The Bottom Line
- Full Value, Full Tax: Companies holding Dutch property on leasehold land (
erfpacht) must pay property tax based on the full, hypothetical freehold value. The fact that you don’t own the land itself does not reduce the taxable base. - Human Rights Argument Fails: The argument that this valuation method violates property rights under the European Convention on Human Rights (ECHR) has been firmly rejected. This is not a viable route for challenging tax assessments.
- Procedural Delays Have a Cost: While the core valuation challenge failed, the tax authority was ordered to pay compensation for unreasonable delays in the legal process. This underscores the importance of monitoring procedural timelines in any dispute.
The Details
In a recent decision, the Court of Appeal in The Hague addressed a key question for real estate owners and investors in the Netherlands: how does a leasehold affect a property’s official tax valuation? The case involved a property owner who challenged their official valuation for tax purposes (the “WOZ-waarde”), arguing it was inflated because the property sits on land held under a leasehold, not full ownership. The owner contended that valuing the property as if it were a freehold violated their fundamental property rights.
The Court decisively rejected this argument, upholding the established valuation method. Under Dutch law (the WOZ Act), properties are valued based on a legal fiction: the market value of the “full and unencumbered ownership.” This means the valuation ignores specific limitations like leaseholds, mortgages, or easements. The Court confirmed that this long-standing principle is the correct approach and does not conflict with the protection of property rights guaranteed by the European Convention on Human Rights. This ruling solidifies the tax base for municipalities and provides clarity for businesses, confirming that leasehold arrangements cannot be used as a basis to argue for a lower property tax assessment.
Interestingly, while the property owner lost on the substantive valuation issue, they secured a minor procedural victory. The Court of Appeal found that the legal proceedings had taken an unreasonably long time and awarded the owner €500 in compensation for the delay. This part of the ruling serves as a crucial reminder for all business leaders and legal counsel: even when the core of a dispute seems unfavorable, procedural errors or delays by government bodies can still provide grounds for a successful claim and financial compensation.
Source
Gerechtshof Den Haag
