Monday, March 2nd, 2020

What is ground lease and how does it work?

Are you about to embark on a new adventure? Have you decided to move to the Netherlands to work as an expat? That is undoubtedly very exciting. Perhaps it’s also a bit stressful, since there are so many things going through your mind right now. There are a lot of things you need to arrange and consider before actually getting on that plane. One of the most important arrangements to make involves housing. Because well, you don’t want to live under a bridge, now do you? Maybe you’ve already heard from friends or acquaintances that the prices for housing in the larger cities in the Netherlands are quite steep. But don’t worry, you’ll find a comfortable home away from home. To support you on your quest, let’s take a look at the ground lease system in the Netherlands. What is it and how does it work?

The definition of ground lease

So, what is ground lease? In Amsterdam, the capital of the Netherlands, the vast majority of properties are built on land which is owned by the city. This means that the municipality charges a fee for the use of the land. This, in a nutshell, is the ground lease system. You’ll find this system in many large cities in the Netherlands. In fact, you can compare a long-term ground lease with lease. When you buy an apartment, you don’t buy the ground on which the apartment stands. You instead sign a lease for the right to use the ground for a certain period, a timeslot. You pay the City a fee to do so, which is called the ground rent.

Type 1: Continuous ground lease

There are two types of ground lease in Amsterdam. Let’s have a look at the first type: the continuous ground lease. As the name already suggests, this type of ground lease is continuous. This means that the ground rent is adjusted only every 50 or 75 years. Towards the end of this timeslot, the value of the ground will be recalculated.  Based on the adjusted value of the ground, the ground rent will be adjusted. So if the value of the ground has risen significantly, the ground rent will increase accordingly.

Type 2: Perpetual ground lease

The second type of ground lease in Amsterdam is the perpetual ground lease. If a perpetual ground lease agreement is in place, a fixed ground rent is agreed upon. This fixed ground rent will remain the same permanently, or in perpetuity. Whereas the ground rent can be adjusted in continuous ground lease, it will never be adjusted in perpetual ground lease. Even if the value of the ground increases in value after a period of time, the ground rent will not be affected. There will never be any sudden, major increases in ground rent. Thus, the risk of future fluctuations in ground rent is annulled with perpetual ground lease.

Hopefully, you’ve gained some insight into the ground lease system in the Netherlands, and especially large cities such as Amsterdam. You now know the basics of the ground lease system and the two types of ground lease. With this information, you will be able to make the necessary arrangements and find your home away from home!

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