Netherlands: Supreme Court Judgment On Supreme Court Judgment On Termination Of Lease Agreements In The Event Of Bankruptcy (Aukema q.q./Uni-Invest)In The Event Of Bankruptcy (Aukema q.q./Uni-Invest)

1. Introduction

Pursuant to Article 39 of the Bankruptcy Act, in the event of a lessee's bankruptcy both the lessor and the receiver have the right to prematurely terminate the lease agreement (if it is still running), with due observance of a notice period of no more than three months. This can be disadvantageous for the lessor if, as a consequence, it is unable to recoup the cost of investments in the leased property. To address this problem, a lessor and lessee will often agree that compensation for forgone rent will be owed by the lessee if the contract is prematurely terminated by the receiver, and that the lessor will be provided with security in this regard in the form of an independent bank guarantee, to be arranged for by the lessee. Usually, the relevant bank will require a counter-guarantee from the lessee.

2. Judgment of the court (HR 14 January 2011, NJ 2011, 114)

The facts of the case in question are similar to those in the situation described above. After the lessee was declared bankrupt, the receiver terminated the lease agreement pursuant to Article 39 of the Bankruptcy Act (Faillissementswet, "BA"). The lessor then claimed compensation under the bank guarantee, and the bank in turn claimed the relevant amount from the bankruptcy estate under the counter-guarantee.

The receiver argued that the agreements regarding the payment of compensation and the furnishing of an independent bank guarantee were contrary to the import of Article 39 BA and requested the court to order the lessor to pay back to the estate the amount (compensation) received under the bank guarantee.

The Supreme Court expressed the view that Article 39 BA was enacted in order to enable the receiver to terminate the lease agreement, thus avoiding the accumulation of further claims on the estate in the form of rent arrears, and to facilitate the rapid winding up of the bankruptcy. In return, and in the interests of fairness, the lessor is provided with security in that the rent for the period between the date on which the lessee is declared bankrupt and the date of termination of the lease agreement is classified as an estate claim, and is thus given a higher priority than normal debts. The legislature then decided that it was unnecessary to also give the lessor a right to compensation.

The Supreme Court went on to state that the Bankruptcy Act contains a similar provision on the premature termination of employment agreements in the event of the employer's bankruptcy (Article 40 BA). Pursuant thereto, both the employee and the receiver can terminate the employment agreement with due observance of a notice period of no more than six weeks. The amount of salary and social security premiums for the period between the date on which the employer is declared bankrupt and the date of termination of the agreement is likewise elevated to the status of an estate claim; the employee is not entitled to compensation in addition thereto. It was against this background that the Supreme Court had earlier ruled, in Papierfabrieken Van Gelder (HR 12 January 1990, NJ 1990, 662), that, upon the termination by the receiver of the employment agreement, the employee in question did not have a claim on the estate for payment of contractual severance pay, because this was contrary to the import of Article 40 BA.

The Supreme Court stated that, in light of the above, it was contrary to the import of Article 39 BA for the lessor to have a claim on the estate for payment of contractual compensation for forgone rent following the termination of the lease agreement by the receiver. However, the court went to state – referring in this regard to its judgment in the BabyXL case (HR 13 May 2005, NJ 2005, 406) – that the system under the Bankruptcy Act did not preclude a claim for contractual compensation for forgone rent where the lease agreement is prematurely rescinded by the lessor on the basis of a provision in the agreement.

3. Comments

The distinction drawn by the Supreme Court between the termination of the lease agreement by the receiver pursuant to Article 39 BA and its rescission by the lessor pursuant to a contractual provision is a surprising one. It is difficult to see what the justification is for this distinction. Furthermore, the judgment will lead to the socially undesirable result that lessors and receivers will rush to be the first to terminate the relevant agreement, making the possibility of a successful restart of the business after bankruptcy significantly less likely.

There is some disagreement about whether a clause which entitles the lessor to rescind a lease agreement pertaining to (all or part of) a building or other structure on the grounds of the lessee's bankruptcy is valid. The prevailing view is that such a clause is invalid under Article 7:231 of the Dutch Civil Code. Pursuant to Article 7:231, the rescission of a lease agreement pertaining to (all or part of) a building or other structure on account of the lessee's failure to perform its obligations can only be effected by the court and not by the lessor.

If, as under the prevailing view, the lessor is not entitled to rescind the lease agreement without judicial intervention, proceedings initiated by the lessor for that purpose can be rendered meaningless by the receiver's termination of the lease agreement, because in actual practice it takes some time before the court rules on such matters. As a result, the lessor will always "lose the race" and will thereby be precluded from claiming contractual compensation for forgone rent. This means that the distinction the Supreme Court draws between termination by the receiver and rescission by the lessor is only relevant for lease agreements pertaining to movables, because such agreements can be rescinded without judicial intervention. If a lessor terminates a lease agreement pertaining to movables before the receiver has done so, it can claim contractual compensation for foregone rent.

In its judgment, the Supreme Court does not address the issue of whether the import of Article 39 BA is incompatible with the agreement to provide a bank guarantee. Considering the Supreme Court's view that the lessor cannot claim compensation from the estate for forgone rent following the termination of the lease agreement by the receiver, it cannot be ruled out that the lessor in such circumstances is also precluded from claiming compensation for forgone rent under the bank guarantee, because the compensation is ultimately charged to the estate through the counter-guarantee. If the import of Article 39 BA precludes a direct claim against the estate, it is likely that this provision also precludes an indirect claim.

As an alternative to a bank guarantee for foregone rent, the rent for an equivalent period could be paid in escrow to a third party (a bank, for example). In that case, the lease agreement cannot be terminated by the receiver pursuant to the BA until the end of period covered by the rent paid in advance. The lessor can in this way protect itself against a premature termination of the lease agreement by the receiver. In addition, the lessor can agree to refund part of the rent if the lease agreement is not prematurely terminated before the end of a specific period.

This Supreme Court judgment is probably not the final word on premature termination of lease agreements in the event of bankruptcy. It is clear that two factors are important: how the agreement is formulated and, in the case of a lease of personal property, which party terminates first: the lessor or the receiver. In the wake of this judgment, parties to lease agreements should therefore reassess their current positions and consider an alternative approach.

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