1. Reform Ground Lease System
The Municipality of Amsterdam currently has around 250,000 ground leases with families, companies and public institutions2. The basic principle of the current ground lease system is that the ground rent is based on the value of the land and any increases in that value benefit the Municipality. After expiry of the agreed term the Municipality has the right to adjust the ground rent to the land’s current value. Investments by the leaseholder in the property are also considered in calculating this ground rent. Because of this system the ground rent might be significantly higher after expiry of a term. The uncertainty about the future housing costs makes banks reluctant to provide mortgages to leaseholders. To resolve the issue of uncertain future housing costs (among other things) the Municipal Executive of Amsterdam on 18 November 2014 consented to the implementation of a new ground lease system.
In the new ground lease system the land will be issued on a perpetual lease. With a perpetual lease the ground rent is set just once, and the ground rent is bought out in perpetuity. At the time when the ground rent is bought out the value of the leasehold property will approximate the value of the freehold. The increased value of the land (also following the investments by leaseholders in their properties) will no longer go to the Municipality but to the leaseholders. The new system applies to all leaseholders and all purposes, excluding housing associations and the Port of Amsterdam. In new construction projects the land will always be issued on perpetual lease. In running lease contracts there is a possibility to switch to the new perpetual lease system. In that case the land value will be calculated. Although the interest groups of house owners supports the principle of perpetual lease some critics fear that the Municipality will unilaterally set the land value and that leaseholders will have to pay for the land twice in the transitional scheme (because in many cases the land value of running ground leases has already been paid in full by the leaseholder3). The details of the new ground lease system will be elaborated. It is expected that the new system will be submitted for public participation in October 2015, and that the local council will then decide on implementation mid-2016.
2. Voidable General Provisions in Ground Lease
Ground leases declare the General Terms and Conditions (‘AB’) of the Municipality of Amsterdam applicable. The AB stipulate that they may be changed unilaterally by the Municipality of Amsterdam. In the case submitted to the Court of Appeal the Municipality of Amsterdam unilaterally amended the AB 1915, AB 1935 and AB 1937 after expiry of the term, declaring new terms and conditions applicable. The new terms and conditions contained an indexation provision, which did not form part of the versions of 1915, 1935 and 1937. The Court of Appeal saw reason to set aside the amendment as the new provision was contrary to the provisions contained in j of the indicative list in the Schedule to Directive 93/13/EC (‘Directive on unfair terms in consumer contracts’). The provision, which had not been negotiated, was unfair, so the Court of Appeal held because it upset the rights and obligations under the agreement to the disadvantage of the consumers as they have no say whatsoever in any new provisions to be implemented. As a result of its being set aside the indexation provision has no legal force and the Municipality wrongly charged the leaseholders for the indexation of the ground rent effective from the second term. In response to written questions from the Council4 the Municipal Executive has stated that this ruling may have drastic (financial) implications for the Municipality of Amsterdam as it may be facing sizable claims from leaseholders on account of unduly paid price increases (indexed ground rent). The Municipality of Amsterdam has filed cassation with the Supreme Court. The Municipal Executive believes there are ample grounds for the cassation appeal to succeed because compliance with European Directive 93/13 has been reviewed wrongly or incorrectly. The filing of cassation appeal has a suspensive effect, which means that the claims on account of undue payments cannot yet be collected.
Jetske Heikens
heikens@slangen-advocaten.nl
10 March 2015
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1 Amsterdam Court of Appeal dated 23 September 2014, ECLI:NL:GHAMS:2014:3903
2 Source: Concept Start document Eeuwigdurende erfpacht dated 18 November 2014 of Municipality of Amsterdam
3 Press release by SEBA (Stichting Erfpachters Belang Amsterdam) dated 8 December 2014
4 Publication of written questions and answers to Amsterdam Local Council in Municipal Gazette of 5 December 2014, number 1171
