Negotiations broken off, land sold on: still liable for damages due to unjust enrichment?

When may you break off negotiations — and what are the consequences?

In real estate practice, lengthy negotiations over purchase agreements and extensions are commonplace. Parties invest years in planning, permit procedures and discussions with municipalities. But what if the seller pulls the plug at the last moment, sells the land to a third party — and in doing so benefits from all the work the developer has done?

The Dutch Supreme Court gave a significant answer to that question on 14 June 2024: even if breaking off negotiations is not itself unlawful, the party that breaks them off may still be obliged to reimburse the costs of the other party — in particular if it has been unjustly enriched by that other party's efforts.

The facts: years of negotiations, then the land sold to a third party

A property developer concluded a purchase agreement in 2016 for two plots of land in Amsterdam, with the aim of realising a project with housing, parking and commercial space. The total purchase price was just over € 2.5 million. The agreement contained the usual conditions subsequent: municipal cooperation, a minimum sales percentage and financing.

The process proved more complex than expected. The municipality exercised a pre-emption right over the plots, the developer conducted extensive discussions with the municipality and the zoning plan was long in coming. The parties extended the purchase agreement in 2018 via an extension agreement, under which the landowner received monthly compensation of € 10,000.

Before the extended term expired (1 July 2019), the parties again entered into negotiations about a further extension. Those negotiations broke down: the landowner wanted delivery by the end of 2019 at the latest, while the developer proposed an extension until mid-2020. Shortly after the term expired, the landowner announced that he was negotiating with a third party. In July 2020, he sold the plots to that third party — benefiting from the changed zoning (residential and supermarket) that had been achieved partly thanks to the developer's efforts.

District court and Court of Appeal: no liability for damages

The Amsterdam District Court and the Amsterdam Court of Appeal ruled against the developer. Their reasoning was straightforward: the extension agreement did not oblige the parties to keep negotiating until agreement was reached. The landowner had been entitled to set his own deadlines and conditions. Breaking off negotiations was not unacceptable by standards of reasonableness and fairness.

As to the developer's argument that the landowner had been unjustly enriched by his efforts, both courts barely engaged with it. The Court of Appeal dismissed this argument without substantive assessment.

The Supreme Court: the Court of Appeal missed a crucial argument

The Supreme Court quashes the Court of Appeal's judgment. The core of its ruling:

"Even if breaking off negotiations is not unacceptable by standards of reasonableness and fairness, circumstances may arise under which the party that breaks off negotiations is obliged to reimburse (part of) the other party's costs."

One such circumstance is unjust enrichment (Article 6:212 of the Dutch Civil Code). The developer had expressly argued that the landowner had been unjustly enriched:

• Thanks to his years of efforts, the municipality had changed the zoning of the plots to residential use and a supermarket.
• This had significantly increased the market value of the plots.
• The landowner had fully capitalised on that added value by selling the plots to a third party.

The Court of Appeal was required to assess this argument substantively. By failing to do so, it had insufficiently reasoned its judgment. The Supreme Court refers the case to a different Court of Appeal for further consideration.

What is unjust enrichment?

Article 6:212 of the Dutch Civil Code provides that anyone who is unjustly enriched at the expense of another is obliged to compensate that other person's loss up to the amount of the enrichment. For a successful claim of unjust enrichment, it must be shown that:

1. One party has been enriched (for example: a higher sale price due to changed zoning).
2. The other party has been impoverished (costs incurred, lost income).
3. There is a causal link between the enrichment and the impoverishment.
4. The enrichment is unjustified (there is no justification, such as a valid contract).

In this case, the developer argued that his efforts — the lengthy negotiations with the municipality, the objection procedures and the planning work — directly contributed to the zoning change that made the plots so much more valuable. If that is correct, all four requirements are satisfied.

The distinction: unlawfully breaking off vs. obligation to reimburse without unlawfulness

This judgment draws an important distinction that is frequently overlooked in practice:

Unlawfully breaking off negotiations (established law since Plas/Valburg): this requires that breaking off is unacceptable by standards of reasonableness and fairness. The breaking-off party must then compensate the positive contractual interest: the loss suffered by the other party because the contract did not come about.

Obligation to reimburse without unlawfulness: even if breaking off is permissible, the party that breaks off may be obliged to reimburse the negative contractual interest (costs incurred) or — as here — to account for unjust enrichment. This is a lower threshold and does not require unlawful conduct.

These two avenues exist alongside each other. The Supreme Court emphasises that courts must assess both avenues independently and may not abandon one because the other fails.

What does this mean in practice?

Are you a property developer? If you have made years of efforts for a project and the seller subsequently benefits from those efforts by selling the land to a third party, you may have a claim for unjust enrichment — even if breaking off the negotiations was not itself unlawful. Carefully document the efforts you have made and how they contributed to the increase in the value of the land.

Are you a landowner or seller? Be aware that breaking off negotiations, especially after a prolonged period of cooperation, can carry legal risks. If you benefit from the other party's efforts — for example because they contributed to a zoning change or permit — you may be required to return that benefit (in part).

Record agreements on cost allocation in writing. In extension agreements and letters of intent, it is advisable to explicitly record what happens to costs incurred if negotiations break down. This avoids later disputes about who is entitled to what.

Take the negative contractual interest into account. Even if you are formally entitled to break off negotiations, the costs incurred by the other party may be for your account if they result from expectations you have raised.

Conclusion

This Supreme Court judgment is an important warning for anyone negotiating over real estate development: breaking off negotiations is not automatically risk-free, even if it is formally permitted. Those who benefit from the other party's efforts without reimbursing them may be liable on the ground of unjust enrichment. The referring court will in all likelihood award compensation to the developer in this case.

Ruling

This blog post is based on ECLI:NL:HR:2024:884, judgment of the Dutch Supreme Court of 14 June 2024.