Real Estate alert – The Netherlands (December 2022)

According to the Dutch Civil Code (DCC) and the Housing Rent (Implementation) Act (Uitvoeringswet huurprijzen woonruimte), there is a distinction between non-regulated (liberaal) and regulated (sociaal) leased spaces on the basis of a maximum rent limit (liberalisatiegrens; which is €763,47 in 2022). The base rent is linked to a maximum that is determined by means of the house evaluation system (WWS). The WWS is a points system used to determine if a leased space falls within the regulated category. Currently, properties that are calculated to be 141 points or more under the WWS are considered non-regulated leased spaces. For such properties, landlords have full discretion to determine the (level of) base rent. Properties with fewer points in the WWS are classified as regulated leased spaces. Under the WWS, points are awarded for amenities such as the number of bedrooms, the value of the property for taxation purposes (WOZ-waarde), whether or not the property has luxury bathroom fittings, the age of the property, etc.

In May 2022, the Minister of Housing announced new legislation that would lead to an increase in leased spaces that would be considered regulated leased spaces per 1 January 2024. On 9 December 2022, more details about this new (draft) legislation were published in a letter of the Minister. This Real Estate Alert briefly updates you on these new details. Upon reading the following, please take into account that the draft legislation itself is not available yet. According to the Minister, we can expect the draft legislation to be published during the first quarter of 2023. After publication, this draft legislation will still have to be accepted by parliament before it could enter into effect.

Pursuant to the letter of 9 December 2022, the new maximum in the WWS for the regulated category will be increased to 187 points. Properties with fewer points than 188 will get a maximum base rent level of €1,000 per month (price level 2022; to be indexed annually). This will mean that as per 2024 more properties will fall under rent control (according to the letter approximately 300,000 properties will get a lower rent).

The new legislation should apply to new contracts only (so existing contracts will not be affected). In addition, there will be a transitional scheme for newly built residential properties: if the property will be delivered after 1 January 2024 and the construction has started before 1 January 2025, the base rent of the property may exceed the maximum according to the WWS by 5% for a period of 10 years.

The WWS shall also be amended, in order to (i) attribute more points to energy labels (high energy labels will score more points and low energy labels (G, F and E) will deduct points), (ii) introduce a cap on the points that are awarded for the value of the property for taxation purposes (WOZ-waarde) and (iii) attribute more points to outdoor space.

Currently, if the actual base rent is above the maximum rent level, only the tenant is entitled to request a decrease of rent in a procedure before the Rental Tribunal (Huurcommissie). In addition to the current situation, municipalities should be able as per 2024 to enforce the maximum rent limit (eg by imposing an administrative penalty (bestuurlijke boete) on landlords who fail to comply). In this regard, the legislative proposal good landlordship (Wetsvoorstel goed verhuurderschap) is also relevant, but we omit this for the sake of the length of this alert.

In addition to the aforementioned, the Minister announced the following details:

• the new legislation should introduce a cap (that year’s inflation plus 0.5%) on annual rental increases of ‘mid-market residential properties’ (which will be a defined term under the new legislation and probably will refer to properties scoring between approximately 141 and 187 points according to the WWS); and
• municipalities will be allowed to set rules for the allocation of ‘mid-market residential properties’, pursuant to which persons with a ‘mid-income’ (also to be defined under the new legislation) could get priority.

We expect more details to become available in the coming months, especially with the publication of the draft legislation. Once further information becomes available, we will update you accordingly.

Do you have any questions after reading this publication, or would you like to discuss the implications for your situation? Please feel free to get in touch.