Leasehold rights and ground rent adjustments

A leasehold right grants the holder the authority to possess and use immovable property owned by another party. In return, the bare owner may require the leaseholder to pay a recurring sum – the ground rent (canon) – and may impose conditions on how the property is used. Ground rent is often a subject of discussion and may be adjusted for example in the event of a building transformation, a change in the designated use or an expansion of the floor area, the expiration of an administrative period or a switch to a new system (such as perpetual leasehold (eeuwigdurende erfpacht)).

Before a new administrative period (tijdvak) begins, the municipality informs the leaseholder in writing of the applicable new general terms and conditions, the land value (grondwaarde) and the revised ground rent (in Amsterdam referred to as canonherziening einde tijdvak or CHET). The land value is based on the municipality’s land pricing policy and is one of the factors used to calculate ground rent. In interim amendments to the leasehold (such as a change in the designated use), the municipality also bases the land value on its land pricing policy.

If no agreement is reached on the amount of the new ground rent, experts may be appointed under the general conditions of 2000, 1994 or 1966 of the municipality of Amsterdam. Under the general conditions predating 1966 of the municipality of Amsterdam, experts are appointed immediately (Voortdurende erfpacht betalen | Gemeente Amsterdam).The expert procedure does not apply if the ground rent revision is based on a change in designated use and/or in the building.

Early ground rent revision (VCHET)

In Amsterdam, the leaseholder may request an early ground rent revision at the end of an administrative period (vervroegde canonherziening einde tijdvak or VCHET) between the thirteenth and fifth year before the current administrative period expires. This VCHET procedure provides an opportunity to obtain early certainty about future financial obligations. For example, if seven years remain in a fifty‑year administrative period, the leaseholder may request a VCHET to bring forward the end date of the current administrative period. The new administrative period during which the revised ground rent applies will therefore start earlier than originally agreed. The application may not conflict with a compelling interest of the municipality of Amsterdam.

A key advantage of the VCHET procedure is that experts are appointed to issue binding advice. The municipality appoints one expert, the leaseholder appoints another expert, and the two appointed experts jointly select a third expert. Their binding advice determines the current land value, the applicable interest (ground rent) percentages and the new ground rent. This makes it possible to deviate from the municipality’s land pricing policy. In practice, a lower interest rate is often used, in line with the methodology developed by the Amsterdam School of Real Estate.

Initiating a VCHET procedure can be highly beneficial. For example, when a leaseholder disagrees with an increased ground rent following a change in designated use but, under the applicable general conditions, does not have the right to appoint experts to determine the land value in relation to the change in designated use. It can also be beneficial when the leaseholder simply wishes to secure early clarity about future financial obligations.

Tax implications and payment structure

An early ground rent revision does not entitle the leaseholder to reimbursement of a previously paid lump‑sum. Any remaining portion of the lump-sum is offset against the payment terms in the new administrative period.

An amendment to leasehold conditions, such as during a building transformation, a change in designated use or an increase in floor area, generally triggers real estate transfer tax on the added value of the leasehold right after the amendment. When a VCHET only revises the ground rent no real estate transfer tax is due. It doesn’t make a difference whether the ground rent is paid via a lump-sum or will be paid periodically.

Contact

Would you like to obtain early clarity on your future ground rent obligations? Please contact the advisers mentioned below.