On 9 June 2020, the Ministry of the Interior and Kingdom Relations (BZK) opened an internet consultation on the Decree designating categories of development subject to enforceable financial contributions (hereinafter the ''Decree'').
The Act supplementing the Environment and Planning Act with land-ownership provisions (Aanvullingingswet grondeigendom Omgevingswet), has been amended to allow municipalities to use public law to recover financial contributions for designated categories of development. A financial contribution may be required of the initiators of construction projects for which the government is obliged to recover costs to the extent that the public-law cost-recovery scheme of Section 13.6 of the Environment and Planning Act leaves room to do so. The Decree defines the categories of development for which this tool can be used.
The Act supplementing the Environment and Planning Act with land-ownership provisions (hereinafter the ''Supplementary Act'') augments the Environmental and Planning Act with rules on government interference with land-ownership rights and provides a cost recovery scheme in the event that the government incurs costs in the development of an area on the basis of a citizen or business-based initiative. The Supplementary Act was adopted by the Dutch Senate on 10 March 2020.
Articles 13.23 and 13.24 of the Environment and Planning Act, which were added to Section 13.7 thereof by virtue of the Supplementary Act, make it possible for environmental plans to stipulate that a financial contribution is required for area developments that improve the quality of the physical living environment (hereinafter: the regime for financial contributions enforceable under public law).
Cost recovery and financial contribution
The power of municipalities to recover financial contributions has been augmented with a new tool that allows financial contributions to be enforced. This is a departure from current law, pursuant to which financial contributions may be contracted on a voluntary basis. Articles 13.23 and 13.24 of the Environment and Planning Act augment the contractual option with a unilateral power enabling financial contributions to be enforced under public law.
The regime for financial contributions enforceable under public law differs as follows from the cost recovery scheme set out in Section 13.6 of the Environment and Planning Act. The cost recovery scheme pertains to the mandatory recovery of costs incurred by public authorities for public facilities directly related to construction projects that meet the criteria of profit, proportionality, and allocability, e.g. readying an area for development. The regime for financial contributions enforceable under public law covers improvements to the quality of the physical living environment; contributions are enforceable provided rules to that effect are included in the environmental plan. This is a financial contribution to – rather than a complete funding of – the categories of area development specified by the Decree.
The regime for financial contributions enforceable under public law is limited to designated construction projects to which an obligation to recover costs applies (e.g. home and office construction projects). Article 13.23 of the Environment and Planning Act does not, therefore, allow financial contributions to be recovered from the initiators of other types of construction, e.g. infrastructure. Nor can financial contributions be enforced for existing, previously authorised construction projects.
The initiator of a construction project can only be required to make a financial contribution if it is earmarked for the improvement of the quality of the physical living environment and if there is a functional connection between the development for which the contribution is required and the initiator's (construction) project.
Pursuant to Article 13.23(1)(a) of the Environment and Planning Act, there needs to be a functional connection between the initiator's construction project and the developments for the purpose of improving the physical living environment for which a financial contribution is required, i.e. developments connected to rather than directly for the realisation and/or execution of the construction project. In most cases, that connection will manifest itself at a higher scale level. In the government's reading of the 'functional connection' criterion, the end-user of an initiative must benefit to a certain extent from the development for which the contribution is required, e.g. the redevelopment of a municipal park. Regrettably, neither the consultation text nor the explanatory notes are exactly clear as to when a functional connection can or cannot be established.
Not otherwise secured
Pursuant to Article 13.23(1)(b) of the Environment and Planning Act, no financial contribution can be recovered if the entire financing of the developments is otherwise secured. For example: cost recovery (by anterior agreement), levies, taxes or user contributions. All the more reason for developers to work with anterior agreements? Incidentally, only costs actually incurred are eligible for recovery.
Article 13.23(3) of the Environment and Planning Act implies, moreover, that financial contributions should not exceed the increase in land value or the proceeds at the location where the construction project is being executed. In other words, a subspecies of the proportionality principle. Since there is a statutory obligation to apply the cost recovery scheme of Section 13.6 of the Environment and Planning Act, what we are talking about here is whatever remains after application of the cost recovery scheme. A reasonable financial contribution will need to be determined on a case-by-case basis taking market and other conditions into account, leaving the developer and the municipality more than enough to talk about, the rationale of which will then need to be provided in the explanatory notes of the environmental plan.
Categories of development that improve the quality of the physical living environment
The Decree designates which categories of development are deemed to improve the quality of the physical living environment. This authority to issue a designation order is wielded to answer the question of how the financial contributions thus collected may be spent, thereby allowing, according to the government, the scheme's impact to be fine-tuned.
The specific examples mentioned in the explanatory notes of Articles 13.23 and 13.24 of the Environment and Planning Act are taken as a starting point, e.g. qualitative improvements to landscape, nature, water and nitrogen levels with a functional connection to intended spatial development, construction or modification of roads and their appurtenances or construction of parks or recreation areas.
These developments mirror those for which it is currently common practice to agree to voluntary financial contributions.
Furthermore, a distinction is made between development on the one hand and measures needed to realise said developments on the other. Housing demolition is a prime example; although it is not development per se, it can be seen as an urban restructuring measure. The Decree at any rate specifies which types of development and corresponding measures are covered.
Only time will tell whether this breakdown into categories and into developments and measures will be clear enough to be implemented in actual practice.
An environmental plan must specify which types of development require a financial contribution, and the explanatory notes thereof must justify the functional connection between the construction project and the development. The rationale provided for the functional connection may be based on an environmental planning vision or programme.
When identifying which specific types of development require a financial contribution, the environmental plan must also indicate the amount of financial contribution required. These contributions may vary per construction project. A financial contribution can only be collected if the initiator of the construction project has not previously concluded a cost recovery agreement with the municipality.
The environmental plan must also specify how public accountability will be given for the use of the financial contributions thus collected. This is subject to the stipulations of the Provinces and Municipalities (Budgets and Accounts) Decree (Besluit begroting en verantwoording provincies en gemeenten). Public accountability can be given simultaneously with the annual report and accounts, thus in line with the normal budget cycle based on the Provinces and Municipalities (Budgets and Accounts) Decree. The municipality may, however, opt to report this in its Long-term programme for Area Development or in an entirely separate report. The concrete manner in which accountability is given must be specified in the environmental plan.
Opinions on the consultation proposal may be submitted up to and including 7 July 2020. Please feel free to contact us if you have any questions or comments.