Real Estate alert - the Netherlands (September 2021)

Cap on annual rent increase

On May 1, 2021, the Dutch Rent Increase Cap for Liberalised Tenancy Agreements Act (Wet maximering huurprijsverhogingen geliberaliseerde huurovereenkomsten) entered into force. The act has an immediate effect, and thus not only applies to future lease agreements, but also to existing lease agreements. The act will remain in force for three years (until 1 May 2024). Within two and a half years, the effects of this new act will be reviewed in order to decide whether it should remain in effect longer than the initial period of three years.

Up to the new act entering into force, the parties to a liberalised lease agreement relating to residential real estate were free to decide on the percentage of a contractual annual rent increase. The new act affects this principle of freedom of contract for rent increases. In summary, under the new act:

• The maximum annual increase for rents under liberalised lease agreements is capped to that year’s inflation plus 1 percent. Any contractual arrangements that provide for an annual increase of the rent by a higher percentage than the aforementioned cap, is invalid insofar as the percentage exceeds the aforementioned cap.
• A landlord that invests in the property to improve the rental home, is still entitled to increase the rent with an amount of more than the aforementioned cap (inflation plus 1 percent), however the increase must be proportionate to the amount the landlord has invested. Any disputes relating to this topic will be handled by the Dutch Rent Tribunal.
• A landlord can no longer apply the possibility to get the rent raised by making a reasonable offer for a new lease agreement, whereby only the rent is increased. The refusal of such (reasonable) offer by a tenant will no longer provide the landlord legal grounds to terminate the lease agreement, independently of how much the rent would be increased.

Purchase protection relating to residential real estate

On July 6, 2021, the Dutch Purchase protection and extension of temporary letting Act (Wet opkoopbescherming en verruiming tijdelijke verhuur) was passed by the Dutch Senate. Currently, it is expected that the purchase protection will enter into effect on January 1, 2022 by an amendment of the Housing Act (Huisvestingswet).

The Dutch housing market is tight; there is great scarcity of housing in the low and middle segment. By introducing this purchase protection, the government wants to ensure that these houses remain available to be purchased by people who will live in them themselves.

In summary, the act provides Dutch municipalities the opportunity to designate residential areas within their municipal area for purchase protection. As a result, the houses in such area(s) may not be rented out during four years after the date of registration in the public registers of the deed of transfer to the new owner relating to such houses, unless the municipality has granted the owner a permit thereto. Such permit will only be granted in specific, extraordinary circumstances. A municipality needs to meet specific requirements to designate a residential property for purchase protection. Applying such a restriction will for instance require an amendment of the local housing ordinance (Huisvestingsverordering). Furthermore, the municipality will need to substantiate the necessity of applying such a restriction.

According to the text of the act, the municipality can only designate categories of residential real estate for purchase protection to the extent that:

a. these are cheap and medium-priced homes; and,

b. on the date of registration in the public registers of the deed of transfer to the new owner, such home:

1. was free of rent and use; or

2. was in rented condition for a period of less than 6 months; or

3. was rented out with a permit under the purchase protection; and

c. the date of registration in the public registers of the deed of delivery of such home to the new owner is after the purchase protection has entered into force.

The aforementioned residential real estate may only be rented out (again) by a new owner, if and when that new owner has obtained a new permit thereto.

Some municipalities (such as Amsterdam and Utrecht) have already announced that they intend to apply restrictions to all residential areas within their municipal area, while some municipalities are still considering their options. Again, municipalities cannot simply designate areas; municipalities must for instance substantiate the necessity and effectiveness of the planned measures, and explain why certain residential areas are designated (and others not, if applicable). Obviously this will leave room for discussion and might lead to (legal) objections by interested parties.

There are still quite some unclarities regarding this act on numerous subjects, such as the interaction between the act and the ‘lease prevails over sale’ principle and such as the impact on already concluded sale purchase agreements with envisaged delivery after the act has entered into effect.

Should you wish to know more about this or about other recent (announced) changes for the Dutch real estate market, or if you have specific questions on your existing portfolio or otherwise, please do not hesitate to contact us.