The Dutch legislator is considering changing the Dutch RETT (real estate transfer tax) scheme regarding acquisitions of Dutch real estate via share deals. If this change is indeed implemented, then effective 1 January 2024, the current RETT exemption on the acquisition of shares in a real estate entity holding newly developed real estate would cease to exist.

What would this mean in practice for investors?

Currently, asset deals regarding newly developed real estate are subject to VAT (21%). As a result, during the two years after the asset is taken into first use, an exemption for RETT (10,4%) exists if the buyer is not eligible to deduct the VAT. Without this exemption, the tax burden would be 31,4% (21% VAT + 10,4% RETT). By applying the exemption, this is reduced to 21% non-deductible VAT.

This scheme is particularly relevant in the case of residential real estate (and in some other scenarios not covered in this post). In the case of the acquisition of leased residential real estate, the buyer is not eligible to deduct the VAT on acquisition and operational costs and – under the current RETT scheme – would be able to invoke the RETT exemption. However, for the acquisition of leased commercial real estate, the buyer will in most cases be eligible to deduct the VAT, and therefore, not be entitled to the RETT exemption if transfer would occur more than six months after the asset is taken into first use. As a result, (after deduction of the 21% VAT) the tax burden in that case is 10,4% RETT.  

Back to the proposed revision of the tax scheme: What is the relevance in practice?

As explained above, buying new residential real estate that is leased out, via an asset deal, incurs a tax burden of 21% non-deductible VAT and qualifies for an exemption for RETT (10,4%), so an overall burden of 21%.

Currently, if the same asset (i.e., new residential real estate that is leased out) is not acquired via an asset deal but via share deal, the tax burden is zero (subject to the VAT on acquisition costs, which are not deductible for the special purpose vehicle) because the acquisition of shares is exempt from VAT. The buyer of shares saves 21% non-deductible VAT on the acquisition. And like in the asset deal variant, no RETT is due. So, in total, the tax burden for the buyer on the residential asset deal is 21% higher than the tax burden on the same acquisition via a share deal.

That would change pursuant to the envisaged revision of the RETT scheme. The revision would introduce a RETT levy (10,4%) on the acquisition of new (residential) real estate via a share deal.

If this new scheme is adopted, per 1 January 2024, the acquisition of new (residential) real estate via a share deal would become 10,4% more expensive. 

Investor and developer considerations

Investors looking to buy new residential real estate, and developers selling residential real estate, should consider signing the SPA and transferring the shares in the real estate entity holding the newly developed real estate before 1 January 2024.

This means December 2023 likely will be a busy time, just like December 2022 when buyers and sellers wanted to transfer ownership of real estate subject to the old RETT rate of 8% before the new 10,4% RETT rate came into effect on 1 January 2023.

What will happen after 31 December 2023?

If the new scheme is adopted, after 31 December 2023, acquisition costs would go up 10,4%, potentially putting pressure on the value of residential development projects.

What other effect would this have?

Developers would have to adjust the valuations of their projects if transfer is expected after 31 December 2023, which might lead to breaches of loan covenants with their financiers. 

Many companies own the real estate from which they operate their business. However, if investing in real estate is not the company’s core business, might it not be better to free up that capital? Capital invested in the company’s primary business may generate a higher return on investment.

In challenging economic times, many companies need greater liquidity. On the other hand, we see that typical debt providers like banks are reluctant to provide additional financing, especially in a bear market. Current high interest rates also may prevent companies from obtaining debt financing. In such cases, a sale and leaseback transaction may be beneficial for both investors and companies.

In sale and leaseback transactions, companies sell their real estate to an investor and enter into a long-term lease with the new owner. Often, parties agree on a ‘triple net lease,’ meaning that the lessee remains responsible for all maintenance, repair, and insurance costs. The company as lessee enjoys many of the same benefits (and burdens) of owning real estate, with the added ability to invest liquid capital into the growth and innovation of its business.

For an investor, a sale and leaseback transaction can provide a reliable and steady flow of rental income, which is adjusted for inflation. Additionally, an investor can review the historical performance of the company and assess its future potential, thus maximizing the investor’s own profits.

In the current market, we still see an appetite for sale and leaseback transactions, especially with investment-grade companies and long-term lease agreements (10-15 years). The Greenberg Traurig RE-STRUC team has deep experience assisting clients and investors with sale and leaseback transactions.

Unpredictable market conditions require innovative solutions to tackle business challenges. Although the real estate industry is fast-paced and global, it is a small world all the same. Due to the current economic climate, parties that have collaborated amicably and successfully for decades may suddenly be faced with issues that put pressure on their relationship and jeopardize the mutual trust carefully built over years. Identifying these choke points timely and addressing them by applying ADR solutions may prevent lengthy legal proceedings and create an efficient and positive outcome for both parties, solving the issue pragmatically and enabling continuation of the collaboration.

ADR includes various forms of alternative dispute resolution, such as:

  • Non-binding advice: Advice by specialist advisors;
    Key characteristics: Not binding, usually confidential, advisors take position 
  • Arbitration: Decision by specialist arbitrators acting like judges;
    Key characteristics: Binding, not necessarily confidential, arbiters take position
  • Mediation: Structured, interactive solution-focused negotiation process, led by an impartial mediator;
    Key characteristics: Not binding, confidential, mediator does not take position

The RE-STRUC team at Greenberg Traurig comprises professionals trained in ADR processes, including RICS accredited mediation services. The team has deep experience in orchestrating ADR procedures and assisting parties involved in arbitration, mediation and non-binding advice procedures, either as a neutral advisor/mediator/arbitrator, or as advisor to one of the parties.

For more information on ADR services visit our dedicated RE-STRUC page.

According to recent studies, environmental, social, and governance (ESG) is a key value driver of real estate investments.

Both investors and lenders are increasing their focus on ESG, not only because it may be part of their core values or to meet governmental obligations, but also because the sustainability performance can have a financial impact, both downward and upward.

A good example of the downward potential is the “energy label C” obligation for office space. As per 1 January 2023, the general rule is that office space in the Netherlands must have at least an energy label C (and label A in 2030). Non-compliance with this obligation may lead to government intervention (meaning fines and administrative orders). Non-compliance can likely (also) result in discussions with tenants, as an energy label D or lower might qualify as a defect under the lease and result in higher service charges. In a distressed market, non-compliance with these statutory requirements also can be relevant in the context of the lender’s position, as non-compliance could qualify as a breach of the loan terms. Therefore, it is important to take appropriate measurements to timely upgrade your real estate and/or make sufficient arrangements with tenant or users to allocate costs.

As to upward potential, real estate with an excellent sustainability rating is likely to be an attractive proposition for buyers and lenders. Reduced energy consumption may well be an important factor in attracting tenants in a high energy-cost environment. Moreover, investors are expected to be eager to add prime sustainable real estate to their portfolio, as this may allow them to tap into real estate funds earmarked for “green” investments. A key concept in this context is the EU Taxonomy Regulation, which defines which investments can be qualified as environmentally sustainable. Only real estate that can meet the requirements under this Regulation will be allowed to be marketed as “green”. Unjustly presenting real estate as environmentally sustainable will likely lead to a wide range of legal issues.

About RE-STRUC

RE-STRUC is a multidisciplinary team within Greenberg Traurig comprising different focus areas, including real estate, restructuring, including WHOA (“Dutch Restructuring Scheme”), financing, conflict management, alternative dispute resolution, RICS accredited mediation services, regulatory and tax. The team’s primary focus is real estate restructuring and dynamic process management. In Q1 2023 we will present a series of breakfast sessions. Please notify us if you are interested in joining these seminars by sending us an email.

In life (as in business), as Heraclitus said, “the only constant is change.” In today’s fast-paced economy, this axiom should be kept in mind during contract negotiations, especially in a bear market. 

Case law can be ambiguous, as it is constantly evolving and adapting to new situations, insights, and practices. COVID-19 may have been an unforeseen circumstance in leases (link in Dutch) (giving the tenant the right to demand rent deduction), but the same may not apply to a real estate investor who wants to renegotiate a purchase price. Whether COVID-19 is an unforeseen circumstance in a sale and purchase agreement (SPA) is yet unclear.

Therefore, present market circumstances call for “Anticipatory Contracting”, i.e., anticipating business risks, providing legal solutions during negotiations, identifying problems before they arise, and not relying on templates. Businesses should constantly assess and reassess the contractual risk-allocation (or lack thereof) during negotiations. We’ve seen a seller’s market changing into a buyer’s market almost overnight, between signing of the letter of intent (LOI) and signing of the SPA. Be conscious of that. And when one does commit – be it via an LOI or a more binding contract – exposure should be hedged before committing. Dated templates used in previous transactions may not cover all eventualities. 

Here are three concepts to consider in this respect: 

  1. Material Adverse Change clause (MAC clause): not all SPA templates in the Dutch Real Estate industry contain a MAC clause, use of which may provide a general safety net for parties who want to allocate the risks presented by negative business or economic developments that occur between the signing and closing of an agreement. But a MAC clause is a double-edged sword, as the other party may use it to get out of the deal. 
  2. Stipulate specific situations that do not qualify as legal grounds for either party to abort the transaction or change the conditions. 
  3. Consider hedging or insuring certain foreseeable risks, such as interest rates and building costs. Liabilities can be insured (W&I insurance). And M&A insurance advisors/brokers can advise how to structure securing insurance. The financial and insurance products available today are sophisticated and geared to real estate industry demands.

About RE-STRUC

RE-STRUC is a multidisciplinary team within Greenberg Traurig comprising different focus areas, including real estate, restructuring, including WHOA (Dutch Restructuring Scheme), financing, conflict management, alternative dispute resolution, RICS accredited mediation services, regulatory and tax. The team’s primary focus is Real Estate Restructuring and Dynamic Process Management. In Q1 2023 we will present a series of breakfast sessions. Please notify us if you are interested in joining these seminars by sending us an email.

One of the few firms which has avoided any across-the-board layoffs and compensation reductions for its lawyers and staff at all levels during the COVID-19 pandemic, but has nonetheless found important opportunities in change, is Greenberg Traurig, LLP. The 2,200-lawyer global giant has 40 offices: 30 across the United States, where it has the largest number of American lawyers, and 10 outside the United States, including approximately 350 lawyers in five key offices across Europe.

Today, the firm continues one if its core global and European strategies by announcing the imminent addition of David van Dijk and his team in Amsterdam and London. Van Dijk leads a Dutch Tier 1 Real Estate team and has been the head of the International Real Estate Practice and member of the Supervisory Board of the NautaDutilh firm based in Amsterdam, where he has led a robust practice for many years, in both transactional real estate and disputes involving the asset class.

Continue reading the full GT press release.

On Budget Day, 15 September 2020, a number of tax measures were published in the Dutch 2021 Tax Plan that could have an impact on real estate investments in the Netherlands. The proposed bills include some important changes in respect of real estate transfer tax (RETT), corporate income tax (CIT), Box III, and the landlord levy. The various proposals will have effect as of 1 January 2021, with some beginning 1 January 2022, if approved by the Dutch Parliament. For more information on the 2021 Tax Plan, please refer to an earlier GT Alert.

Read the full GT Alert, “Dutch 2021 Tax Bill and Real Estate in the Netherlands.”

Introduction

Modern technologies and personal data are increasingly important for real estate businesses. Robotics, Wi-Fi tracking, augmented and virtual reality, sensor technology, and the Internet of Things (e.g., a physical smart object in an internet-based structure) are some of the technologies being used. Through such modern technologies, a landlord has access to a large amount of data with respect to the owned property.

Collecting, sorting, and analyzing such data can provide the landlord with new insights on the building and its users, and can enable the landlord to predict their behavior. The accuracy of such predictions will generally improve if the landlord can develop a large dataset and combine a variety of information (e.g., by using data from a real estate portfolio). Predicting the behavior of a building’s users can, amongst other things, improve the service level, help retain tenants, and reduce maintenance costs.

The technological possibilities for data processing in real estate seem endless. However, the legislature has put in place certain limits.

Statutory limits to personal data processing in the EU

Under the EU General Data Protection Regulation (GDPR), processing of personal data requires a legal basis (e.g., consent or the execution of a contract). Personal data can in principle only be processed for specified and legitimate purposes. Data subjects must be informed about all personal data processing, and the data controller cannot freely share the personal information with third parties. In addition, using personal data to predict a person’s behavior and for decision-making may qualify as “profiling” and “automated individual decision-making” under the GDPR.

Profiling and automated individual decision-making have a somewhat negative connotation, as they are believed to create unfair stereotypes and social division. As a result, profiling and automated individual decision-making are subject to scrutiny. Profiling under the GDPR is “any form of automated processing carried out on personal data for the purpose of evaluation of certain personal aspects to a natural person, in particular to analyze or predict aspects with regard to work performance, economic situation, health, personal preferences, interests, reliability, behavior, location or movements”.

Automated decision-making under the GDPR is defined as “making a decision by technological means without human involvement”.

Data subjects must be informed about any profiling or automated individual decision-making that occurs, the logic employed to justify such profiling, and the expected consequences of the processing. In addition, data controllers must consider objections against personal data processing, which can be made at any time.

The Dutch Data Protection Authority has stated (link in Dutch) that the tracking of people in the street, in shopping centers or stations via their mobile devices is only allowed in a few rare cases and under strict conditions. It is only allowed, according to the Dutch Data Protection Authority, if explicit prior consent is obtained or if there is a legitimate purpose. Based on this decision by the Dutch Data Protection Authority, tracking activities are only allowed if limited to specific periods and areas and where truly necessary. At other times and places, this measuring equipment should be turned off (link in Dutch). The Dutch Data Protection Authority has already imposed an order (link in Dutch) on Bluetrace, subject to penalty for noncompliance (last onder dwangsom), under the former Dutch Data Protection Act. The company was providing technology which could be used to track Wi-Fi signals of mobile devices arounds stores. Bluetrace had to stop collecting personal data from neighboring residents, erase or anonymize data from shopping passers-by, and provide information in and around the stores about the data processing.

Although the use of data in real estate has much broader applications than WIFI-tracking, the mentioned examples do illustrate the fine line between the technical possibilities for processing personal data and the statutory limits.

Conclusion

Non-compliance with GDPR requirements may lead to severe fines. The regulatory limits to personal data processing do not mean, however, that modern technologies can no longer be used. While the benefits of modern technologies remain available for both landlords and tenants, such technologies must be used in a transparent, fair, and lawful manner. Landlords, amongst other affected parties, will have to address the use of such modern technologies in their lease agreements and privacy policies.

Click here for more on GDPR.

AMSTERDAM – Feb. 19, 2019 – Global law firm Greenberg Traurig, LLP advised Amundi Real Estate on the acquisition of INK Hotel Amsterdam, located in the heart of Amsterdam.

INK Hotel Amsterdam, MGallery by Sofitel, which Principal purchased in 2012 in a sale-and-leaseback agreement with Accor Hotel, it was sold to Amundi Real Estate’s OPCI fund (a French real estate investment scheme) in December 2018.

To read the full press release, click here.

AMSTERDAM – Feb. 11, 2019 – Greenberg Traurig LLP’s Amsterdam office hosted the first annual Netherlands Real Estate Leaders Roundtable, in collaboration with Urban Land Institute (ULI) Netherlands. The event, which was held on 25th January 2019 at De Bazel (home of the Amsterdam City Archives and once the headquarters of the Netherlands Trading Company) has been hailed a great success with key decision-makers attending including a wide range of international and local investors, developers, asset managers, and government officials.

Moderated by Eric Rosedale, Greenberg Traurig’s Head of International Real Estate Development, the roundtable provided a special opportunity to share practical information, trends, and ideas about the Dutch real estate investment market.

To read the full press release, click here.