Buying property on ground lease in the Netherlands
Ground lease (erfpacht) in the Netherlands is a real right: it can be transferred to someone else and will be registered in the real estate registry (Kadaster) in The Netherlands.
Buying property on ground lease
If the leaseholder transfers his right to ground lease, the conditions of the ground lease will not change; the full package of rights and duties is transferred to the Buyer. When the lease holder ceases, then the lease hold will pass to his successors. The ground lease right is only continued if it is not a temporary ground lease (for 30 or 50 years). In the city of Amsterdam the ground lease is always extended and can also be entered into perpetually (eeuwigdurende erfpacht).
Dutch law on ground lease is limited
The section of the Dutch Civil Code has 16 paragraphs on ground lease only. The statutory rules on ground lease are therefore is very limited in The Netherlands. A ground lease contract therefore usually consists of general conditions defines most of the rights and obligations of the owner of the land and the lease holder. These ground lease conditions (erfpachtvoorwaarden) come in all sorts and variations. These conditions are subject to an fairness test incorporated in the Dutch Civil code. Also the Unfair contract terms directive (93/13/EEC) applies in case the leaseholder is a consumer. The great differences in lease conditions means there are many varieties of ground lease in The Netherlands. In case of disputes a Dutch real estate lawyer will study the ground lease conditions applying to the specific ground lease contract and advice on that.
Dutch ground lease usually issued for long period
Amsterdam has more than 200,000 ground lease contracts outstanding. To these lease contracts the general conditions (algemene bepalingen) of the city of Amsterdam apply. The ground lease right is very often issued for a long period, for example 30 or 50 years or perpetually. The annual usage fee (canon) of the ground lease can be adjusted according to a Dutch price index and may be adjusted every five or ten years, according to a price adjusting mechanism in the general conditions applying to the ground lease. In case the lease holder of the ground lease changes the use or changes the building on the property, this will cause an increase to the annual usage fee. The reason for this lies in the increase of the value of the property, which triggers a higher ground rent.
Adjusting rent of ground lease (canon) is a source of disputes
Adjustment the annual usage fee or tent, the *canon*, is very often a source of disputes. To fix the ground rent, the land price is valuated, and the valuation very often is criticized by the leaseholder. The (new) percentage rate (canon percentage) is applied to the ground value (grondwaarde) as established by the land owner. The percentage rate applied to the market value on the ground is usually linked to the return on the government loans. It is possible to buy off the ground rent for a longer period. Buying off the ground rent for 30 or 50 years is possible or even perpetually, depending on the policy of the landowner. Some cities in The Netherlands have decided to abolish ground lease and have offered the land for sale to the leaseholders. However, in the city of Amsterdam that is not the case.
Transfer of ground lease with Dutch Notary
The ground lease is established by stipulating the right in a notarial deed, which deed is registered in the Dutch real estate registry (Kadaster). The ground lease right comes into existence through the registration of the ground lease in the register; the Dutch notary takes care of this. The leaseholder’s rights are defines in the lease conditions. He is usually entitled to rent the property to others, to build on it, to mortgage the ground lease according to the conditions in the contract and taking into account the paragraph on ground lease (erfpacht) in the Dutch Civil Code. The transfer of property on ground lease is also done in a notarial act. The landowner may stipulate conditions to the transfer of the leasehold; usually the transfer should be approved first by the landowners. In Amsterdam that is only a formality. Conditions of the landowner for the transfer of the ground lease may not be unreasonable.
Termination of leasehold by the landowner
If the ground lease is used for housing, then the landowner can only terminate the ground lease by compensating all damage, usually that’s the market value of the house of property on the land. Termination of ground lease does not happen very often. Termination by the landowner may take place in case the lease holder does not pay the ground rent for more than two years or is using the ground lease for other purposes then the right it was issued for (for example illegal activities).The leaseholder has no right to terminate the ground lease contract. In case where the landowner cancels the ground leasebefore the end of the term then the leaseholder is entitled to full compensation.
Legal advice on Dutch ground lease
The lawfirm Blenheim has large experience in real estate issues. Our partner Mark van has written a book on ground lease in the Netherlands called 50 Vragen over Erfpacht. For any queries on ground lease or questions relating to any particular kind of leasehold or land lease in the Netherlands, please contact Mark.