Rental agreement under scrutiny: When is a rent increase unfair?

The cumulative effect of rent increase clauses 

A key point of contention was whether the rent increase clause should be viewed as a single provision or as two separate provisions that can each be individually assessed for fairness. In the case considered by the Supreme Court, the rent increase clause comprised two parts: indexation (adjustment for inflation) and an additional surcharge (e.g. 3%). The Supreme Court ruled that these two elements could be assessed separately. This makes it possible to annul only the surcharge clause if found unfair, while the annual inflation-based increase remains valid. However, Schaub points out that the Court of Justice of the EU has clearly stated that the fairness assessment must consider all clauses' combined effects. This means one must not only examine each clause in isolation but also consider what the provisions mean collectively for the tenant. She explains: "The fairness assessment must include the cumulative effect of all terms in the agreement."

The Supreme Court's narrow approach 

This interrelation was absent in the Supreme Court's judgment; only the surcharge clause was reviewed. The combined effect of indexation and surcharge, which in practice are often applied together as a single increase, was disregarded. Schaub notes: "The Supreme Court merely acknowledges that the cumulative effect of the other clause should be considered, but then fails to include that effect in its assessment. This is problematic, especially since indexation and the surcharge are typically applied jointly as a single increase." Based on EU case law, the Supreme Court should have explicitly weighed the combined effect when assessing the fairness of the surcharge clause.

Formal right to terminate versus genuine freedom of choice 

Another significant issue is how the Court deals with the Annex to the Unfair Contract Terms directive of the EU. This Annex lists clauses that may be deemed unfair, such as those allowing price changes without a valid reason or without giving the consumer the option to terminate. According to Schaub, the Supreme Court should have better explained the importance of these factors. The fact that a clause appears in the Annex does not automatically render it unfair, but it is a strong indicator that must be given considerable weight in the assessment. However, the judgment remains unclear on how much weight is given.

When can a tenant truly terminate? 

The Supreme Court briefly refers to the tenant's right to terminate, stating that tenants can generally give notice at any time. However, this ignores the reality of the housing market, says Schaub. In the RWE Vertrieb case, the Court of Justice of the EU emphasised that it is not enough for a consumer to be allowed to terminate formally; they must also be genuinely able to exercise that right. Schaub states: "In a tight housing market, tenants generally do not have a real opportunity to terminate. It is fundamentally important that a consumer not only has a formal right to terminate but also has a practicable option to do so." According to Schaub, the lack of a realistic termination option must be considered when assessing the clause.

Multiple relevant factors 

This raises the question of whether courts should henceforth assess, on a case-by-case basis, whether a tenant in a specific situation can actually terminate. It is not that straightforward, Schaub clarifies. "There is no such thing as a requirement to assess separately; you cannot put it like that." The fairness test requires weighing multiple factors in conjunction: the cumulative effect of different clauses, the transparency of the surcharge clause, and the practical feasibility of termination. According to Schaub, the presence or absence of a real termination option is not the sole determining factor. However, it is an important consideration when judging the fairness of a clause. That is precisely why, in her view, it is problematic that the Supreme Court did not address how heavily this factor weighs compared to others.

Conflict between Dutch and European rules 

The final issue Schaub believes merits attention is the potential conflict between Dutch and EU legislation. Since 2021, a temporary statutory cap on rent increases in the liberalised housing sector has been in place. Schaub explains: "Under the Dutch Rent Increase Cap for Liberalised Tenancy Agreements Act, rents in the liberalised sector may be increased by no more than the rate of inflation or average collectively agreed wage growth plus 1%." The law provides that any rent increase clause exceeding this is partially null and void. Nevertheless, Schaub sees a problem: "This partial nullity appears problematic in light of the EU Court's case law on the consequences of unfair terms." That case law requires that unfair clauses be set aside entirely. "An unfair surcharge clause should be struck out in full, not trimmed back to a fair percentage," she argues. She suggests this could lead to tensions between Dutch legislation and European law.

Unanswered questions after the judgment 

At first glance, the Supreme Court's decision seems moderate: a 3% surcharge may be reasonable under certain circumstances. However, as Schaub stresses, the judgment leaves key questions unresolved. How should judges assess the cumulative effect of multiple provisions? When is there truly a usable right to terminate? And how does the national system of partial nullity links to the EU requirement that unfair terms be disregarded entirely?

It also remains unclear whether tenants can retrospectively reclaim money if a lower court later deems a rent increase clause unfair, and if so, over what period. Given these gaps in the Supreme Court's reasoning, it is likely that lower courts will have to revisit these issues in future proceedings. Schaub remarks: "It is to be expected that several of these questions will resurface in a future preliminary ruling procedure."