The Dutch Climate Agreement and the Paris Convention have made it clear that the Dutch government has high ambitions in terms of sustainability and the reduction of CO2 emissions. To a considerable extent, these objectives must be achieved by making the built environment more sustainable, for example by making houses nearly energy neutral. Decentralised energy generation, for instance through solar panels, solar thermal collectors or heat pumps, is crucial to achieving this goal.
For lessors it is essential to recover the required investments by generating a steady flow of income, for example in the form of rent or service charges.
A recent judgment by the Amsterdam Court of Appeal illustrates that there are legal pitfalls of which lessors should be aware.
Are solar panels movable or immovable objects? Consequences for lessors
The case concerned housing association Stichting Woontij, active on the Dutch island of Texel, which had twelve energy-zero homes built in Den Hoorn and rented them out at a price just below the social rent limit, so that tenants could qualify for a government subsidy towards their monthly rent. The houses are equipped with solar panels and solar water heaters. Instead of charging a rent above the social rent limit, the housing association opted to charge a separate fee for the solar panels and solar water heater as part of the service charges.
One of the lessees, however, refused to pay this fee. In the resulting dispute, the key question was whether the solar panels and the solar water heater are movable or immovable objects. Under Dutch law, a separate fee for the provision of immovable property may not be included in the service charges. Lessors may charge a fee for movable objects as part of the service charges, but a fee for immovable objects must be included in the basic rent.
Movable objects, such as solar panels that have not yet been installed, can become immovable in one of two ways. On the one hand, by accession to the land "via" the building. This is the case when, by its nature and layout, the object is intended to remain permanently in place. This must be assessed on the basis of the builder's or developer's intention, insofar as this intention is apparent to an outside observer. On the other hand, movable objects can become immovable when the movable object becomes a component of an immovable object. In that case, the object becomes a component part of the larger object: the house. The house is an immovable object and so are its components. This may be the case if, according to public opinion, an object is part of a larger object. For example if the solar panels and the house are structurally aligned or if the house is incomplete without the solar panels.
The Court of Appeal held that the solar panels and the solar water heater became component parts of the house, based on the following reasoning. The aim of the building project was to construct twelve energy-neutral homes, and a significant part of the energy requirements of these homes would be met by solar energy. This means that the solar panels and solar water heater necessary for this purpose are essential to the functioning of these twelve houses. The solar panels and solar water heaters are integrated in the design of the houses in such a way that they cannot be separated from them without the design - and thus the twelve houses - becoming 'incomplete'.
The solar panels and solar water heaters have become components of the house, and are therefore immovable. It follows from rental law that, for that reason, lessors may not charge a fee on top of the basic rent. The fact that the lessor deliberately chose to keep the basic rent low and to charge a fee as part of the service charges does not change this fact.
It is interesting that the Court of First Instance came to the same conclusion, albeit through a different reasoning. The court was of the opinion that the solar panels and solar water heater had not become components of the house, but were nonetheless immovable on the basis of accession. This means that the solar panels and solar water heater, because of the fact that they were - according to the court - permanently united with the ground through the house, became immovable. The court came to this conclusion based on grounds that are similar to those of the Court of Appeal. Because it was the explicit intention of the builder and Woontij to make the solar panels and solar water heater an integrated part of the roof of the house, these were, by their nature and design, intended to remain in place permanently, and are therefore immovable.
Options for lessors
Investors or lessors wanting to recover their investments in immovable solar panels from their tenants have several options.
In the case of a liberalised rent, they can request compensation in the form of a higher basic rent. However, even in this situation, a fee cannot be charged as part of the service charges. If the 'points system' applies and the lessor does not wish to exceed the social rent limit, then the options are limited.
Lessors can charge, since May 2016, an 'energy performance fee' to tenants of certain near zero-emissions homes. This fee is separate from the basic rent and service charges. However, strict minimum requirements apply. For example, the house must be insulated properly and generate as much energy as it on average consumes. If the lessor fails to meet the minimum requirements, an energy performance fee may not be charged. It is an all-or-nothing system. Even if the lessor can charge an energy performance fee, statutory maximum amounts apply.
If the rent is not liberalised and the lessor does not meet the requirements for the energy performance fee, the main rule applies: lessors cannot charge a fee as part of the service charges.
If all solar panels were considered to be immovable, the lessor would not be able to charge a fee apart from the basic rent, except for the energy performance fee (for which strict requirements apply). Lessors should perhaps limit themselves to non-integrated solar panels that can easily be removed, in the hope that a court would consider these solar panels movable objects.
Lessors are therefore advised to carefully consider to what extent investments can be recovered before they engage in a new construction or refurbishment effort.
The Dutch Climate Agreement and the Paris Convention have made it clear that the Dutch government has high ambitions in terms of sustainability and the reduction of CO2 emissions. To a considerable extent, these objectives must be achieved by making the built environment more sustainable, for example by making houses nearly energy neutral. Decentralised energy generation, for instance through solar panels, solar thermal collectors or heat pumps, is crucial to achieving this goal.
For lessors it is essential to recover the required investments by generating a steady flow of income, for example in the form of rent or service charges.
A recent judgment by the Amsterdam Court of Appeal illustrates that there are legal pitfalls of which lessors should be aware.
Are solar panels movable or immovable objects? Consequences for lessors
The case concerned housing association Stichting Woontij, active on the Dutch island of Texel, which had twelve energy-zero homes built in Den Hoorn and rented them out at a price just below the social rent limit, so that tenants could qualify for a government subsidy towards their monthly rent. The houses are equipped with solar panels and solar water heaters. Instead of charging a rent above the social rent limit, the housing association opted to charge a separate fee for the solar panels and solar water heater as part of the service charges.
One of the lessees, however, refused to pay this fee. In the resulting dispute, the key question was whether the solar panels and the solar water heater are movable or immovable objects. Under Dutch law, a separate fee for the provision of immovable property may not be included in the service charges. Lessors may charge a fee for movable objects as part of the service charges, but a fee for immovable objects must be included in the basic rent.
Movable objects, such as solar panels that have not yet been installed, can become immovable in one of two ways. On the one hand, by accession to the land "via" the building. This is the case when, by its nature and layout, the object is intended to remain permanently in place. This must be assessed on the basis of the builder's or developer's intention, insofar as this intention is apparent to an outside observer. On the other hand, movable objects can become immovable when the movable object becomes a component of an immovable object. In that case, the object becomes a component part of the larger object: the house. The house is an immovable object and so are its components. This may be the case if, according to public opinion, an object is part of a larger object. For example if the solar panels and the house are structurally aligned or if the house is incomplete without the solar panels.
The Court of Appeal held that the solar panels and the solar water heater became component parts of the house, based on the following reasoning. The aim of the building project was to construct twelve energy-neutral homes, and a significant part of the energy requirements of these homes would be met by solar energy. This means that the solar panels and solar water heater necessary for this purpose are essential to the functioning of these twelve houses. The solar panels and solar water heaters are integrated in the design of the houses in such a way that they cannot be separated from them without the design - and thus the twelve houses - becoming 'incomplete'.
The solar panels and solar water heaters have become components of the house, and are therefore immovable. It follows from rental law that, for that reason, lessors may not charge a fee on top of the basic rent. The fact that the lessor deliberately chose to keep the basic rent low and to charge a fee as part of the service charges does not change this fact.
It is interesting that the Court of First Instance came to the same conclusion, albeit through a different reasoning. The court was of the opinion that the solar panels and solar water heater had not become components of the house, but were nonetheless immovable on the basis of accession. This means that the solar panels and solar water heater, because of the fact that they were - according to the court - permanently united with the ground through the house, became immovable. The court came to this conclusion based on grounds that are similar to those of the Court of Appeal. Because it was the explicit intention of the builder and Woontij to make the solar panels and solar water heater an integrated part of the roof of the house, these were, by their nature and design, intended to remain in place permanently, and are therefore immovable.
Options for lessors
Investors or lessors wanting to recover their investments in immovable solar panels from their tenants have several options.
In the case of a liberalised rent, they can request compensation in the form of a higher basic rent. However, even in this situation, a fee cannot be charged as part of the service charges. If the 'points system' applies and the lessor does not wish to exceed the social rent limit, then the options are limited.
Lessors can charge, since May 2016, an 'energy performance fee' to tenants of certain near zero-emissions homes. This fee is separate from the basic rent and service charges. However, strict minimum requirements apply. For example, the house must be insulated properly and generate as much energy as it on average consumes. If the lessor fails to meet the minimum requirements, an energy performance fee may not be charged. It is an all-or-nothing system. Even if the lessor can charge an energy performance fee, statutory maximum amounts apply.
If the rent is not liberalised and the lessor does not meet the requirements for the energy performance fee, the main rule applies: lessors cannot charge a fee as part of the service charges.
If all solar panels were considered to be immovable, the lessor would not be able to charge a fee apart from the basic rent, except for the energy performance fee (for which strict requirements apply). Lessors should perhaps limit themselves to non-integrated solar panels that can easily be removed, in the hope that a court would consider these solar panels movable objects.
Lessors are therefore advised to carefully consider to what extent investments can be recovered before they engage in a new construction or refurbishment effort.