Beware of gag clauses: valid only with sufficiently concrete delineation!

Such clauses are called "gag clauses." Are they permissible? Yes, in principle, gag clauses are permissible provided two conditions are met: 1) it must be specifically defined to which the clause applies and 2) the clause may not extend to legal successors. The gagging clause recently submitted for review to the Court of Appeal of Den Bosch did not meet these conditions and was deemed null and void. The judgment (dated March 10) especially emphasizes the importance of concrete delimitation.

Thus, the current line in (lower) case law - the Supreme Court has not yet explicitly ruled on this - is that gag clauses are permitted. However, if such a clause is formulated too generally and indefinitely and/or states that it must be passed on to legal successors (with a chain clause or qualitative obligation), then the entire clause is null and void (and therefore not enforceable). For some examples from case law, see Hof Den Bosch 9 May 2017, ECLI:NL:GHSHE:2017:2096 and Rechtbank Amsterdam 6 January 2010, ECLI:NL:RBAMS:2010:BR2022.

Please note that the administrative judge - who rules on the planning measure or environmental permit against which the appeal is made - does not care much about gag clauses: the objector or appellant is usually just admissible, but thus at the same time may default on his contractual obligation (and forfeit a possible associated fine).

The March 20 ruling.

An owner of a plot of land - appellant to the court - sold and delivered part of it to a developer - appellant to the court - , who would subdivide it into four plots for residential development. On the remaining, the owner practiced a landscaping business. The purchase agreement stated the following:

"Seller has established a landscaping business on the remaining and belonging to him on the part of the plot Municipality of [place of residence] , section [section letter] , number [section number] since January 2001. This part of the plot [section + section number] is located behind his residence at the [address] in [place of residence] . The buyer or his legal successors must declare in the agreement to be fully aware of the fact that the seller has given this destination to the said plot. Should the municipality or the seller wish to formalize this zoning by including the zoning in a zoning plan for the site, the buyer or his successors in title undertake not to object in any way to any aforesaid zoning to be obtained or to submit one or more requests for plan damage, administrative compensation or any other (public law) compensation and undertakes to impose this obligation by way of a chain clause on his successor(s) in title in whatever sense, as long as said zoning has not been definitively obtained."

The developer subsequently realized the homes and sold them to third parties. One of the four homes was purchased by Mr. and Mrs. X. The deed of conveyance failed to include the chain clause / gagging clause described above. To remedy this, a rectification deed was presented to them, which still included the chain clause. Mr. and Mrs. X refused to cooperate with the aforementioned rectification. They further objected to the zoning plan adopted by the City Council, insofar as it related to the owner's remaining plot. This objection eventually led to an appeal procedure before the Administrative Law Division of the Council of State; in that procedure, Mr. and Mrs. X's appeal was partially upheld and the zoning plan was partially annulled. Mr. and Mrs. X also objected to the environmental permit to build a new shed at the landscaping company.

The owner takes the position that the developer defaulted in the performance of the purchase agreement because when the property was sold to Mr. and Mrs. X, the aforementioned chain clause / gagging clause was not included. The owner thereupon claimed in court the contractual penalty of EUR 50,000. However, the court ruled against the owner and ruled that the gagging clause was null and void because it was contrary to public policy (within the meaning of Article 3:40 of the Dutch Civil Code).

Insufficiently concrete delineation

The Bossche court followed the court's lead.

To this end, the court points out that the term "landscaping business" from the gagging clause is not unambiguous. What the nature, size and design possibilities of the business will be depends on the plan rules in the zoning plan. A reasonable interpretation implies that the gagging clause includes objections to one or more of those plan rules. Because no draft zoning plan had been made available for inspection at the time the purchase agreement was entered into, the developer (and his legal successors) did not know the scope of the clause. Like the district court, the court of appeals is of the opinion that the clause does not delineate sufficiently concretely what it refers to. In addition, the clause is not only addressed to the buyer (the developer), but also to as yet unknown third parties who, by including the perpetual clause, would also have to waive legal protection possibilities in the aforementioned broad sense.

It is also important to note that at the time the sale was concluded, it was unknown how long the limitation in legal protections would last. The clause states that the restriction applies as long as the landscaping destination "has not been definitively obtained." A reasonable interpretation of this phrase entails that it must be assumed that the aforementioned limitation in legal protection possibilities only ends when the new zoning plan in which the landscaping business is included is irrevocably adopted. Because no draft zoning plan had been made available for inspection at the time the sale was concluded, it was uncertain how long the period in which the legal protection possibilities would be restricted would last.

Violation of the Constitution, ECHR and BUPO

According to the court, a gagging clause, as agreed in this case, should be deemed inadmissible in view of Article 17 of the Constitution, Article 6 ECHR and Article 14 BUPO. In the court's words:  

"Article 17 of the Constitution provides that no one can be deprived against his will of the justice granted him by law. Moreover, under Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) and Article 14 of the International Covenant on Civil and Political Rights (ICCPR), everyone has the right to a fair and public hearing by an independent and impartial tribunal established by law.These arefundamental legal principles which aim to ensure the legal protection of citizens, and which cannot, without being sufficiently concretely limited, be denied to the purchaser of an immovable property and to any successive acquirers."

Conclusion

It is possible to agree with a buyer not to pursue legal remedies against a particular specific planning measure or permit. But then you cannot agree that the buyer will pass on this obligation to a successive owner. Under the current state of the law, the gagging clause is then completely void (i.e., including the agreement between the owner and the "first buyer"). On that point, therefore, this case goes wrong anyway.

The judgment further underscores the importance of concrete delineation of what the clause applies to. According to the Court of Appeal of Den Bosch, the reference to a future zoning plan (allowing for a certain development) whose exact content is not yet known is insufficient. In that light, contracting parties - and of course especially the party in whose interest the clause is included! - would do well to define its scope as precisely as possible. This could be done - for example - by referring to a concrete building plan, a draft application for an environmental permit or draft plan rules.

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