Breaking off negotiations was not unlawful
For many years, the parties had been conducting negotiations with each other on the future lease of a space in a new construction project. After the defendant withdrew from the project, the project developer held the defendant liable for the damage suffered. At the end of last year, the Limburg District Court rejected the claim: the defendant was free to break off negotiations. Lawyer Mathijs van Riet discusses the case and talks about precontractual liability.
The project developer had plans for the construction of a health centre in Maastricht. Between 2012 and 2015, the parties engaged in talks. Although in 2014 the defendant failed to see the point of the declaration of intent proposed by the project developer, in February 2015 the defendant did express its interest in eventually leasing a space in the health centre. The defendant also stated that it was as yet unknown how much physical space it would be willing to lease and that this depended on the lease price to be determined.
The defendant then conducted research into the possible activities it could operate in the health centre. The outcome of that research was negative, and after the parties continued negotiations for some time, the defendant pulled the plug in May 2017.
Damage due to breaking off negotiations
The project developer had incurred a lot of costs for the construction of the health centre, including the costs of the construction company and the architect and development costs. As the defendant was the only party that was interested in leasing space in the health centre, the project could no longer continue. In total, the project developer estimated its damage at more than 1.5 million euro. The project developer held the defendant liable for this damage.
CBB/JPO ruling by the Supreme Court of the Netherlands
In 2005, the Supreme Court of the Netherlands gave a standard ruling (a so-called CBB/JPO ruling) about the breaking off of negotiations. The starting point is that parties have contractual freedom and that they must be able to ‘flirt’ with each other without being liable for the costs of the other party. Breaking off negotiations would only be unlawful if (i) the other party could have a legitimate expectation that an agreement would be concluded or (ii) breaking off would be unacceptable in connection with other circumstances.
High threshold for liability
As a rule, claims for compensation because the other party broke off negotiations are not often allowed. A high threshold for liability applies. All the same, it is not the case that when negotiating, parties do not have to consider the interests of the other party. According to the Supreme Court, what matters most is to what extent the party that breaks off negotiations has contributed to the confidence of the other party in a good outcome.
Back to the case in Maastricht. The District Court held that the defendant was not liable for the damage of the project developer. Also in view of the reservations made by the defendant at the time, the undertakings made by the defendant in 2015 were insufficient for allowing such a claim. Therefore, the project developer could not have the legitimate expectation that a lease agreement would be concluded. Breaking off negotiations was not unacceptable. The claim was rejected.
Lawyer for negotiations and litigation
When negotiating an agreement, parties are in principle free to opt for another course. However, parties cannot completely disregard the legitimate interests and expectations of the other party. In particular when making undertakings, it is important to foresee the consequences.
Do you have any questions about negotiations for a contract, or can’t you work it out together? The lawyers of AMS Advocaten have many years of experience and will be happy to speak to you!