Normally speaking, an agreement is only effective between the parties to the contract. In case of property, however, it may be agreed that a certain obligation will transfer to the new owner in case of sale. This will always be an obligation to tolerate or to refrain from doing something, and concerns a qualitative obligation within the meaning of Book 6, article 252 of the Dutch Civil Code. For a qualitative obligation to be effective, it has to be recorded by the civil-law notary in a notarial deed and also has to be entered in the public registers (Land Registry). Future owners will then by operation of law (automatically) be bound by the clause.
In practice, the perpetual clause is often confused with the qualitative obligation within the meaning of Book 6, article 252 of the Dutch Civil Code. A perpetual clause is a clause in a purchase deed that has to be passed on to each subsequent new buyer. Unlike with the qualitative obligation, this does not happen automatically, as it requires a legal act. The perpetual clause may be helpful if the concept of the qualitative obligation does not apply. This is the case if there is an obligation to give or do something – the qualitative obligation is not suitable for this purpose.
A perpetual clause that often occurs in commercial property is used to record that a certain type of business (the competitor) is prohibited from establishing its business there. In such case, the buyer undertakes in respect of the seller to include in an agreement with any future new owner the same obligation as the obligation the buyer has undertaken in respect of the seller. In his turn, the future owner will be obliged to include the clause in any transfer at a later time. A penalty clause is often linked to the perpetual clause to give additional force to the perpetual clause.
The criterion formulated by the Dutch Supreme Court, i.e. that all circumstances of the specific case, valued at what is required by the principles of reasonableness and fairness, are of decisive importance, should be the starting point for the interpretation of the perpetual clause. The clause therefore should not be interpreted on the basis of the linguistic meaning of its wording only.
The property lawyers of AMS Advocaten have extensive experience in advising and litigating in the area of property, including matters such as the perpetual clause. Our lawyers are deeply involved in their clients’ affairs, work with short lines, and offer competing rates.