NETHERLANDS Trends and Developments Contributed by: Coco van Zuiden, Marijn Bodelier, Sabine Schoute and Simone Wijngaard, Greenberg Traurig, LLP
the purchase price is paid upfront, most often in instalments over the construction process. Contrary to a forward-funding structure, the transfer of ownership in the case of a forward purchase occurs at completion of the construc - tion works. The purchase price will be paid upon completion and the developer or seller is respon - sible for financing the development. This means that the investor or buyer will neither bear the construction risk nor the risk of insolvency of the developer/seller. Nowadays, many new developments are acquired by means of a forward-funding struc - ture to limit the involvement of external financi - ers for the developer and to be more involved in the entire construction process. Some pros and cons of a forward-funding structure Due to the early participation of the investor/ buyer, it is possible to tailor the development to make sure it matches the envisaged use and the investor/buyer can stay involved with and in control of the development process. Although this is a real advantage, forward funding also has a high-risk profile for the investor/buyer, since they will be exposed if the developer/seller does not perform or becomes insolvent. To mitigate this, parties usually agree on a condi - tion precedent of definitive permits and appro - priate contractual protection mechanisms for the investor/buyer (eg, step-in rights, escrow arrangements or guarantees). In addition, it is also important that a detailed arrangement is made about the payment of the instalments. In most cases, payments are only due based on the status of the works, to limit the financial expo - sure of the investor/buyer, and the profit margin
of the development is paid upon its completion. Furthermore, the investor/buyer is usually enti - tled to receive interest from a forward funding (a percentage per annum) from the developer/ seller over the paid purchase/instalments up to completion, with a penalty being paid in case of late completion. Alternative Lenders Non-bank lenders are increasingly active in the Dutch real estate market to finance deals. This seems to be a trend in more jurisdictions as tra - ditional banks are becoming more risk averse, subject to more stringent regulations, and cau - tious about taking on new clients. This is due to increased scrutiny of banks’ compliance poli - cies, as a result of certain scandals. Due to the current economic uncertainties, banks are more carefully managing their balance sheets and shifting to property deals with more certain cash flows, and alternative lenders are looking to fill a gap that continues to widen. New Environment and Planning Act On 1 January 2024, a new Environment and Planning Act entered into force, combining numerous old environmental and planning laws into a single Act and various underlying decrees. The legislature’s intention for the law is to facili - tate developments and to simplify the permitting processes by, for example, facilitating the repur - posing of real estate and raising the bar for plan - ning blight claims. It remains to be seen whether these goals will be achieved. The adoption of the law was subject to widespread criticism before it entered into force, even after the entry into force was postponed several times. The first experi - ences with the Act however seem to indicate that part of the criticism was likely unfounded.
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