Over the past year, the real estate sector has gone through several important changes. Wouter Neven is a lawyer at the law firm Lydian and lecturer in our Master Class in Real Estate Law. As head of Lydian’s Real Estate, Environment & Regulation department, strategic advice, contracts and transactions involving companies and governments are part of his daily work. We asked him which recent developments will affect real estate law and the work of real estate professionals.
First of all, the preliminary draft of the Flemish Lease Decree was approved on July 14, 2017 and will take effect on Sept. 1, 2018. The decree, which is mainly intended to guarantee housing security and quality, will have a significant impact on rented housing and the private sector. A second development is the introduction of VAT on property rental, which finally enables investors to recoup VAT. The third important development is making liability insurance mandatory for contractors, which should end discrimination of architects in the building sector.
Flemish Lease Decree
The first major real estate development is the Flemish Lease Decree, which is based on the view that the rental market needs better housing. The new decree means, among other things, that landlords can offer tenants a certificate of compliance, i.e. a certificate that shows that the building meets the required standard. “This is a significant step forward for both parties,” says Wouter. “On the one hand, for the landlord – because a certificate of compliance makes it easier for him to obtain a good price – and for the tenant, on the other hand, who can be absolutely certain that the house or apartment he is renting meets the quality requirements. In addition, rack-rent landlords may find it harder to rent houses that do not meet the required standards.”
"In the long term, the quality of rented housing will go up and the number of houses available for rent will rise as well."
The certificate of compliance will give older houses a boost, as well. “Investors are not fond of older houses, because renovating them is an expensive chore. With the certificate of compliance, those houses will meet the new quality requirements, making them habitable once again. In the long term, the quality of rented housing will go up and the number of houses available for rent will rise as well.” These are the most important factors for the private real estate sector, though this is only one section of the total rental market.
VAT on property rental
Another new development making investors happy is the ability to charge VAT on property rental and professional real estate (excluding real estate in industry sectors). “Today, VAT is not included in normal rents and investors keep searching for ways to recoup VAT, such as real estate leasing, provision contracts and rechargeable rent.” The new law, however, creates a system that allows landlords to charge VAT on property rental, but only for new buildings mainly used for professional purposes.
“Old, energy-wasting buildings that are renovated will meet the new energy efficiency requirements."
That will not only have a huge impact on the professional investment market, but significant social and ecological effects as well. “Old buildings are still subject to the old system. However, if an old building is renovated sufficiently, it may qualify as a new building.” This could result in old buildings being heavily renovated. Furthermore, the law will have an indirect but positive impact on the environment.
A third development that real estate lawyers have been waiting for is the introduction of mandatory liability insurance for contractors and other service suppliers in the construction industry. “Today, only the architect is liable for insurance by law. However, in construction disputes, architects and contractors are often convicted together by the court, although the architect is unjustly held liable.” In 2007, the Constitutional Court turned its focus on the matter, because it was discriminatory. “Until now, this liability has only existed for architects under an old law from 1939, which protected the title of architect. You were obliged to employ an architect for certain kinds of construction. The architect’s liability was a form of compensation for the private house owner.”
“In France, this law has been in situ for years, and the technical execution of building projects has become less important because ‘one is insured.”
Ten years on, the Peeters-Borsus law finally imposes an insurance obligation on contractors and all other service providers in the building sector. “The intention is to prevent discrimination and to protect the consumer against the insolvency of parties in the building sector.” The mandatory liability insurance for contractors and other service suppliers only applies to houses for which an architect’s services are required by law, not for office buildings or real estate in industry sectors. “In France, this law has been in situ for years, and the technical execution of building projects has become less important because ‘one is insured.’ I do not think it will be that way here, though, because contractors will still have to maintain their reputations.”
Keeping up legally and strategically
As we have seen, the non-residental real estate market is being regulated much less. These professionals are assumed to be strong and smart enough to negotiate by themselves. But sometimes players in the field are simply not up to date with the most recent developments – and it’s not just small businesses; big real estate enterprises are also guilty of this.
"When some groups cooperate or have only just become part of the sector, partnerships are sometimes not even put on paper."
“This is because of the speed of the process: Companies are often client-minded and want to do business rather quickly. When some groups cooperate or when you have only just become part of the sector, partnerships are sometimes not even put on paper. If a lawyer gets involved at that point, you are in trouble – you simply cannot discuss something that is not drawn up.”
As a tutor in our Real Estate Law program, Wouter tries to make participants aware of this pitfall. “Always draft up your understandings in a realistic way and assess the risk of a too-detailed or too-extensive contract. That is how you avoid a lot of problems.”
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