Unfair rent increase clauses: landlords fear billions in repayment

While the Supreme Court is considering preliminary questions regarding unfair rent increase clauses in residential rental agreements, research has revealed that landlords may have to repay billions. This is causing great unrest among real estate investors and other landlords, according to an article in the FD. Indeed, in several cases, the subdistrict court has now ruled that rent increases in the free sector were unjustified. If this ruling stands up to higher courts, landlords will have to pay back up to €6.4 billion. This was calculated by real estate consultant CBRE on behalf of IVBN, the representative of institutional investors in rental housing.

In short: unfair rent clause?

In recent years, doubts have been raised about the way some landlords raise their rents. Landlords often include a provision in the lease whereby the rent increases annually in line with inflation, plus possibly a surcharge. This surcharge is often between 3% and 5% of the monthly rent. It is up to the landlord to decide whether to charge the mark-up.

This very freedom of choice leads to ‘arbitrariness’ for tenants, according to the subdistrict court. This rent policy is considered ‘unfair’ and, according to the judges, in violation of European Directive on Unfair Commercial Practices in Consumer Contracts.

Time will tell

If the subdistrict judges’ reasoning holds up in higher courts, future rental income will fall as much as 34%, according to CBRE. This will significantly reduce the returns of investors and private landlords. It may also leave them with no budget for renovations and new construction in the future.

For now, refunds to tenants and a possible decrease in returns for landlords are not yet an issue. This is because landlords have appealed and it also remains to be seen how the Supreme Court looks at this. It is ultimately up to the highest civil court to judge whether the district courts have taken the right course with their interpretation of the European rules. It is still unknown when the Supreme Court will come up with the redeeming answers.

Advice

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