Since 1 October 2012 policy rules have applied to the entry into derivative transactions by housing associations. The model documentation envisaged in those rules has recently been published by the Minister for Housing and the Central Government Sector and the use of such documentation for derivative transactions entered into with housing associations will become mandatory on 1 September 2013. On that same date, certain changes in the policy rules will also enter into effect. Both subjects will be discussed in this newsletter.


On 1 October 2012, new "Policy rules on the use of derivatives by approved public housing institutions" issued by the Minister for Housing and the Central Government Sector (the "Minister") entered into effect; these policy rules are discussed in our newsletter dated 10 September 2012. The policy rules aim to ensure that housing associations use derivatives properly and responsibly. The rules limit the types of derivative transactions into which housing associations may enter and require that the counterparty be a financial institution with at least a single-A or equivalent rating. The rules also contain requirements as to the documentation to be used and require the use of certain standard documentation.

When the rules were issued, the standard documentation had not yet been published and the effective date of this requirement was therefore postponed. On 12 July 2013, the Minister published the envisaged standard documentation. Consequently, as from 1 September 2013 financial institutions are only permitted to enter into derivative transactions with housing associations with which they have first concluded two standard agreements: the Framework Agreement Interest Rate Swaps (the "Framework Agreement") and a 2002 ISDA Master Agreement with a Schedule drawn up as prescribed in the policy rules. Both documents are attached as exhibits to the policy rules.

Simultaneously with the publication of the standard documents, the Minister published a number of amendments to the policy rules. These relate in particular to what are called "base rate loans".

Both the obligation to use the standard documents and the other amendments will enter into force on 1 September 2013.

Framework Agreement

The purpose of the Framework Agreement is to lay down certain mandatory terms of the relationship between the housing association and the financial institution. The explanatory notes to the policy rule amendments do not explicitly state that the Framework Agreement may not be supplemented or otherwise amended. We assume, however, that the intention is to prohibit any such change.

Relationship financial institution - housing association

As prescribed by the policy rules, the Framework Agreement explicitly classifies the housing association as a non-professional investor.

The Framework Agreement also provides that the relationship between the financial institution and the housing association constitutes a "contract for services (dienstverlening) as referred to in section 7:400 of the Dutch Civil Code". In the absence of any further explanation on this point, we assume that this refers to a contract of mandate (opdracht) as provided for in section 7:400 and not, or not also, to a contract with a service provider (dienstverrichter) as provided for in section 6:230a et seq. of the Dutch Civil Code. This distinction is of significance with respect to the financial institution's obligations to inform.

The financial institution declares in the Framework Agreement that it has a "written and unwritten duty of care" towards the housing association. In this connection, the agreement refers to the General Banking Conditions used by all Dutch banks that are a member of the Dutch Bankers Association. It is unclear what this reference means if the General Banking Conditions do not apply to the relationship between the relevant housing association and financial institution, for example where the latter is not a bank.

Finally, the Framework Agreement requires the financial institution to ensure that the housing association complies with the policy rules. Financial institutions that enter into derivative transactions with housing associations are therefore subject to a very far-reaching duty of care. This means that they must, among other things, gain an understanding of the housing association's financial policy and organisation and must, in advance of each proposed derivative transaction, determine whether it is permitted under the policy rules.


The Framework Agreement provides that if a transaction is entered into in violation of the policy rules, "all debts and claims" of the housing association based on that transaction will be "neutralised by opposite debts and claims for the same amounts". These "opposite debts and claims" are deemed to have arisen at the same time as their counterpart debts and claims and "will be set off against them". The explanatory notes to the policy rules refer to this provision as the "mutual indemnification provisions". The explanatory notes do not make clear why this construction was chosen.

Dutch law?

The Framework Agreement provides that the legal relationship between the financial institution and the housing association will be governed by and construed in accordance with Dutch law and that the Dutch courts have exclusive jurisdiction over disputes arising from or in connection with the Framework Agreement. It is unclear how this is to be reconciled with the possibility under the ISDA documentation discussed below to choose English law as the governing law.

ISDA documentation

The ISDA documentation published by the Minister consists of three parts: the 2002 Master Agreement (including a template Schedule) drawn up by the International Swaps and Derivatives Association, Inc. ("ISDA"), a Schedule specifically tailored to housing associations and, in case the parties also wish to provide each other with collateral, a Credit Support Annex ("CSA").

It follows from the explanatory notes to the policy rules that these documents may not be supplemented or otherwise amended unless the policy rules expressly indicate that this is permitted. With respect to both the Schedule and the CSA (if any), this means that there is room for a choice to be made on a few points and that no provisions may be added.

The Schedule provides, among other things, that when entering into transactions the financial institution acts as an adviser to the housing association. The Schedule also adds as an Additional Termination Event the withdrawal of recognition of the housing association as an institution within the meaning of section 70 of the Dutch Housing Act. On the other hand, the Schedule provides that an act or decision based upon the Housing Act does not constitute an Event of Default or Termination Event. It is unclear how these provisions relate to each other.

The Schedule and CSA lay down rules on many subjects that in normal contractual relationships are left to the parties' discretion. Examples are the Termination Provisions in the Schedule and the provisions in the CSA with respect to the valuation percentages to be used for the different categories of collateral.

The provision in the Framework Agreement with respect to the neutralisation of rights and obligations in the event of a violation of the policy rules does not appear in the ISDA documentation.

Base rate loans

A "base rate loan" (basisrentelening) is defined as a "loan with a fixed interest rate" and a "surcharge that is adjusted periodically". It follows from the amended policy rules that such loans are permitted under certain circumstances and do not constitute derivatives for the purposes of the rules. One of the circumstances is that such a loan be documented in accordance with the standard documents drawn up by the Social Housing Guarantee Fund (Waarborgfonds Sociale Woningbouw, "WSW"). Base rate loans need not be documented in accordance with the Framework Agreement and/or the ISDA model documentation published by the Minister.

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.