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04 June 2019 / article

How to mitigate chain liability risks for investors in Dutch building projects

Due to the shortage of construction workers in the Netherlands, the risk increases that wrongly, contractors with malicious intent are involved in building or redevelopment projects. Principals can be held liable for the tax debts of their (main) contractor if they can be considered to be a so-called 'self-constructor' (eigenbouwer). This chain liability may also apply to institutional investors.

Class/collective actions in Belgium: overview

In Dutch case law, when assessing whether or not a company acting as a principal is a 'self-constructor', firstly it is assessed whether the work has been carried out 'in the normal course of business' of the company. To this end, the court examines whether the activities are appropriate for or result from the statutory objectives of the company. In addition, the court assesses the actual nature of the economic activity of the company, whether the company as such acts as an independent entity.

This assessment is no different for an institutional investor. In case law it was ruled that the management and maintenance of real estate are part of the investment of assets in real estate, and the institutional investor - an insurance company - being active in the management and maintenance can be considered to be a 'self-constructor'.

The investor took the view that they operate primarily in the insurance market and are only indirectly involved in the construction sector. The court ruled however that the management of investments in real estate and the related maintenance are part of the company's objective and that the investor being generally in charge of the work can be regarded as a 'self-constructor'.

It is therefore advisable to verify with the Dutch tax authorities whether an investor (or any other party) acting as principal is qualified as a 'self-constructor' for a specific building project. And if so, the investor may consider including a number of risk-reducing measures in the building contract, such as the use of a G-account for payment of taxes.

More information

For more information on project development and construction practice in the Netherlands, please be referred to our page on Lexology 'Construction in The Netherlands'  and the Loyens & Loeff publication ‘Building in the Netherlands’. Development projects require a multidisciplinary approach, which Loyens & Loeff provides by combining the in depth knowledge and expertise of its tax advisers, lawyers and civil law notaries.

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