy to think along with you.