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    Lease goes before sale, and so does right of first refusal today?!

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  • The phrase "lease goes before sale" is widely known. Briefly, this legal provision means that the transfer of a leased or rented item of property does not terminate the lease or tenancy agreement. By operation of law, the lease or tenancy agreement passes together with the transferred property to the successive lessor or landlord. However, since the ruling by the The Hague Court of Appeal on 14 July 2015, it has become possible to add (in certain circumstances): "the lessee's right of first refusal goes before sale".

    As early as 1923, the Supreme Court ruled that the principle of 'lease goes before sale' must be restricted to rights and obligations that concern the use of the leased property for a specific consideration. In principle, a right of first refusal was not included and could not be invoked against a new owner, the Supreme Court held in 1923.

    However, the Supreme Court's view on this issue was frequently criticised in specialist literature. Later, the Supreme Court confirmed its opinion, asserting that "a right of first refusal shall not pass to the new owner by operation of law, unless it is clear that the lessee pays a compensation for the right of first refusal."

    In actual practice, such a "right of first refusal" is often included in a lease agreement. So as to ensure that a lessee can exercise his right with respect to a new owner, he is advised to include, in the lease agreement, the provision that a compensation is paid for the right of first refusal, and to oblige the lessor – subject to a fine – to transfer the right of first refusal to a new owner on the basis of contract takeover.

    The Court of Appeal held recently that when a lessee has invested significantly in a house, on the assumption of eventually being able to buy the house, a successive lessor must consequently be bound by the right of first refusal. In practice, this ruling is important for both lessees/tenants and lessors/landlords. Successive lessors will possibly be longer bound by the right of first refusal. In the event of a sale by a successive lessor, any obligation to offer will have to be assessed properly.

    If you would like to find out more, please contact Jordie Bakker or Joris Bal.