What to consider with regard to the Vacant Property Act?

Consequently, as a result of corona, vacancy rates are expected to increase by more than 40% on average over the next two years.[1] In addition, there are complexes that no longer meet the changing requirements and demands of functional changes. For example, office space that is not sufficiently sustainable, is outdated or unsuitable for current user demands, or that does not comply with regulations with regard to fire safety, parking and ventilation.[2] During the period that the complex is vacant, the owners are required to report this vacancy to the municipality. In this blog, I explain what to consider with regard to the Vacant Property Act (Leegstandwet).

What is the Vacant Property Act?

To reduce the vacancy rate, the Vacant Property Act allows the complex to be temporarily let as residential accommodation. This overrides mandatory tenancy laws and gives landlords considerable freedom. However, there are also drawbacks to temporary letting under the Vacant Property Act. In this blog, I will restrict myself to the temporary letting of vacant complexes and outline and explain the main pros and cons.

What to watch out for when letting under the Vacant Property Act – Article 15 Vacant Property Act

The Vacant Property Act provides for the letting of several types of vacant spaces. Firstly, the temporary letting of residential accommodation in certain types of buildings such as school buildings, nurses’ flats, nursing homes, care homes, old people’s homes, hotels, office buildings and group accommodation. In other words, it does not necessarily have to be regular housing. Secondly, owner-occupied homes for sale. Thirdly, residential accommodation in rental properties awaiting demolition or renovation and, finally, residential accommodation in a rental property intended for sale.

The space rented out as a home must be vacant, must not be reasonably conductive to use as public housing, and must be suitable for habitation to a sufficient degree. If the letting is in anticipation of demolition or renovation, the owner must show that the renovation will be of a substantial nature and also that the demolition or renovation will take place within a reasonable period of time. It follows from case law that it is not decisive whether the structural condition of the home necessitates such work.[3]

A permit to let must be applied for from the municipality, in accordance with the Vacant Property Act. It is also mandatory to seek permission from the mortgage lender and inform the building insurance company.

Arguments in favour

The main argument for temporarily letting a complex under the Vacant Property Act is that the tenant is not entitled to tenant protection. This is because the Vacant Property Act stipulates that mandatory letting provisions are not applicable. The landlord can therefore easily terminate the letting, in accordance with the procedural rules of the Vacant Property Act. In principle, the letting can always be terminated after six months without reasons being given. This is in contrast to a regular rental agreement, where a legal ground must usually be invoked.

In addition, a temporary rental agreement can be extended several times under the Vacant Property Act, in certain cases by up to ten years. It therefore provides a lot of flexibility.

Furthermore, the landlord can decide the rent himself if the property is residential accommodation intended for sale. In that case, the municipality will not specify a maximum rent in the permit. This type of rent was liberalised from 2016, meaning it is no longer linked to the points system. This means that the landlord may also propose an annual rent increase.

However, in other cases where the municipality sets a maximum rent, the landlord is bound by the maximum rent increase and rent specified in the permit (Article 16(11) of the Vacant Property Act).

Arguments against

It is essential to be aware of the less favourable incidental features of temporary letting in accordance with the Vacant Property Act.

For instance, the landlord is required to pay administrative charges to the municipality when applying for the permit. In principle, the permit is applied for and issued per residential unit. If you apply for a permit for several units of residential accommodation in a complex, the municipality will impose administrative charges for each residential accommodation. This could therefore lead to disproportionately high administrative charges. However, there are municipalities that apply policy rules to applications involving complexes where the administrative charges are levied only once, for example the Municipality of Buren. It is wise to check this in advance.

In addition, there may be tax implications of temporary letting. This is because mortgage interest is no longer deductible. The landlord is also required to seek permission from the mortgage lender. In fact, many mortgage contracts stipulate that letting the residential accommodation is not allowed and there may be no derogation from this. However, banks often cooperate with temporary letting under the Vacant Property Act.

Furthermore, the landlord is required to inform the building insurer. This is because the building insurer is entitled to adjust the buildings insurance. It could increase the insurance premium or make it less comprehensive. In practice, however, this almost never happens.

Finally, the landlord should be aware of the so-called ‘conversion arrangement’ (where residential accommodation let in the context of a rental agreement is transferred to the tenant’s name at a later stage). This is because the tenant can still get rent protection in two ways. In such a situation, the temporary rental agreement is transferred into a regular rental agreement.

Tenant protection applicable

Firstly, this applies if the procedural rule of the Vacant Property Act is not observed. In such cases, these clauses are in theory null and void (Article 15(9) of the Vacant Property Act). Nevertheless, case law sometimes categorises the nullity as insured nullity or a reparable defect, thereby sparing the landlord.[4] This only applies if the tenant is not adversely affected. The procedural rules at issue here include: the duration of the let, the notice periods and the requirements that follow from the permit, for example that the homes in the complex cannot be temporarily withdrawn from sale).[5]

Second, the rental agreement changes if the tenant remains in the home after the termination of the temporary rental agreement without the landlord taking immediate action. This is the most common mistake made when letting under the Vacant Property Act. It is therefore very important not to forget to inform tenants in writing about the end of the temporary rental agreement. If the tenant continues to pay the rent each month and the landlord accepts these payments and does nothing else, the tenant enjoys rent protection.[6]

Conclusion

What to consider with regard to the Vacant Property Act? Temporarily letting a complex in accordance with the Vacant Property Act has many advantages and provides a lot of freedom. However, there are several incidental features to consider. The landlord will have to inform the mortgage lender and the building insurer before applying for the permit. In addition, the landlord will have to act very carefully when concluding the temporary rental agreement and keep a close eye on the termination date so that the rental agreement will not convert into a regular rental agreement with rent protection.

[1] D. Evers et al, ‘Veerkracht op de proef gesteld: Een verkenning van de impact van corona op binnensteden’ [Resilience put to the test: An exploration of the impact of corona on inner cities], PBL Netherlands Environmental Assessment Agency, 4 December 2020.

[2] T. Wever, R. Post & Y. Grooten, ‘Leegstand te lijf 2.0: Met speciale aandacht voor winkels en kantoren’ [Tackling vacancy 2.0: With a special focus on shops and offices], VNG December 2020.

[3] See, inter alia, Supreme Court 3 June 2005, ECLI:NL:PHR:2005:AT3442, NJ 2006/21 (Van Haaren/Het Oosten).

[4] District Court of Noord-Holland 2 December 2020, ECLI:NL:RBNHO:2020:10162.

[5] Court of Appeal The Hague 7 April 2020, ECLI:NL:GHDHA:2020:2777.

[6] Court of Appeal Amsterdam 29 September 2015, ECLI:NL:GHAMS:2015:4043.

Would you like more information?

Would you like advice on the Vacant Property Act or do you have another legal question? Please do not hesitate to contact me.