On 13 August 2013 the preliminary relief judge of the Court of Oost-Brabant refused leave to invoke a letting clause although several tenants rented the property after the mortgage had been established.
In the above case the bank had filed a request seeking leave to invoke the letting clause. The bank filed this request with a view to the intended foreclosure of the collateral.
Invoking the letting clause in the deed of mortgage - in case of residential property only with the leave of the preliminary relief judge - banks can annul existing tenancy agreements if in the course of foreclosure debtors turn out to have rented out the property without the bank’s consent. One of the conditions of invoking the letting clause is that the property will fetch more if unlet than if let. Moreover, the letting clause cannot be invoked against tenants who were already renting the property at the time when the mortgage was established.
In this case the bank faced several tenants. The bank filed the request because a valuation report had revealed that the forced-sale value of the property if unlet was higher than if let.
One of the tenants, however, derived his right from a tenancy agreement dating back to before the establishment of the mortgage. By law the letting clause may not be invoked against this tenant. The preliminary relief judge then has to answer the question whether the leave may be granted for invoking the letting clause against the other tenants who acquired their rights after the mortgage was created.
The preliminary relief judge answered this question in the negative, based on the fact that the valuation report submitted by the bank only showed the forced-sale value of the property in let and unlet condition. As the letting clause cannot be invoked against at least one of the tenants, the preliminary relief judge considered the property to be let, with the relevant forced-sale value. The bank argued that it expected the forced-sales value to be higher if the property was inhabited by just one tenant. However, as the valuation report or other documents did not demonstrate that the number of tenants of the property affects the value, there was insufficient proof of interest in evicting the other tenants.
This court ruling testifies that if banks wish to invoke the letting clause against several tenants it is important to record when each tenant acquired his or her rights. In drawing up a valuation report banks will have to consider post-mortgage as well as pre-mortgage tenants. The valuation report will also have to demonstrate whether or not the value is conditional on the number of tenants in the property.
For more information, please contact our Real Estate & Construction team.