It is precisely this temporary nature that makes these types of buildings legally complex: issues such as the relevant permits, ownership rights and the termination of use of the site require careful consideration. In this blog, we briefly outline the key legal and tax considerations.

Temporary Buildings under Public Law

The Building and Living Environment Decree (Bbl) defines a temporary building as a building with a maximum lifespan of fifteen years at the same location. Such buildings are subject to less stringent construction quality requirements than regular new-build construction. In principle, the building must be removed once the fifteen-year period has expired.

The temporary nature of buildings is therefore a concept under public law. However, this public-law classification has a clear limitation: the temporary nature of the building does not automatically extend to private-law relationships. In practice, this raises complex questions regarding, among other things, tenancy law qualifications and protections, financeability and the contractual structure of the relevant legal relationships.

Temporariness under Tenancy Law

A key point to note is that a building’s temporary status under public law does not automatically mean that a lease can also be regarded as temporary under private law. Since the Fixed-Term Lease Agreements Act came into force on 1 July 2024, the default position for residential leases has once again been an indefinite-term tenancy. For new housing units, temporary residential leases are now permitted only in limited circumstances, for example where the property is let to specific groups, such as students, or where the tenancy is, by its nature, of short duration.

The fact that a building has been granted a temporary permit does not, in itself, mean that it may also be let on a temporary basis. However, the law does provide a specific ground for terminating a tenancy relating to self-contained residential accommodation where a permit has been granted for a period of up to fifteen years. In such cases, the written tenancy agreement must refer to the permit and specify the period for which it has been granted. The landlord must then terminate the tenancy before the permit expires.

Financing

In practice, financing temporary buildings often presents challenges. Many temporary buildings are modular and relocatable, but relocatability does not automatically mean that a building qualifies as movable property. If a building, by its nature and design, is intended to remain permanently attached to the land, it will be considered part of the land. In that case, ownership of the building automatically follows ownership of the land. Whether the modules could theoretically be removed is not decisive in this respect.

For banks and other lenders financing temporary buildings, this creates uncertainty regarding their security position. In addition, the building’s limited lifespan and uncertainty regarding the stability of rental income may put downward pressure on the valuation of the collateral and, consequently, on their willingness to provide financing.

Successful financing of temporary buildings requires careful structuring, choice in type of security and contractual arrangements. It is important to establish clarity at an early stage regarding the term, renewability and enforceability of the relevant permits, the ownership structure and the contractual safeguards relating to rental income, operations and termination.

The Removal of a Temporary Building

For buildings that are intended to be dismantled, the termination process is at least as important as the construction phase itself. In practice, multiple parties are often involved, including the landowner, investor, module supplier, contractor, operator and end user. As a result, a straightforward one-on-one relationship is rarely the case.

That is precisely why it is advisable to establish clearly in advance:

  • who is responsible for obtaining permits and any renewals;
  • who owns, and will continue to own, the modules or other components;
  • who bears the costs of maintenance and repairs during the operational period;
  • what happens if the use of the building ends earlier than anticipated; and
  • who is responsible for removal, demolition and restoration of the site once the building is no longer in use.

When a building needs to be constructed quickly, there is often a tendency to postpone discussions about the end of the arrangement. In practice, this is precisely what can lead to disputes regarding removal costs, residual value, liability and the question of risk where the temporary status under public law ends but the private-law agreements remain in force.

Circular Construction

Temporary buildings are often presented as a circular solution. After all, modular temporary buildings are well suited to reuse, relocation and dismantling. From a legal perspective, however, circularity can make the underlying legal structure more complex.

This is particularly the case in models where the supplier retains ownership of the modules, assumes a take-back obligation, reuses materials at the end of the building’s useful life, or is willing to provide guarantees for that purpose. Such arrangements may be commercially attractive, but they raise important questions regarding ownership, collateral, maintenance obligations and risks relating to residual value and recourse. These matters should be clearly addressed and documented in advance.

Taxation

Temporary buildings also require careful consideration from a tax perspective. A key question is whether a temporary building qualifies as real property or movable property for VAT and transfer tax purposes. For modular and relocatable buildings, determining this classification is not always straightforward, and a degree of uncertainty often remains. Although such buildings will, in many cases, qualify as real property, case law on this issue remains highly fact-specific and subject to interpretation. Furthermore, new case law is expected to develop in the coming years as movable homes and other temporary structures become increasingly common.

If parties wish to obtain greater certainty in advance regarding the tax classification, they may consider seeking guidance or a ruling from the Tax Authorities. They should, however, be aware that the Tax Authorities will typically require detailed information about the construction of the building and the contractual arrangements between the parties involved.

The tax classification can have significant consequences. For example, the leasing of real property is, in principle, exempt from VAT, which often means that VAT incurred on construction and installation costs cannot be recovered. The leasing of movable property, on the other hand, is subject to VAT. The classification can also be decisive in the event of a subsequent transfer of the building.

If the building qualifies as real property at the time of transfer, transfer tax may be due. However, if the building is not (or is no longer) real property at that time – for example, because ownership is transferred after the building has been dismantled – no transfer tax will, in principle, be due. The timing and method of transfer can therefore play an important role.

Conversely, the transfer of movable property is, in principle, subject to VAT, although a VAT exemption may apply under certain conditions where the building was used by the seller exclusively for VAT-exempt leasing activities. Given that temporary buildings may change location, function or ownership several times during their useful life, it is advisable to consider the tax implications of such changes at an early stage.

Conclusion

Temporary buildings sit at the intersection of tenancy law, property law, contract law, financing and tax law. While the temporary nature of a building may follow automatically from the relevant permit, matters such as leasing, ownership and financing are only temporary if they have been deliberately structured as such. These issues therefore require a carefully considered and coherent structure to be established before the construction of a temporary building begins.

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If you would like more information or wish to discuss this topic, please do not hesitate to contact us. Our lawyers and tax advisors in the Project Development & Construction team would be happy to assist you.