A striking example of overregulation? I’ve listed below several factors that affect rent increases on residential properties in the three rental sectors we now have in the Netherlands. We need to take into consideration: the European directive on unfair terms in consumer contracts, the Good Landlord Act, indexation, the negotiated wages index (Statistics Netherlands), government ministries, the Affordable Rent Act, the start date of the tenancy agreement, the initial rent and the tenant’s income. The process apparently couldn’t be made any easier. While the legislator undoubtedly means well, many people will simply find it impossible to implement these intentions.
The old situation
Until recently, it wasn’t all that complicated. There were two sectors: the social sector and the deregulated sector. For the social sector (now the low segment), the Ministry of Housingand Spatial Planning set a (maximum) permitted percentage for raising the basic rent each year. There were virtually no rules for the deregulated sector (now the mid and high segments); the emphasis was on freedom of contract and tenants and landlords were able to agree their own method for raising the rent no more than once a year. This rent increase was often based on the rate of inflation. Sometimes an additional or fixed rate was agreed.
Legally permitted maximum
Firstly because of the Coronavirus crisis and later the high rate of inflation, the legislator decided it was important to set a maximum permitted rent increase for the deregulated sector. All with the best of intentions, because a permitted rent increase of over 10% sounds absurd. You could counter that by pointing out that it also costs a great deal more to manage rental properties, but I understand the government’s wish to set a limit for permitted rent increases. Whatever the case, the government decided that rent increases in the deregulated sector weren’t permitted to exceed the rate of inflation. This temporary regulation has now been extended and continues to apply to the deregulated sector. The calculation method for the maximum has been adjusted somewhat, however, on which more below.
Europe
The next major change to rent increases came from an unexpected quarter. Lawyers concluded that the European directive on unfair terms in consumer contracts (the so-called‘blue list’) also applies to tenancy agreements. We’ve already written a blog on this. In principle, it only applies if the tenant can be classed as a consumer and the landlord is a professional. In brief, the directive stipulates that rent increase terms may be unfair under certain conditions, for example if the percentage is extremely high or unclear. Basically, if it favours the landlord too much. Under the directive, the effect of an unfair term is that it is void (i.e. should never have been permitted). The Dutch Supreme Court ruled on 29 November that rent increase terms at the rate of inflation + a maximum of 3% aren’t in themselves unfair. This will come as a huge relief for many (large) landlords, as a strict interpretation of this directive could have resulted in the reimbursement of billions of euros.
The Affordable Rent Act
The Affordable Rent Act came into effect in July 2024, although it’s better known as the ‘unaffordable rent act’. This act has further complicated rent increases as an additional sectorhas been created, namely mid-segment rentals. And believe it or not, those drafting the legislation decided yet another, different rent increase method was needed for mid-segment rentals. You now need to make an in-depth study of the subject, and I mean that literally, to understand how to raise the rent on a property.
How do I calculate the rent increase on my let property?
We get asked this question a lot and I’ll do my best to formulate an answer:
Start by examining which of the three sectors the let property comes under. You can see this from the initial rent but remember that mid-segment rentals didn’t exist prior to 1 July 2024, so even if the rent is currently classed as a mid-segment rental, if the property was let before1 July 2024, it can never be in the mid-segment rentals sector.
Luckily, it’s still pretty simple in the social sector as the percentage set by the government applies. This is published annually by the ministry for the entire year. It’s true that there are many additional measures to combat situations in which people live in a rental property even though their income is too high for it etc. Yet these don’t necessarily need to be applied. This percentage is no longer set on 1 July but on 1 January.
In the mid-segment rentals sector the government sets a maximum percentage based on average negotiated wages growth. Remember that this a maximum percentage. The methodlaid down in the tenancy agreement determines the rent increase, but this may never exceed the legally permitted maximum. Incidentally, this is arranged differently again in the Interhouse model agreement as in this case the percentage set by the government always applies as the rent increase percentage.
That just leaves the high segment, also known as the deregulated sector. The same regulation largely applies here as in the mid-segment rentals sector. Except that here the rate is determined using a different method: it’s either based on the rate of inflation or on average negotiated wages growth. The lowest of these two rates is taken as the applicable maximum permitted rent increase.
Did you follow all that? Then you’re an exception to the rule as the average landlord no longer has a clue. We’ve even seen lawyers get it wrong. And, incredibly, the central government and rent assessment committee websites contained erroneous information for a long time. It’s extraordinary how intentions and practical application can be so far removed from each other and have such far-reaching repercussions as well. I’m happy to say, however, that our employees have received thorough training and know how to apply the rent increase correctly, although it’s far from easy.
