The Fixed Lease Contracts Act: first experiences from the field

01-10-2024

The Fixed Lease Contracts Act

On 1 July 2024, the Fixed Lease Contracts Act (Wet Vaste Huurcontracten) entered into force. This severely limits the possibility of entering into temporary residential lease agreements. A permanent lease agreement (i.e. with an indefinite lease term) is now the standard. This applies to both commercial lessors and housing corporations, and to both self-contained and non-self-contained residential accommodation. In principle, the Fixed Lease Contracts Act does not affect (temporary) lease agreements concluded before 1 July 2024. Three months after the Fixed Lease Contracts Act entered into force, this article outlines some of the initial experiences we noticed in the field.

The Fixed Lease Contracts Act allows specific lessees to be exempt from the new standard. With respect to such lessees it is still possible to conclude a temporary lease agreement for a maximum term of two years. This applies, for example, to (Dutch) students and lessees who need temporary accommodation due to family circumstances, such as orphans, relatives and divorced parents. The complete list of exceptions can be found here.

In addition to the aforementioned exceptions, temporary lease agreements remain possible with respect to a number of other situations. For example:

• under the Dutch Vacancy Act;
• by lessors who themselves are temporarily living elsewhere (the ‘diplomatic clause’);
• hospice leasing;
• the ‘campus contract’; and
• 'short stay' lease agreements (such as holiday homes).

First practical experiences

Three months after the Fixed Lease Contracts Act entered into force, we note that both housing associations and private investors are running into (practical) challenges. For instance, a lessee who does not fall under the exceptions can no longer be offered a temporary lease agreement, while in practice both lessees and lessors may prefer this for various reasons. In addition, the wording of the Fixed Lease Contracts Act itself, and the accompanying list of exceptions thereto, appears to be unclear with respect to certain (key) parts.

If a lessor enters into a temporary lease agreement with a lessee of whom it is not entirely certain whether they fall under an exception category, there is a risk that the lessee may still invoke protection of tenure. If a court subsequently rules in favour of the lessee, this could mean that the lease agreement does not end at the end of the earlier agreed lease term.

This highlights the importance for lessors to pay attention to the question of when and with whom they can still enter into temporary lease agreements. Below, we outline two concrete practical examples.

Skilled foreign employees

According to the ‘Explanatory Memorandum’ (Nota van Toelichting) that accompanies the Fixed Lease Contracts Act that the legislator deliberately did not include persons who want to temporarily work and live in the Netherlands on the list of exceptions. This is not only problematic for lessors, but also for a range of employers who often use foreign workers on a temporal basis. Think of knowledge institutions, IT companies, engineering firms and educational institutions. Take Dutch educational institutions for example. It is not uncommon for international lecturers and employees from foreign universities and colleges to be temporarily brought in for specific subjects. Usually, this is of a temporary nature, e.g. for the duration of an academic year or shorter. With the Fixed Lease Contracts Act into force, educational institutions and lessors can no longer use a temporary lease agreement to accommodate this important group. Such accommodation often takes place in a campus-like environment, close to the educational institution. These (residential) buildings are precisely designed for a smooth flow of residents coming in and out for a short period of time. Partly in view of the overheated residential market, it appears undesirable for lessors that this group of lessees could invoke protection of tenure.

Foreign students who want to do internships in the Netherlands

Another example shows that not every part of the legislative text of the Fixed Lease Contracts Act and the list of exceptions thereto is clearly phrased. ‘Students’ are on the list of exceptions that are still allowed to enter into a temporary lease agreement. More specifically: ‘Persons who wish to temporarily live in another municipality within the Netherlands for the purpose of their studies, or are from abroad and studying in the Netherlands.’ This recently led to the question of whether international students seeking temporary lease accommodation to do an internship in the Netherlands because their studies also fall within said exception category. After all, doing an internship in the Netherlands does not seem to be the same as ‘studying in the Netherlands’.

The ‘Explanatory Memorandum' to the Fixed Lease Contracts Act does not provide clarity on this point. Given the wording of the Fixed Lease Contracts Act itself and the limited explanation thereto, it therefore remains unclear whether this group falls under the category ‘students’, in which case they would constitute an exception.

Dutch students (read: persons studying at a Dutch educational institution, regardless of their nationality) do, for that matter, qualify as ‘students’ under the exception. It is therefore conceivable that Dutch students who temporarily do internships in another municipality in the context of a ‘Dutch’ study could fall within the scope of the term ‘student’ and thus be exempted from the Fixed Lease Contracts Act.

Alternatives for temporary lease contracts?

The question arises whether, with respect to temporary accommodation of (foreign) skilled employees, a so-called 'short stay’ lease agreement might offer a solution. With respect to such short-term lease agreements, the legal system of protection of tenure does not apply. A typical example is letting a holiday home for a few nights or weeks.

However, existing case law on whether a lease agreement constitutes a 'short stay' lease agreement is very casuistic and the qualification ‘short stay' is not easily assumed. In an exceptional case, the Arnhem-Leeuwarden court of appeal ruled that a lease agreement with a term up to 10 months - in this case to a foreign student - qualified as a 'short stay' lease agreement. In this particular case, however, the lessor let the accommodation fully furnished and it was possible - as if it were a hotel - to purchase bed linen and other amenities. The lease agreement specifically stated several times that protection of tenure did not apply. The temporary nature of the lease agreement was further underscored by including in the agreement that the lessee agreed to leave the leased property after completing her studies. Given the restrictive interpretation and casuistic jurisprudence on this topic, a 'short stay' lease agreement – as a genuine alternative to the possibility of temporary letting existing until 1 July 2024 – is not recommendable.

It is important to emphasize that the judgment of the Arnhem-Leeuwarden Court of Appeal was delivered in a period in which the possibilities for concluding temporary lease agreements were still very limited. With the subsequent introduction of the Property Rental Market Act (Wet Doorstroming Huurmarkt) in 2016, which provides the possibility of temporary lease agreements, the ‘short stay' lease agreement moved into the background. As the possibilities to conclude a temporary lease agreement will again be limited from 1 July 2024, it could be that judges will take a different view at a claim on whether a lease agreement constitutes a 'short stay' lease agreement. Practice will have to show whether or not this will indeed be the case.

With respect to the second example outlined above - foreign students doing an internship in the Netherlands - it is unclear whether a useful alternative is available. Besides the 'short stay' lease agreement, in which case the risk that protection of tenure is possibly applicable remains, Dutch (lease) law offers some other possibilities to conclude a temporary lease agreement (please refer to the (non-exhaustive) list in the introduction to this article). However, such contracts do not seem to offer a practical alternative for foreign students who want to do a temporary internship in the Netherlands for their studies. It remains unclear whether the legislator intended to exclude this group or whether there is an - unintentional - loophole in the legislation provided.

Conclusion 

This article takes stock of the initial experiences in the field, three months after the Permanent Lease Act came into force. The new standard, which as of1 July 2024 primarily allows only permanent lease agreements (i.e. with an indefinite lease term) may be concluded, conflicts with the desire of both lessors and lessee that for certain types of lessees, leases with a temporary nature would be a much better fit. In addition, the Fixed Lease Contracts Act - and the list of exceptions thereto - does not appear to be clearly formulated with respect to certain (key) parts of the legislative text. Alternative contract forms for temporary residential accommodation, such as the ‘short stay' lease agreement, in practice do not appear to be readily usable and the correct application thereof is legally complex.

Contact

If you have any questions regarding the Fixed Leases Act or need legal advice on the impact of the Fixed Leases Act on your real estate portfolio, please contact us.