The Municipalities Preferential Rights Act as a condition subsequent in Dutch real estate transactions

The Municipalities Preferential Rights Act (Wet voorkeursrecht gemeenten – Wvg) allows municipalities, provinces and the national government of the Netherlands to establish a preferential right on immovable property. The preferential right gives the authority in question a right of first refusal to acquire the immovable property. Sale and purchase agreements in the Netherlands therefore provide for a condition subsequent that such a preferential right be established prior to closing. In this blog, we explain why.

The preferential right under the Wvg

A preferential right can complicate a real estate transaction. This is because the owner may not simply sell the property to a party of his choice. In principle, he must give the relevant authority the opportunity to acquire the property. The authority decides within six weeks whether it wants to buy the property. If so, negotiations take place, possibly with the help of a court-appointed expert. If the authority decides not to buy the property, the owner may encumber or dispose of his property to whomever he wishes within a period of three years. After the sale or encumbrance, the preferential right remains in force.  

Depending on the situation, the preferential right is valid for a period of three to ten years (and in the event of accumulation of legal bases for preferential rights, up to sixteen years). There is administrative legal protection against the establishment of a preferential right, which, in principle, only the owner of the property may invoke.

A preferential right is registered in the Land Registry under the Immovable Property (Disclosure of Restrictions under Public Law) Act (Wet kenbaarheid publiekrechtelijke beperkingen onroerende zaken). A potential buyer of a property can thus easily see whether a preferential right applies. However, the Wvg allows for short-term intervention in ongoing real estate transactions. As a result, there is always the risk of a preferential right being established by a Dutch authority shortly before the intended date of transfer of the property.

Ignoring a preferential right in a real estate transaction is not an option. The civil-law notary may not register the transfer of a property in the public registers in violation of the Wvg. If he or she does so nevertheless, the authority may invoke the nullity of the sale and purchase agreement.

The preferential right cannot be circumvented, for example by structuring the transaction as a share deal instead of an asset deal, or by irrevocably authorizing another party to dispose of the property. This is because the authority may also invoke the nullity of juridical acts performed with the ‘manifest intention to impair’ its preferential position.

Condition subsequent

To prevent the situation that the seller cannot comply with his obligation to transfer the property, it is customary to include a condition subsequent to that effect in the sale and purchase agreement. This condition subsequent gives the parties the possibility to get out of the sale and purchase agreement if the transaction is hindered by a preferential right.

It is possible that a preferential right is attached to an immovable property but the authority decides not to exercise that right. It is also possible that the authority does not make a timely decision on the matter. In that case, the authority in question can no longer invoke the nullity of the sale and purchase agreement.

Environment and Planning Act

The Environment and Planning Act (Omgevingswet) will come into force on 1 January 2024. This Act replaces the Wvg, among other things. The preferential right regime will remain broadly the same under the Environment and Planning Act as under the Wvg. The maximum duration of the preferential right under the Environment and Planning Act will be three to five years, depending on the situation.

Preferential rights established under the Wvg will continue to apply under the Environment and Planning Act. The Wvg will continue to apply to preferential rights procedures commenced before the Environment and Planning Act came into force, until these procedures are completed. From then on, the Environment and Planning Act will apply to these preferential rights.

This blog was written by Stibbe's Real Estate Transaction Group.