Recent court decisions of relevance to construction projects

Marc Houweling
Van der Feltz, The Netherlands
houweling@feltz.nl

Dutch Supreme Court, 12 January 2024, ECLI:NL:HR:2024:17 (Afzinkkelder-arrest)

In the case, decided by the Supreme Court at the beginning of 2024, there was damage to an adjacent property due to the construction of an immersion cellar. The adjacent property owner took the matter to court to request a declaratory decision (Article 3:302 BW). The plaintiff argued that their right to the full and unaffected enjoyment of their property was breached due to an unlawful act of the contractor, considering that the damage to their adjacent property was a foreseeable consequence. However, with reference to the legislative history of Article 6:162 of the Dutch Civil Code, the Supreme Court stated that damage to adjacent property does not create an infringement of the rights of the adjacent property owners just because the damage was foreseeable. An act, such as construction, can only be found to be unlawful if it is contrary to a standard of written or unwritten law that intends to prevent such property damage.

In their second argument, the plaintiffs relied upon the (broader) duty of care to argue that the contractor shall still be liable. The Supreme Court recognised that if the damage materialises, even if the construction work was carefully planned and correctly executed, it cannot be accepted that this is a liability the plaintiff must carry. The conclusion of the case was that the contractor was held liable, regardless of whether he had acted diligently, and had to pay a compensation to the affected neighbour. The Supreme Court stated that it was of importance in this case that (1) the construction was in the interest of the client of the contractor and that the plaintiffs had no interest in it; (2) the damage was beyond what a third party, according to generally accepted standards, should tolerate in the case of construction work carried out by a neighbour; and (3) that it was the contractor’s responsibility to insure itself against liability for causing damage to third parties. This ruling is relevant because it takes into consideration the diligence of the contractor when carrying out the works.

Dutch Supreme Court, 9 February 2024, ECLI:NL:HR:2024:216

The frequent question of whether a property is a construction site for VAT purposes has significant financial relevance when a building is being sold. The Supreme Court decided that in the sale of an immovable property that considers one plot that contains not only a building but also unbuilt land, the fiscal qualification for VAT purposes shall be determined by a step-by-step analysis:

1. Is it considered a building with unbuilt land?

2. If this is not the case, is it all unbuilt land?

3. If the answers to questions 1 and 2 are negative, it must be considered whether those unbuilt areas must be considered separately and treated differently when transferring of ownership of that plot.

Court of first instance, Zeeland-West-Brabant 21 February 2024, ECLI:NL:RBZWB:2024:1623

In this case, a contractor entered into a contract with his client to build a house. The contractor terminated the contract alleging that the client wanted to wait too long before starting the building process. The contractor did not want to wait that long. Dutch law does not recognise the possibility of termination of service contracts; nevertheless, this is possible if it is a building contract. The court of first instance determined that it was a service contract, applying Article 6:217 in combination with Article 7:750 of the Dutch Civil Code. Those articles say that, for a service contract when there has been an offer to create and deliver a work of a material nature against an agreed price to be paid by the client, if such an offer has been accepted by the client, it has to be executed by the building contractor. Thus, the building contractor was in breach of contract. The court of first instance determined that the client had a right to retain the down-payment in compensation and that the building contractor had no right to any counterclaim.

Dutch Supreme Court, 15 December 2023, ECLI:NL:HR:2023:1755

The court of first instance had requested the Supreme Court to rule on the question of whether a plot of land with the purpose in the zoning plan being ‘living’ (see the Spatial Planning Act) is immovable property, or a component thereof, with the intention for residential use in the sense of Article 7:2, paragraph 1
of the Dutch Civil Code.

The Supreme Court stated that to answer whether one speaks of a sale of ‘an immovable property, or component thereof, with the intention for residential use’, it is decisive whether the seller has obliged itself to the buyer to deliver a home respectively whether the buyer has a right against the seller for delivery of a home. It follows that if a seller has obliged itself against the buyer in the contractual agreement of delivery of a house, the requirement that the agreement should be set out in writing as noted in Article 7:2, first paragraph, and the buyer’s remorse period stated in Article 7:2, second paragraph, Dutch Civil Code, are applicable. A contract of sale in which the seller obligates itself against the buyer to deliver a plot of land with the purpose in the zoning plan being ‘living’ cannot be ascertained as a contract of sale in the sense of Article 7:2, paragraph 1, Dutch Civil Code.

Change in the local law of relevance to construction projects

Quality Assurance (Building Sector) Act, in effect 1 January 2024

A new Environmental and Planning Act entered into force on 1 January 2024. This new law is a significant change in the Dutch legal system that regulates the physical environment. With the Environmental and Planning Act being implemented, the gradual entry into force of the Quality Assurance (Building Sector) Act (the ‘Quality Assurance Act’) has also been initiated.^[1] The Quality Assurance Act is one of the four supplementing acts that substantiates the Environmental and Planning Act and makes it executable. The Quality Assurance Act aims to increase construction quality and strengthen the rights available to clients.^[2]

The public law part of the Quality Assurance Act relates to all the permits necessary for construction of new buildings (especially building permits and permits under the Environment and Planning Act). Permits that have been requested before 1 January 2024 will still be considered under the former law. For permits that have been requested before 1 January 2024, the old system remains applicable. The same is true for proceedings where an objection or appeal is pending.^[3]

The Quality Assurance Act only applies to structures within Class 1, according to the classification contained in Article 2.17 of the Structures (Living Environment) Decree. In general, Class 1 structures include residences and small commercial buildings.^[4] The main requirement for applying the Quality Assurance Act is whether the relevant structure is considered Class 1. It is still unclear what is meant by the concept of ‘structure’, as no definition has been included in the Quality Assurance Act even though it is regarded as an essential concept in determining the reach of the Act.^[5] It is assumed, however, that the definition is likely to be included in the attachment of the Environmental and Planning Act at a later stage. When exactly this will be the case is still uncertain.

The private law part of the Quality Assurance Act applies to service contracts that have been concluded after 1 January 2024. Whether a contract is considered a service contract is not decisive for the application of the private law part of this Act. What is decisive, however, is that it related to a Class 1 structure. The private law part of the Quality Assurance Act has thus far led to five changes in Book 7 of the Dutch Civil Code that considers sale and barter.

Firstly, a contractor is initially liable for the defects after handing over the structure (Article 7:758, paragraph 4, Dutch Civil Code). Secondly, Article 7:754, paragraph 2 of the Dutch Civil Code now formalises the contractor’s duty to warn the client of inaccuracies in the instructions, as far as they knew or shall reasonably be expected to know.

Thirdly, Article 7:757a of the Dutch Civil Code was included to oblige the contractor to provide a handover file with its request for preliminary inspection before handing over the structure. In this handover file, the contractor must show that it has met all requirements of the contract. Fourthly, Article 7:765a of the Dutch Civil Code now ensures that the contractor informs the client of financial securities that will cover the risks. This is only applicable to the construction of residencies for consumers.^[6]

Lastly, Article 7:768 of the Dutch Civil Code now states that the client has the right to retain as security 5 per cent of the contract price on the last instalment(s) and to deposit it with the notary. After three months the retained amount shall be paid out, unless the client informs the notary that the conditions for suspension have been met. A suspension may be justified if a shortcoming is included in the delivery/completion report of the building. This retention can be up to three months.