The Fixed Lease Contracts Act

In addition, the legislative proposal adds a termination ground to the law and broadens the existing termination ground on the basis of ‘urgent own use’. This article details the legislative proposal and the changes it envisages.

Property Rental Market (Measures to Facilitate Movement) Act 2015 (Wet doorstroming huurmarkt 2015)

The Property Rental Market (Measures to Facilitate Movement) Act 2015 came into force on 1 July 2016. This law created the option of concluding temporary tenancy contracts for residential accommodation. For self-contained housing, a temporary tenancy contract is allowed for a maximum period of two years. For shared housing, there is a maximum rental period of five years.

Unlike an open-ended or fixed-term tenancy contract of more than two or five years, a landlord can terminate a temporary tenancy contract relatively easily. A registered letter to the tenant announcing the agreed end date of the tenancy contract is sufficient. It does not require the tenant’s consent or court approval, or reliance on any of the statutory grounds for termination. A landlord therefore retains a great deal of flexibility with a temporary contract.

Legislative proposal for the Fixed Lease Contracts Act

In the Explanatory Memorandum to the legislative proposal for the Fixed Lease Contracts Act, its initiators argued that the Property Rental Market (Measures to Facilitate Movement) Act 2015 has had an undesirable effect on the housing market. In particular, private landlords have used temporary tenancy contracts as a ‘probationary period’. So that tenants would be in limbo for the first two or five years as to whether they would be able to continue to live in the home after the temporary tenancy contract expired. Fixed or open-ended tenancy contracts, which must be formally terminated by the landlord under one of the legal grounds for termination, would no longer be the norm for private landlords. This is one of the reasons why the initiators Nijboer and Grinwis submitted the legislative proposal for the Fixed Lease Contracts Act.

Main legislative changes

The proposal contains three main legislative changes:

1.    Temporary tenancy contracts for residential accommodation will be abolished, except for categories of persons designated by an Order in Council;

2.    A termination ground will be added to Article 7:274(1) of the Dutch Civil Code, under which homeowners who move in together and for this reason temporarily rent out their own home can terminate the tenancy contract if they want to sell the home;

3.    The existing termination ground ‘urgent own use’ under Article 7:274(1)(c) of the Dutch Civil Code will be broadened, allowing landlords to terminate their tenancy contract if they want to give the use of the house to a relative by blood or marriage in the first degree (child or parent).

The current legislative proposal does not set an effective date. However, the legislative proposal does state that temporary tenancy contracts entered into before the law takes effect will not be affected. It was initially intended to enter into force on 1 January 2024, but given the recent fall of the Rutte IV government, it is currently unclear whether this date is realistic.

1. Abolition of temporary tenancy contracts under Article 7:271(1) of the Dutch Civil Code

As mentioned, the first legislative proposal for the Fixed Lease Contracts Act concerns the abolition of temporary tenancy contracts. In principle, landlords will only be able to rent out their homes under a fixed-term or open-ended contract, which must be formally terminated. For further information on the termination of fixed-term and open-ended tenancy contracts, please consult this article.

Exceptions

The legislative proposal does make an exception for temporary rentals to categories of persons designated by Order in Council. These categories include persons living temporarily in the Netherlands or another municipality for work or study, and homeowners who need to stay elsewhere temporarily during the renovation of their own homes. A landlord can rent residential accommodation to them for a maximum period of two years, with the contract easily terminated by the landlord by giving notice of the agreed end date.

2. New grounds for termination for cohabitants

The second change in the law concerns the addition of a statutory termination ground. The law currently includes six grounds for termination. The legislative proposal aims to add a termination ground, intended for situations where a homeowner is moving in together with a partner but is not yet sure whether to sell their home. This means that they can rent out their home for a specified period of up to two years, provided the contract explicitly states that if the landlord wants to sell the home at the end of this period, they may terminate the tenancy contract.

In doing so, the landlord also needs to satisfy certain requirements. These include that the landlord must be a natural person (not a company), who entered into a marriage or registered partnership no more than three months before the end of the agreed rental period. Further, the termination ground can only be invoked once by the landlord and the landlord is obliged to notify the municipality that they will rent out their home under the aforementioned conditions.

3. Broadening the termination ground of ‘urgent own use’

Finally, the legislative proposal expands the scope of the existing termination ground of ‘urgent own use’ under Article 7:274(1)(c) of the Dutch Civil Code. Landlords may now also use this termination ground if they have explicitly stipulated in the tenancy contract that they can terminate the tenancy contract at the end of an agreed term in order to give the use of the home to a relative by blood or by marriage in the first degree with the owner (child or parent).

In any termination proceedings, a judge will weigh up the interests of the tenant to be allowed to remain in the home and the interests of the landlord to accommodate their family member, as is currently the case for an appeal to the termination ground ‘urgent own use’.

In conclusion

If the legislative proposal for the Fixed Lease Contracts Act is also passed by the Upper House, it will have major implications for leasing practice. The current flexibility of being able to temporarily rent out self-contained or shared residential accommodation is severely restricted. Which will necessarily have consequences for the housing stock in the rental market.

This is especially the case as measures have also been announced for the regulation of the mid-range segment of the rental market and the Good Landlordship Act (Wet goed verhuurderschap) recently came into effect. For more information on the regulation of the mid-range segment of the rental market, please consult this article.

More information

If you have further questions about the legislative proposal for the Fixed Lease Contracts Act. Or you are looking for a real estate lawyer in The Hague? Please do not hesitate to contact us.