Arnhem-Leeuwarden Court of Appeal creates clarity: Acantus judgment not applicable to ESCo constructions

In the above-mentioned blog we wrote that the consequences of the Acantus judgment are clear: if the landlord also supplies heat to its tenants, it must discount the capital and maintenance costs of the heat and cold storage installation (if it can be considered an immovable property) in the basic rent. However, district courts ruled differently as to whether this was also the case with so-called "energy service companies" (also known as ESCos), in which not the landlord but a third party (an ESCo/energy supplier) supplies the heat/cold to the tenants.

In its judgment of May 13, 2023, the Subdistrict Court of the District Court of Midden-Nederland ruled that a landlord who obliges a tenant to enter into a heat supply agreement with a third party is also obliged to pay the investment and maintenance costs for the CHP installation. The Subdistrict Court of the District Court of Amsterdam also recently rendered a similar opinion, referring moreover explicitly to the aforementioned ruling of the District Court of Central Netherlands.

Although other courts have ruled that the landlord in an ESCo construction did not have to pay the investment and maintenance costs for a CHP plant to the tenant, uncertainty remained with the ruling of the Central Netherlands court.

On September 10, 2024, the Arnhem-Leeuwarden Court of Appeal delivered its judgment in the appeal against the May 10, 2023 judgment of the Central Netherlands District Court. Unlike the Subdistrict Court, the Court of Appeal is of the opinion that it does not follow from the Acantus judgment that the landlord owes the tenant the investment and maintenance costs for the WKO installation. In this blog, we will highlight the two relevant considerations.

First of all, the Court of Appeal - in agreement with the Subdistrict Court - establishes that in this specific case the WKO installation and the delivery set are immovable appurtenances within the meaning of Section 7:233 of the Dutch Civil Code. The WKO installation is physically connected to the leased property and by its nature belongs to the usual equipment level of each apartment in the complex. Moreover, the WKO installation is specifically intended for the heating of the apartments in the Tuindorp complex (four buildings) and is geared to that purpose. In this respect, this case also differs from gas connections and district heating (for entire neighborhoods). In line with the Acantus judgment, the Court of Appeal considered that the fact that Eteck is the owner of the WKO installation is not relevant to the question of whether there is an immovable appurtenance within the meaning of Section 7:233 of the Dutch Civil Code.

Secondly, the Court of Appeal - unlike the Subdistrict Court - considers that the scope of the Acantus judgment is limited to cases in which the lessor is also the supplier of heat/cold or can be identified with it (which is not the case here either). Indeed, the particularities and limitations of lease law do not apply to contracts with third parties. If a third party provides the heat, the Heat Act protects the tenant with maximum rates. If the landlord does not supply heat/cold and does not charge the tenant for this - while at the start of the tenancy for the dwelling the tenant had to enter into a heat supply agreement with an ESCo, which supplies the heat/cold and charges the costs for this to the tenant - there can be no question in the relationship between landlord and tenant that the investment and maintenance costs of the CHP installation must be deemed to be included in the (bare) rent of the dwelling. According to the Court of Appeal, in such a case there is nothing to show that the tenant actually pays "double" for the investment and maintenance costs of the WKO installation.

What is striking is that in its ruling, the Court also explicitly considered that a different starting point would have a socially and politically undesirable inhibiting effect on the realization of sustainability initiatives, such as the present CHP installation, whose investment costs are higher than for traditional heating installations.

With the Court's ruling there seems to be clarity as to whether the Acantus judgment also has implications for ESCo constructions. In any case, we agree with the Court that, from the perspective of making the built environment more sustainable, it is socially desirable that the subdistrict court ruling - regardless of whether it is legally correct - has been overturned.

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