New rules on the lease-purchase of immovable property finally in place
For many years (from 1973 onwards) the lease-purchase of immovables was governed by the "temporary" Lease-Purchase (Immovables) Act.
On 1 January 2017 this Act was finally replaced through the addition of new rules to Book 7 of the Dutch Civil Code. What are the main changes? Are new opportunities now available?
The lease-purchase of immovable property is viewed under Dutch law as a special type of instalment sale, under which the purchase price is paid in instalments and ownership is transferred following the payment of two or more instalments that fall due after the property has been delivered to the lessee/purchaser. It is therefore not a lease contract and the rules in the Dutch Civil Code on leases do not apply to the lessee/purchaser's use of the property.
The aim behind the new rules is to make the use of lease-purchase contracts for immovable property more attractive by abandoning many mandatory rules but continuing to offer the lessee/purchaser sufficient protection. To this end, the rules are divided into two categories: rules applicable to the lease-purchase of immovables in general (section 7:101 et seq. DCC) and those only applicable to the lease-purchase of residential property by private individuals (section 7:113 et seq. DCC). The main highlights:
- As lease-purchase contracts are a type of purchase contract, Title 1 of Book 7 DCC applies. Provided they are in writing, lease-purchase contracts can be registered in the public land register (Vormerkung), giving the lessee/purchaser protection in certain situations (such as the lessor/seller's bankruptcy).
- The rules on lease-purchase contracts of residential property apply to any contract having the same purpose and effect, irrespective of how it is labelled. This principle does not apply to other lease-purchase contracts.
- A lease-purchase contract is in principle not subject to any requirements as to form, but either party is entitled to demand the execution of a notarial deed. This is advisable in all cases because a notarial deed has a strong evidentiary value (in addition to the fact that it can be registered in the public land register).
- If the lease-purchase relates to residential property, however, a notarial deed is required; otherwise the contract can be nullified. In the event of nullification, the lessee/purchaser can recover any payments he has made minus compensation for his use of the property up to that time. The lessor/seller can only claim nullification after he has given the lessee/purchaser a reasonable period in which to cooperate in the execution of the notarial deed and the latter has failed to do so within that period.
- A kind of cooling-off period applies in the case of residential property: the notarial deed must state the property's assessed value (according to a valuation report) and may only be executed once the parties have had at least fourteen days to review the report.
- Courts no longer have a special power to modify a lease-purchase contract. The parties are dependent on the general provisions of the Dutch Civil Code in this regard.
- The lessee/purchaser of residential property may at any time free himself, in whole or in part, from his obligations under the lease-purchase contract.
- Most of the rules on the lease-purchase of residential property are mandatory (i.e. they may not be deviated from by agreement) or semi-mandatory (i.e. they may not be deviated from to the lessee/purchaser's detriment). The relevant DCC provisions are identified in section 7:117 DCC.
The numerous mandatory rules in the "temporary" law made it so unattractive that the lease-purchase construction was seldom actually used. Since most of these mandatory rules have been abandoned (except in the case of residential property), the new rules definitely offer new possibilities. However, it remains to be seen whether they will lead to an increase in lease-purchases of immovables.