Most leases for commercial space contain a penalty clause under which a tenant forfeits a penalty to the landlord if the tenant fails to meet its payment obligations pursuant to the lease (or fails to do so in good time). In one of the model leases adopted by the Real Estate Council of the Netherlands [Raad voor Onroerende Zaken] (“ROZ”), the penalty clause is included in the general provisions. The interpretation of these provisions has become the subject of debate.

This penalty clause is phrased differently in the various ROZ models, but they are all essentially the same. The premise is payment of a percentage per month, with an applicable minimum. To the extent relevant, the penalty clause (Clause 23.2) in the 2015 ROZ model for 230a commercial space reads as follows:

“… the Tenant will forfeit to the Landlord by operation of law an immediately due and payable penalty of 1% of the amount owed per calendar month, for each calendar month from the date of defaulting on that payment, with each month that has commenced counting as a full month, with a minimum penalty amount of EUR 300 per month.….”

In practice, the interpretation of this provision is the subject of regular disputes. As far as case law on this penalty provision is concerned, it can be roughly divided into two schools of thought. One school supports interpreting the penalty provision cumulatively, with a new penalty being payable on all individual outstanding monthly instalments owed at that point for each subsequent month. The other school supports a limited interpretation of the penalty provision, with the penalty payable being recalculated each subsequent month on the total outstanding monthly instalments owed (as a whole).

The minimum penalty amount, EUR 300 for each month that the rent instalment remains unpaid, does not depend on the amount of the rent. The ratio between the penalty amount and the rent also varies, subject to the proviso that the penalty can never be less than 1% of the rent. The lower the rent, the higher the penalty is in proportion to that rent. If the monthly rent is EUR 10,000, the penalty is equal to 3% of the monthly rent, but if the monthly rent is EUR 1,250, the penalty is equal to 24% of the monthly rent and 288% of that amount would be owed per year. That makes the penalty increasingly significant in proportion to how low the rent is.

The penalty is not intended to serve only as performance, but certainly as damages as well. The contractual obligation to which the penalty relates is a contractual obligation to pay damages. Under the law, the loss attributable to failing to perform this contractual obligation in good time is expressed in the statutory rate of interest, which currently stands at 8% per year. This means that if the rent is EUR 1,250, the penalty is 36 times as much as the statutory interest rate, which is the amount in damages owed by law.