Three months after the Affordable Rent Act came into force

01-10-2024
On 1 July 2024, the Affordable Rent Act (Wet betaalbare huur) came into force. The main consequences of the law are the extension of existing rent protection by introducing a middle segment, adjustment and mandatory implementation of the Housing Evaluation System (woningwaarderingsstelsel) ("WWS") and strengthening and extension of municipal powers. 

This article discusses the key aspects and potential impact of the Affordable Rent Act.

Key points of the Affordable Rent Act

Introduction of a middle segment

The most significant change brought about by the Affordable Rent Act is the reclassification of residential properties from two to three segments. Previously, there were only (i) non-liberalised rent (social housing sector) and (ii) liberalised rent (private rental sector). The Affordable Rent Act introduces the middle segment and changed the social housing sector and private rental sector:

From 1 July 2024, both the low and middle segments will be regulated, with the maximum rent price determined by the number of WWS points. The high segment remains liberalised.

The low and middle segments will use different annual rent price indexation methods. In the low segment, the maximum rent increase is set annually via ministerial regulation, whereas in the middle segment, rent increases are limited to wage growth according to collective agreements plus one percentage point.

Adjustment of the WWS

The WWS determines the maximum rent of a property based on a points system derived from various factors. The valuation of the quality aspects of residential properties has been adjusted by the Affordable Rent Act. Below is an overview of some of the changes:

• Maximising WOZ value: Since May 2022, a WOZ cap has applied to residential properties above the liberalisation threshold, meaning that the WOZ value of residential properties above this threshold may only count for a maximum of 33% in the rent price calculation. This prevents residential properties from being liberalised solely due to a high WOZ value, resulting in more residential properties falling into the non-liberalised (regulated) segment. With the introduction of the Affordable Rent Act, this threshold is increased to 187 WWS points. However, this restriction does not apply to all residential properties.
• Heavier weighting of energy labels: Residential properties with energy label D or higher receive WWS points. Residential properties with a high energy label (B or higher) receive extra points, while low energy labels (E, F, G result in deduction points. This should encourage lessors to make their residential properties more sustainable.
• Outdoor spaces: Private outdoor spaces now receive a minimum of 2 WWS points, with an additional 0.35 WWS points per extra square metre. Common outdoor spaces are valued at 0.75 WWS points per square metre, divided by the number of addresses with access and usage rights. A deduction of 5 WWS points is applied if the property has no outdoor space.
• Surcharge for new-build properties: New construction projects for residential properties in the middle segment, which first come into use after 1 July 2024, may apply a rental surcharge of up to 10% for twenty years. This surcharge applies to projects whose construction or conversion (from a non-residential function to residential) commenced before 1 January 2028. The twenty-year period starts from the first occupancy date. This measure aims to encourage investments in new construction and will be evaluated no later than 1 July 2027.
• Valuation of monuments: From the effective date of the Affordable Rent Act, a standard maximum rent surcharge of 5% applies to residential properties located in protected city or village areas built before 1965, for which no other monument surcharge applies. Provincial and municipal monuments have a maximum price surcharge of 15%. Moreover, the valuation of national monuments has been adjusted: the 50 WWS points have been converted to a maximum rent surcharge of 35%. The foregoing applies to new leases.

Mandatory WWS

Previously, the maximum rent price based on the WWS was not strictly enforceable, and it was possible to contractually agree on a higher rent. The WWS was only enforceable for lessees. If the starting rent was above the liberalisation threshold, but the number of WWS points for the rental property was below this threshold, and the lessee did not have the rent reviewed by the Rent Tribunal within six months of the start of the lease agreement, the rent would be fixed. The Affordable Rent Act changes this: the WWS is now mandatory for lessors of residential properties in both the low and middle segments. Lessors must adhere to the maximum rent determined by the WWS for these properties.

In addition, from 1 January 2025, all lessors will be required to provide lessees with information about the WWS points and the corresponding rent when entering into new lease agreements.

While residential properties in the high segment are subject to the obligation to provide information on the point count, the WWS is not mandatory, meaning there is no maximum rent price, and lessors are free to set the rent.

Municipal enforcement

On 1 July 2023, the Good Landlordship Act (Wet goed verhuurderschap) came into force. With the introduction of the Good Landlordship Act, municipalities have been given an important role in promoting good landlordship and preventing and combating undesirable rental practices. Under the Good Landlordship Act, municipalities have the authority to impose a rental permit, to which conditions can be attached related to good landlordship and the WWS. If lessors violate the provisions of the Good Landlordship Act or the conditions of the rental permit, municipalities can impose recovery sanctions, such as administrative fines or enforcement orders. In extreme cases, municipalities can even revoke the rental permit or take over the management of the property.

With the implementation of the Affordable Rent Act this enforcement role has been further expanded. Municipalities now have additional powers to monitor compliance with the Affordable Rent Act and the mandatory WWS. Municipalities can act based on reports from lessees but can also act on its own initiative when a violation is detected. Although the municipality cannot amend the lease agreement itself, they this enforcement role has been further expanded.

However, municipalities are no longer allowed to include conditions regarding maximum rent or rent increases in rental permits. This raises the question of how municipalities will deal with existing rental permits, now that the WWS and maximum rent have become mandatory. What will happen to permits issued under the old regulations? These questions are expected to be answered in the coming months as the implementation of the Affordable Rent Act takes shape in practice.

The enforcement of the mandatory WWS points system and municipal supervision has been postponed until 1 January 2025 to allow all parties sufficient time to prepare for the new regulations.

Transitional law

Transitional law plays a crucial role in the implementation of the Affordable Rent Act. The Affordable Rent Act does not apply to lease agreements that were entered into before its effective date (before 1 July 2024). The date the lease agreement was signed determines its applicability, not the start date of the agreement. There are two important exceptions:

1. Immediate effect for existing lease agreements in the low segment (from 1 July 2024): From 1 July 2024, the Affordable Rent Act will apply directly to all self-contained residential properties where the starting rent was below the liberalisation threshold at the time and where the rent from 1 July 2024 falls below the then-applicable maximum rent for the low segment (as of 1 January 2024 €879.66 per month). If the current rent exceeds the maximum rent based on the number of WWS points under the new WWS, lessors must immediately adjust the rent to the amount corresponding to the number of WWS points. Lessors can also be fined in case the lessor violates the mandatory nature of the WWS.
2. Effect for existing agreements after one year ( (per 1 July 2025): From 1 July 2025, the Affordable Rent Act also applies to residential properties that have less than 144 WWS points under the new WWS, on 1 July 2024, but have a rent above the liberalisation threshold (from 1 January 2024, €879.66 per month). Lessors are required to apply the maximum rent which corresponds with the property’s WWS points from 1 July 2025.

Conclusion

The effectiveness and impact of the Affordable Rent Act will be reviewed every five years. However, the Senate has adopted a motion to conduct an evaluation after three years. This evaluation will focus on the investments in new-builds and the sustainability of middle-segment residential properties by private individuals, investors, and housing corporations, as well as the effects on the different rental segments and the housing opportunities for various groups in the housing market. It is expected that the impact of the Affordable Rent Act will be monitored annually.

Contact

If you have any questions regarding the Affordable Rent Act or need legal advice on the implementation of the Affordable Rent Act, please contact us.