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Recent case law emphasizes that non-compliance (criminal activities including potentially economic offences) on a leasehold (erfpacht) plot can constitute a violation of the obligations under the Dutch leasehold law (Gerechtshof ‘s-Hertogenbosch 5 maart 2024, ECLI:NL:GHSHE:2024:718).
Netherlands
Real Estate and Construction
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Recent case law emphasizes that non-compliance (criminal
activities including potentially economic offences) on a leasehold
(erfpacht) plot can constitute a violation of the
obligations under the Dutch leasehold law (Gerechtshof
‘s-Hertogenbosch 5 maart 2024, ECLI:NL:GHSHE:2024:718).
In a recent case, the police searched the residence and shed on
a property and uncovered firearms, a large quantity of cannabis
tops, and equipment for processing and manufacturing cannabis, all
belonging to the leaseholder’s partner. The court concluded
that the possession of such a significant number of weapons and
cannabis on the plot, considering the inherent risks involved, the
potential negative impact on the surroundings, and the fact that
these criminal activities occurred in the context of operating a
cannabis cultivation facility elsewhere, constitute a serious
breach of the leaseholder’s obligations.
As stated by the Court, the plot should not be knowingly and
systematically used for criminal activities. Additionally, the fact
that the potential danger posed by the possession of firearms did
not materialize does not diminish the seriousness of the breach.
Both the leaseholder and the leaseholder’s partner breached
their obligations under the leasehold agreement. The leaseholder
herself was also acting contrary to the leasehold conditions, as it
would have been possible and incumbent upon her to terminate the
illegal possession of firearms. Her omission constituted a breach
of her obligations toward the municipality as the owner of the
plot. The severity of the breach and the uncertainty regarding the
prevention of similar conduct on the plot in the future justify the
municipality’s legitimate interest in terminating the leasehold
agreement, the court concluded.
The criminal facts in this case were severe. The verdict shows
that a termination because of an economic non-compliance will not
be accepted light-heartedly by the courts. Serious economic
offences (such as high-impact environmental non-compliance) may
nevertheless qualify as a breach allowing for termination of the
leasehold. Such potential offences should therefore be part of a
due diligence investigation prior to an acquisition of a company
that operates its business under a right of leasehold.
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