As sustainable products, such as solar panels and reusable floors and walls, can be very expensive, they are increasingly being rented out. This also allows people and companies with smaller budgets to invest in sustainability. However, lessors of these sustainable products risk losing their properties due to legal regulations. How can they mitigate this risk?
The Netherlands is slowly transitioning from a linear to a circular economy. In a circular economy, the focus is on reusing products and raw materials. As a result, new services flourish. This also applies to the construction and real estate sector, where reusable parts of houses and buildings are increasingly being rented out. Unfortunately, it seems that the law stands in the way of this form of circular economy. Due to the legal possibilities of becoming a component part of a construction and the right of accession of the leased parts, circular construction runs the risk of unwanted loss of ownership by lessors. This blog discusses ways to avoid such risks as much as possible.
Circular construction
Circular construction means the rental of movable property placed in or on an immovable property. Buildings are the best-known category of immovable property. Movable property includes - in short - all detached objects that are not immovable and can be moved.
Shell model
Within the real estate sector, a shell is the best-known example of circular construction. The shell model means that a building is assembled in such a way that the roof, facades and internal walls can be dismantled relatively easily for subsequent reuse. The buyer of a new construction buys only the supporting walls, while the rest (non-supporting walls, floors and the entire fittings) is rented. This lowers the purchase price. This model is often used for office buildings.
The lessor can re-let the leased product - possibly after repair or restoration - to another person. At the same time, there is an obligation for lessors to maintain and, if necessary, replace the leased items. Lessors therefore have an interest in making products of a better and more sustainable quality available to tenants. In turn, this leads to less waste and is thus totally in line with the circular idea.
Rental of solar panels
Another example of circular construction is rental of solar panels. Because of the hefty purchase price of solar panels, few households can/want to pay for solar panels, especially as more and more subsidy schemes are being abolished in the Netherlands. Purchasing solar panels is an even bigger problem for tenants of a property, who need permission from the landlord to do so and are also uncertain whether a subsequent tenant will take over the solar panels they have purchased. In this case, a solar panel rental construction can offer a solution.
A substantial party then finances the solar panels and rents them to households that pay rent and in return receive lower energy bills. Eco-friendly solar PV technology thus becomes accessible to less wealthy people. When the tenants move out, the landlord can remove the solar panels from the roof and reuse them with another party.
Risks of circular construction: becoming a component part of a construction and the right of accession
Circular building does come with some risks. This is because the rented items can be seen as components of the house and the land on which it stands. In that case, they may become the property of the owner of the house and the land through the right of accession, causing the lessor to unexpectedly lose ownership of the products he rents out.
Dutch law stipulates that the owner of a property is also the owner of all the components of that property. This is called the right of accession. Moveable property is part of an object if - in brief - the moveable property is part of the immovable property according to prevailing opinion, or if the moveable property is connected to the immovable property in such a way that it cannot be separated from it without causing significant damage. In other words, it is permanently fixed.
Besides the right of accession as a result of becoming a component part of a construction, an object (e.g. a building) can be accessed to the land. For, in principle, the ownership of land also includes the buildings and works that are permanently united with that land.
In the aforementioned examples of the shell model and the letting of solar panels, the connection of the solar panels with the roof of a house or of non-supporting walls and floors with the supporting walls usually leads to the owner of the house becoming the owner of the non-supporting walls/floors/solar panels by right of accession. In short: the lessor loses ownership. The possibility of accession cannot be excluded in the lease. However, the landlord can use two legal regulations to avoid the negative consequences of such loss of ownership:
- Right of superficies
- Right to dismantle
Right of superficies
With a right of superficies you can prevent accession. A right of superficies is a right in rem to own or acquire buildings, works or plants in, on or above an immovable property of another person. A right of superficies is established by notarial deed. This entails the necessary costs. Another difficulty is that most buildings are mortgaged. In that case, the mortgage holder will have to give permission for the right of superficies to be established. Moreover, in case of foreclosure of the immovable property, the mortgage holder does not have to take the right of superficies into account. Therefore, the mortgage holder will also be allowed to include the leased product in the foreclosure.
Right to dismantle
Besides the possibility to prevent the right of accession, there is also a possibility to undo the consequences of accession. This is the right to dismantle. Under Dutch law, a tenant has the right to undo changes and additions he has made to the leased property. Although the owner of a building or the land becomes the owner of the alterations and additions by accession, the lessee is authorised to remove them before he leaves the property.
Please note that with the right to dismantle, the property only becomes the tenant's property again when he dismantles it. However, the tenant must restore the rented property to the condition it was in at the start of the lease. If the tenant nevertheless leaves the changes he has made and was permitted to make in the rented property, he can claim compensation for this on the grounds of unjust enrichment of the landlord.
The right to dismantle does not provide relief in all cases. After all, the right to dismantle only applies to tenants. In the above-mentioned example of solar panels installed on the tenant's roof, the lessor of the panels does not have the right to remove them from the roof at the end of the lease. Thus, with the right to dismantle, the lessor of the solar panels cannot prevent the (land) owner of the tenant's house from also becoming/remaining the owner of the installed solar panels. For this, the lessor of the solar panels remains dependent on the good faith of his tenant.
Lease contract
Lessors of reusable parts and solar panels can, in addition to these legal regulations, also make contractual arrangements to limit the negative consequences of accession. For example, by including in the lease a penalty or an obligation to pay damages if ownership of the products is lost due to accession.
Real estate and lease lawyer
Do you work in the construction and real estate sector and deal with circular construction? In that case you have to realise that it is important to make proper arrangements to avoid loss of ownership. We will be happy to provide you with tailor-made solutions to reduce the risks of circular construction as much as possible.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
