An introduction to leasehold in Dutch real estate

As an expat looking to buy a home in the Randstad (cities such as Amsterdam, Rotterdam, and The Hague), there's one crucial topic you need to be aware of: leasehold. In addition to the high house prices, you may find yourself paying an extra (tens of) thousands of euros for the leasehold on your property. This is a common issue many homebuyers face in this region. Planning to buy a home? Read this article to understand everything about leasehold so you don't encounter surprises when you're ready to celebrate your new purchase.

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What is leasehold?
Continuous and perpetual leasehold
Leasehold conditions
Buying off leasehold
Locking in leasehold
The costs of leasehold
Leasehold and mortgage

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What is leasehold?

Have you spotted a gem of a house on Funda, and does the price seem almost too good to be true? Let's burst that bubble right away: it usually is. Always check the small print under 'features' on Funda. There, it will indicate if the property is subject to leasehold. Are you further along in the process? The deed of transfer and the purchase contract will always specify if there is a leasehold.

If there is a leasehold, the land on which the house stands remains the lessor's property. The lessor is usually the municipality but can also be a housing corporation or the State Forest Service (Staatsbosbeheer). As a leaseholder, you receive the right from the owner (the lessor) to use the land and the house as if it were your property unless otherwise specified in the deed.

What is a leasehold canon?

When you buy a property with a leasehold, you do not become the land owner. Essentially, you are purchasing a right to use the land, for which you pay a fee to the owner. It's a rather peculiar arrangement. The fee you pay the owner is called a "leasehold canon," usually paid annually. You can think of the canon as a form of rent paid to the lessor (owner) of the land. The amount of the canon you must pay to use the land is specified in the leasehold agreement.

Leasehold with building rights

To make things a bit more complex: the leasehold right can also be coupled with building rights. As a buyer, you own the house, while the lessor owns the land. When the leasehold ends, the associated building rights also end. This means that the lessor then becomes the owner of the house. However, the lessor must compensate you for the value of the house.

Continuous and perpetual leasehold

You now have a basic understanding of leasehold, but there's more to it. Leaseholds can take different forms, such as continuous leaseholds and perpetual leaseholds.

With continuous leasehold, the current land value is reassessed every 50 or 75 years, and the leasehold canon is adjusted accordingly. As you might guess, in most cases, the value of the leasehold land increases significantly, causing the leasehold costs to rise sharply. So, be prepared for this possibility.

Perpetual leasehold, on the other hand, works a bit differently. Here, the amount of the leasehold canon is determined once and fixed forever. The advantage of this is that you have certainty about the amount you will pay (the canon) both now and in the future.

Leasehold Conditions

Not the most exciting topic, we know, but very important: the leasehold conditions. The lessor sets the rules regarding the leasehold in these conditions. You will find information about who the lessor is, the duration of the leasehold, the amount of the canon, buying off the canon, revision of the canon, and the use of the land and property. Additionally, you will read about the possibilities for termination. It's good to know that in some cases, you might need the lessor's permission to transfer the leasehold right (e.g., when selling the property).

Do you find the leasehold conditions hard to read? It's not your fault. The conditions can be a nightmare to understand. If you're struggling to decipher them, it's useful to seek advice from a notary. A notary is impartial and knowledgeable in leasehold matters. This can save you a lot of hassle and time – and surely you have better things to do on your free evenings or days off!

Where to Find Leasehold Conditions

You can find the leasehold conditions in the deed of issuance of leasehold. In addition to these leasehold conditions, there may also be 'general leasehold conditions.' This is often the case with municipal leasehold. These general leasehold conditions are recorded in a notarial deed. The deed of issuance in leasehold always refers to these general leasehold conditions when they apply.

Buying Off Leasehold

In addition to paying the leasehold canon annually, you can also buy it off. In this case, you pay a one-time buyout amount for a certain period – for example, 50 years (continuous leasehold) – or forever (perpetual leasehold). Are you interested in buying off your leasehold? Check the conditions on your municipality’s website.

Is It wise to buy off leasehold?

That completely depends on your situation. Buying off the leasehold canon has various advantages and disadvantages.

Advantages of buying off leasehold

You no longer pay the leasehold canon after the buyout sum is paid.
Your house becomes more attractive for sale as buyers prefer a property with a perpetual bought-off leasehold.
Your property value increases if the leasehold is bought off.
You can use mortgage interest deduction when you finance the leasehold buyout with your mortgage.

Disadvantages of buying off leasehold

You face a (often) high buyout sum, resulting in a significant one-time expense.
Your monthly mortgage costs increase if you finance the buyout sum with your mortgage.
You cannot deduct the buyout sum from taxes. You are not allowed to deduct the buyout sum from your taxable income.

Fixing (locking in) leasehold

In addition to buying off your leasehold, you can also choose to lock in your leasehold. In this case, the municipality will offer you a leasehold canon. This offer is usually higher than the monthly canon you are currently paying.

If you accept the offer, your leasehold canon will be fixed forever – it will never be recalculated again. This gives you certainty about the amount and your future monthly costs. In Amsterdam, you only start paying the higher leasehold canon when your current period ends. In other cities, you pay the higher leasehold canon immediately.

Advantages of locking in leasehold

You have certainty about the amount of the leasehold canon.
You don't have to worry about the impact of rising property prices on your leasehold canon.
You enjoy tax benefits; you can deduct the leasehold canon from your taxable income, thus paying less tax.

Disadvantages of locking in leasehold

The leasehold canon after locking in is almost always higher than the current one. If you live in a city where the higher leasehold canon takes effect immediately after locking in, your monthly costs will immediately increase.

The costs of leasehold

How much you pay for the leasehold canon depends on various factors. Consider the value of the land, the intended use of the land, and management and administrative costs. Check the leasehold conditions for the exact amount of the canon.

If you want to calculate the cost of buying off the leasehold, you need to know the land value and the canon percentage. The municipality of Amsterdam has developed a special tool to calculate the cost of perpetually buying off the leasehold canon. If you live in another city, check the municipality's portal for buying off leasehold.

Are Leasehold Costs Deductible?

Yes, the annual leasehold costs are deductible from income tax. The same applies to the mortgage interest you pay. If you buy off the leasehold, the interest on the loan or mortgage used to buy off the leasehold canon is tax-deductible. The buyout sum itself is not tax-deductible. You cannot deduct the buyout sum from your taxable income. If you have locked in the leasehold canon, it is deductible.

Leasehold and your mortgage

Have you got your eye on a property with a leasehold? This affects the amount you can borrow from the bank. You can only spend your money once, so the money spent on paying the canon cannot be spent on your mortgage. Therefore, the bank wants to know the exact situation regarding the leasehold upfront. Is the canon bought off, or must it be paid annually? And when is the canon bought off – perpetually or until a specific date in the future?

Taking out a loan for the purchase of a leasehold right

Did you know you can also take out a loan to purchase a leasehold? In this case, you finance the leasehold right as part of your mortgage. Banks are somewhat more hesitant to finance the purchase of a leasehold right. They are more likely to give you a mortgage for the full ownership of the land and its property.

Whether the bank grants you financing for the purchase of the leasehold right depends on several factors:

The amount of the leasehold canon
The revision date of the canon (and thus the risk of a significant increase)
The content of the leasehold conditions (e.g., usage restrictions)
The owner of the land (whether it is the government or not)
The type of leasehold right: is it for an indefinite or fixed period?

Leasehold opinion for rights before 2013

Banks require a leasehold opinion if the leasehold right was established before 2013. You can request this from the notary as a buyer and seller. In such a leasehold opinion, the leasehold conditions are assessed. If the opinion is "green," the leasehold right is financeable. If the opinion is "orange," financing is difficult. A "red" opinion indicates that the bank will not provide financing.

Tip: Include a financing clause in the purchase agreement so you can withdraw from the leasehold purchase right if you do not obtain financing.

Leaseholds after 2013

For leaseholds established after January 1, 2013, a leasehold opinion cannot be requested. For these leasehold rights, each bank determines whether or not to proceed with financing based on its own policy.

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