Rent increase following the sustainability upgrade of a property

For example, landlords can insulate their properties, install high-efficiency glazing, or fit a heat pump. A frequently asked question among landlords is whether they can pass on the costs of these measures to their tenants, who in turn benefit from lower energy bills. This is possible if the proposed measures qualify as a renovation within the meaning of the law, and provided certain conditions are met.

Renovation

As a landlord of a residential property, you may implement sustainability measures and pass the costs on to your tenant, if they amount to a renovation in the legal sense. Article 7:220(2) of the Dutch Civil Code (‘DCC’) defines ‘renovation’ as “demolition with replacement new construction, or partial renewal by alteration or addition to existing construction” [1]. The renovation must result in an improvement in living enjoyment.

Before a landlord can renovate a rented property, they require the tenant’s consent. A landlord is not permitted to make alterations to the rented property unilaterally. They must first present the tenant with a reasonable (renovation) proposal, addressing matters such as:

• The nature of the intended works;
• The necessity of the tenant’s cooperation;
• The financial consequences for the landlord;
• The proposed rent increase;
• If required, the option of temporary alternative accommodation and the relocation allowance payable by the landlord.

If the tenant does not agree with the proposal, the landlord may apply to the subdistrict court to assess whether the renovation proposal is reasonable. If the court finds the proposal reasonable, the tenant is obliged to cooperate with the planned renovation.

Procedure

If the landlord and tenant cannot reach agreement, the landlord may turn to the Rental Commission (Huurcommissie) or the subdistrict court to determine whether they are entitled to increase the rent and, if so, by how much [2]. Landlords of non-liberalised properties can apply to the Rental Commission; landlords of liberalised rental properties must go to the subdistrict court (Articles 7:255 and 7:255a DCC respectively). Proceedings before the Rental Commission must be initiated within three months of completion of the renovation.

Rent increase

The Rental Commission or subdistrict court will then assess or determine the rent increase. They will consider the landlord’s renovation costs and the economic lifespan of the improvements. The Rental Commission has published a policy guide listing renovation works and the average lifespan assumed. The rent increase is calculated by dividing the investment made by the number of months of the average lifespan; the rent may be raised by this monthly amount.

Note that only the actual costs of the sustainability measures are taken into account. If the landlord has received subsidies for the works, these must be deducted from the investment.

Mandatory cooperation

If the Rental Commission or subdistrict court considers the landlord’s renovation proposal reasonable but the tenant still refuses to cooperate with the proposed works, the landlord may terminate the tenancy agreement (Article 7:274(1) DCC). The refusal must not relate solely to the rent increase but also to the proposed works.

Conclusion

As a landlord, you may make your rental property more sustainable and pass the costs on to your tenant, provided the works qualify as a renovation within the meaning of the law. You must first present your tenant with a reasonable renovation proposal. If the tenant refuses and their objection is not limited to the proposed rent increase, you may, under certain conditions, terminate the tenancy agreement.

Are you a landlord planning to make your property more sustainable? Please feel free to contact us.

[1] ECLI:NL:HR:2016:726, Hoge Raad, 15/05226
[2] Art. 7:255 BW voor niet-geliberaliseerde woonruimte en art. 7:255a BW voor geliberaliseerde woonruimte.