The anticipated implementation of the Affordable Rent Act on July 1, 2024, has been a prominent topic in Dutch news lately. In this article, Renée Fennis and Tobias Stammers provide an overview outlining the anticipated changes in the Dutch residential leasing landscape.
the Affordable Rent Act
In February 2023, the Minister announced the Affordable Rent Act (the “Act“, in Dutch: Wet betaalbare huur). In essence, this legislation seeks to broaden the scope of the existing rent protection system, extending its coverage beyond social housing to include properties in higher rent brackets, thus introducing the ‘mid-range housing category’. Under this framework, landlords renting out mid-range residential units will be subject to prescribed maximum rents. Municipalities will be empowered to enforce these regulations.
On April 25, 2024, the proposed Act garnered significant support, passing with a large majority (112 out of 150 seats) in the House of Representatives (in Dutch: Tweede Kamer). Its fate now rests in the hands of the Senate (in Dutch: Eerste Kamer), the final legislative hurdle before the Act can take effect. While the target date for Senate approval is set for July 1, 2024, uncertainty looms over whether this deadline will be met.
The Act has sparked intense debate within the real estate community, with many expressing reservations. One primary concern is the potential surge in the sale of privately owned rental properties (known as “uitponden” in Dutch), which could further strain the already limited availability of residential units for lease. Additionally, critics warn that the Act may diminish the Netherlands’ attractiveness for residential real estate investment, potentially hampering efforts to alleviate the housing shortage by slowing down the construction of new units. Despite these apprehensions, a growing majority in favor of the Act is emerging in the Senate, edging its entry into force ever closer.
OUTLINE of The proposed Act
In general, parties are granted the freedom to negotiate rental prices for residential units. However, this freedom is constrained by the ‘housing valuation system‘ (in Dutch: woningwaarderingsstelsel, abbreviated as “WWS“). The WWS system correlates the quality of a residential unit with its maximum allowable rental price. This quality is quantified by assigning points to various aspects of the unit.
Currently, rental prices are regulated for self-contained residential units categorized under the ‘low segment’, denoting units with an initial rental price (as of January 2024) up to EUR 879.66 per month, known as the ‘liberalization threshold‘. This threshold equates to a maximum of 147 points within the housing valuation system.
The Act proposes to elevate the liberalization threshold to EUR 1,123.13 per month, corresponding to 186 points within the same system. This expansion encompasses a newly defined ‘mid-range segment’, broadening the regulated spectrum. Similar to the maximum threshold for the low segment, the maximum threshold for the mid-range segment undergoes annual indexing on January 1st. This indexing is determined by the fluctuation in the consumer price index from July to July of the preceding year.
Initial rent and rent review
Tenants in both the low and mid-range segments have the right to petition the rent tribunal (known as the “Huurcommissie” in Dutch) for a reduction in rent if it does not align with the WWS system. It’s important to distinguish between two types of reviews: the ‘initial rent review’ and the ‘rent review’.
Currently, all tenants possess the entitlement to seek a determination from the Huurcommissie regarding the fairness of the initially agreed-upon rent. If a residential unit falls within the low segment based on the allocated points, yet the initial rent exceeds this valuation, the Huurcommissie will adjust the rent accordingly. Residential units that do not fall within the low segment according to the WWS system are currently categorized within the liberalized sector. Consequently, the Huurcommissie lacks the authority to mandate a reduction in the initial rent for such properties.
The proposed Act empowers the Huurcommissie to potentially lower the rental price of residential units in the mid-range segment upon a tenant’s request. This means that if a residential unit has been assigned 186 points or fewer and the rental price does not align with this valuation, the Huurcommissie will have the authority to intervene and adjust the rent accordingly.
The right of tenants to request an initial rent review remains in effect for six months following the commencement date of the lease agreement, a provision that will be unchanged by the Act. After this initial period, tenants whose rent falls below the liberalization threshold (EUR 879.66 per month) still retain the right to request a standard rent review, though without retroactive effect.
Under the proposed Act, tenants in both the regulated low and mid-range segments (up to and including 186 points) will have the right to request a rent review even after the six-month initial review period has lapsed if the rental price exceeds the mid-range threshold (EUR 1,123.13 per month). Furthermore, lease agreements that were not initially regulated due to tenants not utilizing their right to an initial rent review will become regulated if the residential unit is assigned 186 points or fewer and the tenant requests the Huurcommissie to adjust the rent accordingly. It’s important to note that these provisions do not apply to existing lease agreements concluded before the Act comes into effect.
Modernization WWS
The explanatory memorandum accompanying the Act outlines the Minister’s ambition to “modernize” the WWS system. This modernization initiative focuses on several key areas:
• Optimizing WOZ-value Integration: The WWS will incorporate the ‘WOZ’-value to a maximum of 33% of the total WWS points. Residential units up to 186 points will fully consider the WOZ-value, while those exceeding this threshold will attribute only 33% weight to prevent liberalization solely based on high ‘WOZ’-values.
• Enhanced Evaluation of Property Quality: There will be a heightened assessment of quality aspects in rental properties. This entails revising the points system to reflect factors such as energy efficiency labels, ample outdoor space availability, and the presence of additional amenities suitable for mid-range segment residential units.
• Temporary Rental Price Adjustment: A temporary 10% rental price surcharge will be applied to the maximum rent for mid-range segment residential units in construction projects completed post-Act enactment, with construction commencing prior to January 1, 2028. This surcharge will endure for 20 years from the date of the unit’s use inception. Furthermore, the surcharge will encompass residential units added to the housing stock through transformation for newly built projects.
Annual indexation
Currently, both below and above the liberalisation threshold, the annual maximum rent indexation is regulated. In the regulated sector, an annual maximum rent indexation equal to the collective bargaining agreement (in Dutch referred to as “CAO“) wage development applies. In the liberalised sector, until May 1, 2029, the annual rent indexation is limited to the consumer price index (“CPI“) + 1%, or if lower, the CAO wage development + 1%.
The proposed Act introduces an additional annual rent increase for mid-range segment residential units, capped at CAO wage development + 0.5%. Therefore, following the implementation of the proposed Act, the maximum rental price indexation in the various segments will be as follows:
| Segment |
Maximum annual rent increase |
| Low segment |
CAO + 0% |
| Middle segment |
CAO + 0,5% |
| High segment |
The lowest of CAO + 1% or CPI + 1% (this applies until 1 May 2029) |
Public enforcement and mandatory point scoring
Concluding a lease agreement with an unreasonably high rental price is not currently sanctioned under Dutch public law. However, the proposed Act will impose an obligation on landlords of residential units to adhere to the maximum rental prices outlined by the WWS system. Municipalities will be responsible for supervision and enforcement, empowered to utilize various enforcement instruments including warnings, administrative coercion, orders under penalty, administrative fines, and potentially, management takeovers.
To facilitate municipal supervision and enforcement, the interlinked Good Landlord Act (in Dutch: Wet goed verhuurderschap) mandates the establishment of a municipal hotline (in Dutch: meldpunt) where interested parties, particularly tenants, can submit complaints.
Moreover, the proposed Act obliges landlords to include the point score and corresponding maximum rent as an annex to the lease agreement. This requirement aims to enable tenants to easily verify whether the agreed rental price is permissible. In cases where the rental price exceeds the permissible limit, tenants can file an enforcement request (through the hotline or otherwise) or request a rent reduction with the Huurcommissie.
Conclusion
As it stands, the passage of the Act appears probable, despite concerns voiced by various industry stakeholders, including real estate developers and investors. Furthermore, amid recent political and economic developments like the increased transfer tax, high interest rates, and intensified tax burdens on privately owned residential lease properties, there’s apprehension regarding the investment climate’s further decline due to the Act. This concern is amplified by the perception that extending the WWS system to the mid-range segment is akin to altering the rules midway through the game.
The industry’s lobbying efforts have yielded some amendments to the legislative proposal. Notably, the Minister has extended the 10% surcharge on top of the regulated rent, applying it for 20 years to projects commencing construction before 2028. Additionally, there is a commitment from the Minister to reassess the recently implemented increase in transfer tax, potentially reducing it to alleviate the Act’s adverse effects on investors.
We remain optimistic that the stabilization of interest rates and the clarity gained regarding the Act’s implementation will bolster confidence among Dutch and foreign investors, encouraging continued investment in residential real estate in the Netherlands. We eagerly anticipate future acquisitions in light of these developments.
For further information regarding the Act and its potential implications, we encourage you to get in touch with your contacts at NewGround Law. The team can provide more insights and details tailored to your specific interests and concerns.
