Dutch Heating Supply Act Revised: Consequences for Landlords

Posted in Dutch Property Law, Dutch Real Estate Law, governing law, property law, real estate

Introduction

Starting 1 July 2019, the scope of the Dutch Heating Supply Act (Warmtewet) (the Act) will be revised. The revision will have significant consequences for landlords of residential units or business space (including office and retail) who supply heat to their tenants. As of July 1, landlords will be exempted from the Act.[1] This blog post explains the current obligations of landlords pursuant to the Act and the consequences of the Revised Act for landlords.

Current Heating Supply Act

Currently, landlords who lease out at least 25 residential units or landlords of business space who supply heat through a connection to a maximum of 100 kilowatts to their tenants qualify as “heat suppliers” under the Act. As a result, they are subject to the Act. The Act imposes various obligations on heat suppliers, for example:

  • executing a heat supply agreement with tenants (with certain mandatory elements);
  • charging no more than the statutory maximum prices and other reasonable costs to tenants;
  • providing a full and sufficiently specified invoice at least once a year;
  • notifying the Dutch competition authority (Netherlands Authority for Consumers & Markets) (Autoriteit Consument & Markt); and
  • under certain circumstances, being subject to a permit from the Dutch competition authority.

These obligations impose a significant administrative burden on suppliers. Most of these obligations will no longer apply for landlords under the Revised Act.

Consequences of the Revised Act

Pursuant to the Revised Act, “landlords” owning residential or business space for lease purposes will no longer qualify as heat suppliers and will be exempted from (most of) the obligations imposed by the Act. The requirements concerning the method of measurement of heat consumption pursuant to articles 8 and 8a of the Act will, however, continue to apply for such landlords. Pursuant to these articles, heat suppliers must, inter alia, charge costs for heating supply based on an individual heat meter or based on a cost distribution system (kostenverdeelsystematiek) which clearly sets out the costs for all tenants.

Under the Revised Act, the rules regarding service costs under tenancy law will be applicable to landlords of residential space that supply heat to their tenants (e.g., pursuant to the Dutch Civil Code or Service Costs Decree (Besluit servicekosten)). Contrary to rules concerning residential space, no specific statutory rules on service costs in connection with the lease of business space are in place. This allows parties to arrange the distribution of such costs in the lease agreement (in accordance with articles 8 and 8a of the Act).

Starting 1 July 2019, landlords are no longer obliged to execute heat supply agreements with their tenants. Previously executed supply agreements declaring the Act applicable, however, remain in force. Landlords could, in consultation with each tenant, amend those agreements in such a way that the Act is no longer applicable, or try to terminate the agreement on other grounds.

[1] Other provisions of the revision will enter into effect on 1 January 2020. In this post we only explain the exemption of landlords starting 1 July 2019.

For more on Dutch real estate law, click here.

Modern Technologies and Personal Data Processing in Real Estate

Posted in data protection, Dutch Property Law, Dutch Real Estate Law, GDPR, privacy, real estate

Introduction

Modern technologies and personal data are increasingly important for real estate businesses. Robotics, Wi-Fi tracking, augmented and virtual reality, sensor technology, and the Internet of Things (e.g., a physical smart object in an internet-based structure) are some of the technologies being used. Through such modern technologies, a landlord has access to a large amount of data with respect to the owned property.

Collecting, sorting, and analyzing such data can provide the landlord with new insights on the building and its users, and can enable the landlord to predict their behavior. The accuracy of such predictions will generally improve if the landlord can develop a large dataset and combine a variety of information (e.g., by using data from a real estate portfolio). Predicting the behavior of a building’s users can, amongst other things, improve the service level, help retain tenants, and reduce maintenance costs.

The technological possibilities for data processing in real estate seem endless. However, the legislature has put in place certain limits.

Statutory limits to personal data processing in the EU

Under the EU General Data Protection Regulation (GDPR), processing of personal data requires a legal basis (e.g., consent or the execution of a contract). Personal data can in principle only be processed for specified and legitimate purposes. Data subjects must be informed about all personal data processing, and the data controller cannot freely share the personal information with third parties. In addition, using personal data to predict a person’s behavior and for decision-making may qualify as “profiling” and “automated individual decision-making” under the GDPR.

Profiling and automated individual decision-making have a somewhat negative connotation, as they are believed to create unfair stereotypes and social division. As a result, profiling and automated individual decision-making are subject to scrutiny. Profiling under the GDPR is “any form of automated processing carried out on personal data for the purpose of evaluation of certain personal aspects to a natural person, in particular to analyze or predict aspects with regard to work performance, economic situation, health, personal preferences, interests, reliability, behavior, location or movements”.

Automated decision-making under the GDPR is defined as “making a decision by technological means without human involvement”.

Data subjects must be informed about any profiling or automated individual decision-making that occurs, the logic employed to justify such profiling, and the expected consequences of the processing. In addition, data controllers must consider objections against personal data processing, which can be made at any time.

The Dutch Data Protection Authority has stated (link in Dutch) that the tracking of people in the street, in shopping centers or stations via their mobile devices is only allowed in a few rare cases and under strict conditions. It is only allowed, according to the Dutch Data Protection Authority, if explicit prior consent is obtained or if there is a legitimate purpose. Based on this decision by the Dutch Data Protection Authority, tracking activities are only allowed if limited to specific periods and areas and where truly necessary. At other times and places, this measuring equipment should be turned off (link in Dutch). The Dutch Data Protection Authority has already imposed an order (link in Dutch) on Bluetrace, subject to penalty for noncompliance (last onder dwangsom), under the former Dutch Data Protection Act. The company was providing technology which could be used to track Wi-Fi signals of mobile devices arounds stores. Bluetrace had to stop collecting personal data from neighboring residents, erase or anonymize data from shopping passers-by, and provide information in and around the stores about the data processing.

Although the use of data in real estate has much broader applications than WIFI-tracking, the mentioned examples do illustrate the fine line between the technical possibilities for processing personal data and the statutory limits.

Conclusion

Non-compliance with GDPR requirements may lead to severe fines. The regulatory limits to personal data processing do not mean, however, that modern technologies can no longer be used. While the benefits of modern technologies remain available for both landlords and tenants, such technologies must be used in a transparent, fair, and lawful manner. Landlords, amongst other affected parties, will have to address the use of such modern technologies in their lease agreements and privacy policies.

Click here for more on GDPR.

New sustainability clause for ROZ lease agreement office space

Posted in Dutch Property Law, Dutch Real Estate Law, energy label, English Language, governing law, property law, real estate

As reported in our November 2018 GT Amsterdam Law blog post, use of an office building without a minimum energy label C (an energy index of 1.3 or better) will be prohibited as of 1 January 2023.

In view of this prohibition in the Dutch Buildings Decree, the ROZ (Dutch Real Estate Council) has established a new sustainability/green lease provision for the ROZ model Office Space 2015. The new model clause allows the landlord and the tenant to draft agreements on how to comply with the Label C obligation for offices by the 2023 deadline. The clause urges both the landlord and the tenant to consider which energy-saving measures they want to implement and who will bear which costs.

The new model clause has two options: one for when the office building already meets the Label C requirement, the other for when the office building does not. In the first option, both the landlord and the tenant are responsible for choosing the most energy-saving measures in carrying out any maintenance, repair, or renewal to the leased property. In the second option, the landlord and the tenant must determine the necessary measures to meet Label C requirements and divide those responsibilities. Once the leased premises meet the Label C requirements, as in the first option, both the landlord and the tenant are responsible for choosing the most energy-saving measures for any maintenance, repair, or renewal to the leased property.

Furthermore, the new model clause contains language applicable to both situations. If the leased property requires additional energy-saving measures to comply with potential future legislation that is even better than Label C, the division of maintenance/repair/renewal responsibilities between the landlord and the tenant, as stated in Article 11 of the General Provisions, prescribes each party’s responsibility to contribute to the costs of such additional measures. Should the landlord and the tenant not come to an understanding of who takes on which part of the costs, the landlord is entitled to terminate the lease agreement with due observance of six months’ notice (!). The new model clause also addresses the situation in which the tenant has invested in energy-saving measures and how parties should deal with these measures at the end of the lease agreement.

Parties to office building lease agreements, particularly the tenants and the landlords in situations where the building does not comply with Label C, or future legislation prescribes further energy-saving measures more green/efficient than Label C, should pay careful attention to the current and future drafting and negotiation of lease agreements.

OFAC Crystalizes Its Expectations for Economic Sanctions Compliance Programs

Posted in international litigation

On May 2, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published A Framework for OFAC Compliance Commitments, which details more than 10 pages of long-standing OFAC practices on corporate economic sanctions compliance programs. With this publication, companies operating internationally are now on notice that compliance program elements that used to be simply “best practices” guidance will now be expected by OFAC. With the recent strengthening of certain sanctions regimes in countries such as Iran and Venezuela, the release of the guidance is both timely and telling. Companies – both U.S. and non-U.S. – conducting international business should take note and ensure their existing compliance programs include OFAC-enumerated elements.

Click here to read the full GT Alert.

Greenberg Traurig Shareholder Radboud Ribbert Quoted in Law 360 Intellectual Property Article

Posted in dutch patents, intellectual property, Intellectual Property Litigation, patents, pharmaceuticals

Radboud Ribbert from Greenberg Traurig LLP’s Amsterdam office was recently quoted in a Law360 Intellectual Property article. The article focuses on a recent amendment to the Dutch Patents Act (Rijksoctrooiwet) to include a limitation of the exclusive right of the holder of a patent on a medicine, the Pharmacist’s Exemption.

The full article can be read here (subscription required).

EU Parliament Approves Heavily Disputed Copyright Directive

Posted in Copyright, digital single market, European Directive, European Union Law, Intellectual Property Litigation

On March 26, the parliament of the European Union approved the “Directive on copyright in the Digital Single Market”, one of the most heavily disputed legislative acts in EU history. The Directive now has to be approved by the member states in the European Council, which is usually a formality (and will possibly happen on April 9).

First published as a draft in 2016 as one of the first activities in the EU’s Digital Single Market strategy, the Directive has become infamous in recent months due to the almost unparalleled controversy about, mainly, its Articles 11 and 13 (which in the final text became Articles 15 and 17).

Click here to read the full GT Alert.

Exit Provisions in Joint Venture & Shareholder Agreements: Lessons (to be) Learned – Looking Across the Ocean

Posted in contracts, Corporate Law, private equity

Legal scholars have been debating the method by which contractual provisions should be interpreted in the Netherlands since 1981, when the Dutch Supreme Court rendered its landmark Haviltex decision on the interpretation of contracts. Even though numerous relevant Dutch court decisions on contract interpretation have followed, the debate remains quite alive.

Irrespective of the applicable law, it is imperative for investors – such as private equity parties – to be precise when drafting exit provisions in joint venture or shareholder agreements. Across the ocean in the U.S., this was demonstrated in the Oxbow Carbon & Minerals Holdings, Inc. V. Crestview-Oxbow Acquisition, LLC decision rendered by the Delaware Supreme Court on Jan. 17, 2019. The Delaware Supreme Court provided guidance for investors drafting such provisions, which guidance can also be of relevance in other jurisdictions.

The Facts

A dispute arose as to whether two minority investors could force their co-investors to sell their equity interests (Units) by exercising their ‘Exit Sale Right’. The conditions for exercising this Exit Sale Right were laid down in the Limited Liability Company Agreement (Contract) entered into among all investors.

An Exit Sale was defined in the Contract as the “transfer of all, but not less than all of the then-outstanding Equity Securities of the Company and/or all of the assets of the company to any non-Affiliated Person(s) in a bona fide arms’-length transaction or series of related transactions (including by way of a purchase agreement, tender offer, merger or other business combination transaction or otherwise).” The Contract provided that the unidentified minority investors were entitled to drag the other investors in an Exit Sale.

The Exit Sale was, however, conditional, providing an investor could not be forced to sell its Units in the Exit Sale unless the investor received distributions equal to or higher than 1.5 times the investor’s initial capital contribution. This condition could not be fulfilled in relation to certain investors, each of whom obtained a minority equity interest in the company at a later time than the other investors and paid a higher price for their Units (the Small Holders).

Arguments

As to the proper interpretation of the exit provision, the parties’ arguments could generally be categorized as follows:

  • The Blocking Argument: If an Exit Sale does not satisfy the 1.5 times requirement for any investor and that investor chooses not to participate, then the Exit Sale cannot go forward, because it no longer would involve ‘all, but not less than all’ of the then-outstanding securities.
  • The Leaving Behind Argument: If an Exit Sale does not satisfy the 1.5 times requirement for any investor, then that investor can choose to participate in the Exit Sale, but cannot be forced to sell, and the Exit Sale can proceed without such investor. The other investors which satisfy the requirement, however, can be forced to participate in the Exit Sale.
  • The Top Off Argument: Assuming the ‘Blocking Argument’ were to be adopted and the Exit Sale would not satisfy the 1.5 times return on investment, the Exit Sale should still be able to proceed if the Small Holders (being the plaintiffs) were provided an additional amount of the sale proceeds such that they receive the 1.5 times return required by the Exit Sale provisions. This would effectively mean that the Small Holders would receive a higher purchase price than the other investors.

Dutch Legal Practice

The court in first instance found a gap in the Contract and used the implied covenant of good faith and fair dealing to imply a provision into the Contract which allowed the two minority investors to complete the Exit Sale if they came up with sufficient additional funds to satisfy the 1.5 times return for the Small Holders. The Delaware Supreme Court, on appeal, found that the court of first instance erred by finding that a gap existed in the Contract and implying a provision to fill such gap. Giving meaning to all of the provisions of the Contract, the Exit Sale provisions could only mean that an Exit Sale could not proceed where it does not satisfy the 1.5 times return for any of the investors and pay all of the investors the same consideration (which would result in paying all investors the amount necessary to satisfy the 1.5 times return for any investor). The Court found that the investors, being sophisticated parties, could have anticipated the impact that the admission of new investors would have on the Exit Sale, but did not elect to alter the Contract. The Court reiterated that the implied covenant of good faith and fair dealing should not be used as an equitable remedy to rebalance economic interests.

Dutch courts are in principle reluctant to fill any gaps by way of interpreting a contract (see Dutch Supreme Court, Dec. 9, 2016, ECLI:NL:HR:2016:2821, JOR 2017/55), even though the Dutch contract law doctrine of reasonableness and fairness could expand or limit the legal effects arising from a contract, which may lead to a similar result (see Clause 6:248, Dutch Civil Code ).

What the Delaware Supreme Court decision shows, irrespective of any debate on interpretation, is that clear drafting as well as identifying and addressing all potential contingencies remain vital, not only in private equity structures but in any contractual situation. This should be kept in mind in an era of ever-increasing deal speed and desire to reduce costs.

Lessons to be Learned

The Delaware Supreme Court decision highlights the need for parties drafting exit provisions in joint venture or shareholder agreements to address all potential contingencies, summarized as follows:

  • If the exit provisions include a minimum return on investment requirement, the contract language should be clear on whether that minimum return on investment requirement creates a blocking right or a leaving behind right.
  • Determine whether you want to have the flexibility of a topping off option or if the minimum return requirement may only be satisfied upon pro-rata and equal distribution of an exit sale’s proceeds.
  • Be careful to address how any minimum return on investment requirement will apply to any potential future (minor or major) shareholders/investors.
  • Be explicit regarding what type of exit sale (e.g., assets or equity) a member can force.
  • Be explicit how a leaving behind concept would work in the event of a sale of all of the assets of the company.

Any questions regarding Delaware law may be directed to GT Delaware office Managing Shareholder Diane Ibrahim.

For more on Dutch contract law, click here.

The ePrivacy Regulation: The Next European Initiative in Data Protection

Posted in data protection, digital single market, ePrivacy, EU, European Directive, European Union Law, GDPR, privacy, Uncategorized

While many are still digesting the changes brought about by the EU General Data Protection Regulation (GDPR), a new privacy regulation is already on its way. The Regulation Concerning the Respect for Private Life and the Protection of Personal Data in Electronic Communications – in short, the ePrivacy Regulation  – is currently a draft under discussion (the latest version by the EU Council was published on 13 March 2019).

Unlike the GDPR, the draft ePrivacy Regulation focuses on privacy with respect to electronic communication services and on the data processed by electronic communication services. This means that in relation to such communication services, the ePrivacy Regulation provides the specific obligations that flesh out the more general provisions of the GDPR. The draft ePrivacy Regulation covers more than just data protection law; it also relates to non-personal data, such as metadata. Lastly, the draft ePrivacy Regulation contains provisions on telecommunication confidentiality.

Click here to read the full GT Alert.

European Law-Based Parental Tort Liability – Also in Civil Tort?

Posted in Antitrust, Competition Law, Corporate Law, EU, litigation, mergers and acquisitions

The European Court of Justice ruled on March 14, 2019, that a parent company can in national civil tort proceedings also be held liable for the damage caused by a competition infringement committed by its subsidiary where such parent company (that holds all the shares in the subsidiary) has dissolved its subsidiary but continued the subsidiary’s economic activity.

Background

In 2004, the Finnish Competition Authority imposed fines on the participants in a Finnish asphalt cartel that existed between 1994 and 2002. By 2004, one of the cartel participants had been dissolved in voluntary liquidation proceedings and its assets acquired by its sole shareholder. Such sole shareholder continued the economic activity of its liquidated subsidiary. Based on the principle of ‘economic continuity’, the Finnish Competition Authority fined the shareholder for the competition infringement committed by liquidated subsidiary.

An alleged victim of the cartel claimed compensation from all companies that had been fined by the competition authority – including the above-mentioned sole shareholder – for the damage it incurred because of the cartel. In response, the sole shareholder argued as defense that it could not be held liable for the alleged harm caused by the anticompetitive behavior of another legal entity (i.e., its subsidiary).

Lower Court Rulings

The Finnish District Court and Court of Appeal reached diverging conclusions on the argument raised by the sole shareholder in its defense. Hence, the Finnish Supreme Court posed the following preliminary questions to the European Court of Justice (ECJ):

  1. Will EU law or national Finnish law determine who is to be liable for the damage caused by an infringement of Article 101 of the Treaty on the Functioning of the European Union (TFEU)?
  1. If EU law is to determine who is liable, should the EU concept of ‘undertaking’ also apply in private damages proceedings?
  1. If ‘national law’ is to determine the liable party, does the principle of effectiveness of EU law require that the parent companies in the case at hand be held liable for the damage of their dissolved subsidiaries?

ECJ Ruling

The ECJ ruled that it is for EU law to determine who is liable for harm caused by an Article 101 TFEU infringement. According to the ECJ, Article 101 TFEU says that a parent company is liable for the damage caused by its subsidiary when – as in the underlying case – the subsidiary that committed the infringement has been dissolved and the parent company continued the subsidiary’s economic activity.

The ECJ underscored that the right of parties to claim damages is also an integral part of the enforcement of EU competition law, a system that aims to deter companies from engaging in such conduct. If a company could escape liability by means of corporate or legal restructuring, the objectives of EU competition law would be compromised. Therefore, the notion of ‘undertaking’ should have the same meaning and scope in the context of the imposition fines by the EU Commission as in the context of private damage claims for violation of EU competition rules.

Conclusion

This judgment warrants serious consideration not only by competition law experts but by all involved in the transfer of assets and underlying businesses. A parallel can easily be drawn to situations where one party continues the economic activity of an (unrelated) party which committed a competition infringement, circumstances that can easily arise in common asset transactions by which a business is transferred. It will, among other considerations, require a more strategic approach to due diligence in relation to asset deals, pertinent representations and warranties, and the use of Warranty & Indemnity insurance.

Nike Fined €12.5 Million for Restricting Intra-EEA Sales

Posted in Antitrust

In a warning shot to businesses using intellectual property rights to restrict cross-border sales within the European Economic Area (EEA), on 25 March 2019 the European Commission fined Nike €12.5 million for banning traders of licenced football merchandise from selling to other EEA countries. The decision underscores the Commission’s commitment to eliminating commercial practices that threaten the integrity of the internal market to the detriment of consumers.

To read the full alert, click here.

To read more about antitrust issues, click here.

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