A new Dutch Environmental Act: what are the consequences for Real Estate Finance?

Briefing

New law

Typically, when a borrower applies for financing for a construction project in the Netherlands, the lender will request an (irrevocable) environmental permit (omgevingsvergunning) for the project. If an environmental permit is duly obtained for the renovation or construction of a property, it serves as a confirmation that the construction plan complies with the applicable zoning plan, construction regulations and other applicable requirements.

The introduction of the new Dutch Environment and Planning Act (Omgevingswet) (the EPA), which entered into force on 1 January 2024, may have an impact on such requests. One of the most significant changes made by this new law is that, where possible, it will be more usual to require that general rules of law are complied with than to require an environmental permit be obtained. This means that there is a shift away from the seeking of a public law permission by way of the grant of a permit prior to the commencement of construction works, to the performance of the works without an explicit permission and therefore the possibility of facing checks and enforcement after completion of the project.

This change will impact certain real estate and project financings. For instance, it may no longer be sufficient or appropriate to include a condition precedent for the financing that all relevant (irrevocable) environmental permits for the realisation or renovation of the real estate project have been obtained.

In addition, compliance with regulatory requirements must now be taken into account more thoroughly when financing the acquisition of properties that have recently been constructed. Previously, when prior approval was required by way of permit, there was a substantial degree of certainty as to compliance. As this is no longer the case, the lenders and the borrowers face the risk of retrospective challenge to their compliance.

Split of environmental permits

With the introduction of the EPA, the environmental permit will be split into two:

an environmental permit for an environmental plan activity (omgevingsplanactiviteit)
an environmental permit for a technical construction activity (technische bouwactiviteit).

Environmental plan activity

Under the EPA, a new instrument is introduced: the environmental plan (omgevingsplan). The environmental plan is the successor to the zoning plan (bestemmingsplan) but differs from it in that the environmental plan assigns functions to locations, where the zoning plan assigned destinations to plots of land. In the environmental plan, municipalities themselves may determine which activities affecting the physical living environment require a permit and, if a permit requirement applies, under which conditions the environmental permit may be granted.

Technical construction activity

In addition to any permit requirement for construction that applies under the environmental plan, there may also be a permit requirement for 'technical' construction. Under the EPA, an environmental permit for (technical) construction must be applied for in cases designated by the EPA (for example buildings with a roof higher than 5 metres fall under constructions that require a permit, subject to certain exceptions).

Consequences of new environmental permits

The above means that the renovation of an existing property or construction of a new property may require two different environmental permits.

Whether an environmental plan activity requires an environmental permit depends on the municipality in which the construction project is realised. For each municipality, its environment plan will need to be consulted to ascertain whether an environmental permit is required for building structures.

Unlike prior to the EPA, it is not possible to confirm, in general terms, whether and, if so, which activities within a construction project require an environmental plan activity permit. It is up to the sponsor to assess whether an environmental permit is required and, if so, to apply for the necessary environmental permits. In addition to the environmental permit obligations and general rules that apply under the environmental plan, it is also necessary to analyse whether an environmental permit is required for a technical construction activity.

Impact on loan documents

In the context of the above, additional provisions may be required in loan documentation. Whereas prior to the EPA a reference to (irrevocable) environmental permit(s) in a list of conditions precedents was sufficient, this will no longer be the case. When considering the conditions precedent to the availability of the loan, it may now be necessary to refer to due diligence reports from external advisors on the permit obligations and compliance with the applicable rules under the EPA.

Furthermore, it would also be sensible to include additional specific information undertakings in the loan documentation regarding the provision of information on applicable environmental permits and the borrower's compliance with the applicable rules under the EPA.

Comment

Given that an environmental permit is no longer always required, the EPA appears to offer advantages in terms of efficiency and time. On the other hand, the new system does create more uncertainty with regard to permits at national, provincial and municipal level and the issue of compliance with legal requirements applicable to construction activities.

To mitigate this uncertainty, when financing the renovation or construction of a project, it would be advisable for the lender to request that the relevant construction plans be analysed in detail by an external advisor in relation to their compliance with the applicable regulations in a due diligence report on which the lender may rely. Such due diligence report may offer less certainty to the lender than an irrevocable environmental permit, however in the absence of an irrevocable environmental permit under the EPA, such due diligence report in combination with satisfactory professional indemnity insurance cover on the part of the report provider should give the lender the desirable comfort.

In addition, in the case of the financing of the acquisition of a property that has recently been constructed or renovated, it would be good to be mindful of the warranties and/or indemnities which are included in the acquisition documents to make sure that these sufficiently cover the risk of uncertainty regarding the permits as well as the possibility of retrospective challenge if the applicable regulations have not been complied with during construction.