Compensation Because of the Public Interest
In this contribution, Section 7:309 of the Dutch Civil Code
("BW") is the focus point in the whole of rights and
obligations between lessors and lessees. This Section obligates the
lessor to whom the rights and obligations from a lease have been
transmitted on the basis of Section 7:226 of the BW, to indemnify
the lessee if the lessor gives notice of termination of the lease
pending demolition of the constructed premises on account of
execution of works in the public interest. This Section often
creates uncertainty among lessors. Not only because the
indemnification that will have to be paid in the end may run up
very high, but mostly because the section is not very concrete.
Roughly speaking, there are two criteria that play a role. The
first criterion is that the lessor has to be a "consecutive
lessor", meaning that the immovable property to which the rental
agreement relates was transferred to it. This is not really that
difficult still. The second criterion, which requires the rental
agreement to end because the leased property is demolished "on
account of execution of works in the public interest", is more
complicated. When are works executed in the public interest?
Usually not in the case of a private owner who demolishes his
building and renovates it, although renovation may in general also
serve the public interest. It is already harder in the case of
business lessors, for example in the development of a new shopping
mall or a sports complex. However, the category of lessors that is
most concerned about Section 7:309 is that of municipalities and
housing corporations. Are the works that they execute not in the
public interest by definition? The second criterion is the topic of
a judgment of the Dutch Supreme Court dated 30 January 2009, which
judgment I will discuss in brief below.
The lessor in the case is the Housing Corporation Beter Wonen
(Better Living) from Eindhoven. The lessee is Harry van der Veer
BV, an operator of a car garage. Van der Veer rented its business
premises in 1981 from (the legal predecessor of) Beter Wonen. Beter
Wonen gave notice of termination of the lease agreement because it
wanted to build a housing complex on the spot. Van der Veer claimed
indemnification on the basis of Section 7:309 of the BW.
The Subdistrict Court denied Van der Veer's claim because
the housing complex would not get a public function. The Court of
Appeal of Den Bosch upheld this judgment and ruled that in order to
meet the criterion formulated in Section 7:309, after its
realization the constructed building would have to serve "the
public". Van der Veer appealed this judgment before the Supreme
Court.
The Supreme Court considered that with the criterion formulated
in Section 7:309 of the BW the legislator had in mind especially
works that may as a rule also be the subject of expropriation.
Although the scope of Section 7:309 of the BW would be limited too
much if it had to be assumed that the criterion is only fulfilled
if the work to be newly constructed was based on one or more
government decisions aimed at the realization of this new work, the
requirement will have to be made that the public interest referred
to here has at least been expressed in a concrete, published
government policy that is realized (in part) by the execution of
the relevant new work. The Supreme Court further considered, as
opposed to the Court of Appeal, that it may not be required of the
new work itself that it serves the public because it has a public
function. According to the Supreme Court, expropriation may also
take place with a view to the realization of, for example, building
projects for the purpose of private use or private exploitation,
for example for public housing or the development of shopping
malls. As a consequence, the Supreme Court quashed the judgment of
the Court of Appeal of Den Bosch and referred the case to the Court
of Appeal of Arnhem to give a new opinion on the case, on the basis
of the considerations formulated by the Supreme Court.
This judgment of the Supreme Court gives us an important new
understanding of the question of when a lessee may lay claim to
indemnification. In order for Section 7:309 to be applicable, the
Supreme Court deemed it necessary that the government aims
specifically and concretely for the realization of the new
building, and may (or might) even use the tool of expropriation for
this purpose. Although the Supreme Court found for Van der Veer, in
the sense that the Supreme Court quashed the judgment of the Court
of Appeal of Den Bosch, I do think that this has been a pyrrhic
victory. It is true that the Supreme Court considered that the
criterion of Section 7:309 is interpreted too narrowly if it covers
only constructions that serve the public (by getting a public
function), but then again the criterion should not be interpreted
much broader than that either. In my provisional, personal opinion,
lessees will not easily be entitled to indemnification on the basis
of this Section, and I expect that the Court of Appeal of Arnhem
too will turn Van der Veer away empty-handed.