Leasehold policy: lessons for homeowners and investors

This article previously appeared in Het Ondernemersbelang

Leasehold was originally intended as a pragmatic solution: the municipality holds the land, residents purchase the home, and through the ground rent, the municipality can steer development and ensure that a portion of the increase in land value accrues collectively. In practice, leasehold in major cities has become an issue that is simultaneously financial, political, and legal. Precisely for this reason, the lessons from Amsterdam and The Hague are relevant to anyone buying, selling, or investing in a home on leasehold land.

Predictability and shock absorption

The most important lesson is that predictability often outweighs the question of whether leasehold is good or bad. Amsterdam is trying to reduce the biggest pain of traditional leasehold—uncertainty surrounding revision—by making a clear distinction between perpetual leasehold (revision of land value and ground rent after 50 or 75 years) and perpetual leasehold (ground rent fixed once and subsequently subject only to annual inflation adjustment or buyout). At its core, this move is an attempt to keep leasehold financeable and explainable, including for households that want to plan for stable monthly expenses.

A second lesson is that large municipalities are increasingly trying to make leasehold systems shock-resistant. Otherwise, interest rate and value movements can immediately impact the ground rent, resulting in substantial and sometimes unexpected jumps in housing costs. For instance, the Municipality of The Hague adopted a system change at the end of 2024 that, among other things, involves averaging the ground rent interest over a ten-year period to smooth out peaks and troughs. The ground rent percentage is also determined and published annually, which contributes to transparency but not automatically to affordability. The administrative lesson is that anyone wishing to retain leasehold as an instrument had better keep the system affordable, with rules that are explainable and not overly dependent on short-term interest rates.

Leasehold as a risk

In major cities, leasehold remains part of the housing debate. The political left generally views it as a way to maintain public control over land and value appreciation, while the right often calls it opaque or too expensive and advocates for abolition. Discussions about abolishing or retaining leasehold are not only ideological but also have direct consequences for the pace at which cases are processed and for confidence in the system. For homeowners and investors, this means that leasehold is not just a contract but also a risk involving changing rules. A sound way to deal with this is scenario planning: calculating not only with the current ground rent but also with possible changes in land valuation methods, revision dates, and municipal transitional arrangements.

A fourth lesson is legal-fiscal and is often underestimated in practice: changes to leasehold conditions can trigger transfer tax. Any change that leads to a different legal or economic reality can call for additional transfer tax, for example, in the case of adjustments to the ground rent, zoning, or duration. A recent ruling by the District Court of North Holland makes this concrete: in the case of a ground rent that is indexed annually, there may be an uncertain annual amount, and that uncertainty must be taken into account in the valuation of the ground rent for the tax base. Thus, what feels like an administrative change can result in a tax bill, and indexation is not a detail in this context, but a valuation factor.

Leasehold for homeowners and real estate investors

The best approach is to treat leasehold as a combination of a land contract and a financing component. This begins with due diligence before purchase: which system applies, when the period expires, how the ground rent is revised, what indexation has been agreed upon, and what options exist to switch or buy out. In Amsterdam, for example, switching to perpetual leasehold is an explicit process that is recorded notarially; even for apartments, no permission from the Owners' Association is required to switch, but it remains an individual agreement that must be properly documented.

For existing owners, the practical lesson is: do not wait until the end of the period. For investors, in addition, ground rent risk and re-issuance uncertainty must be explicitly factored into both the return and the exit. A property facing revision is not only a cash flow issue but also a liquidity issue: can the property still be financed and sold smoothly if the municipal process stalls?

Finally, it is advisable to have any leasehold change—transfer, revision, or buy-out arrangement—assessed in advance by tax and notarial means to determine whether a transfer tax risk arises. Leasehold is therefore not a reason to avoid homes or investments, but it is a reason to treat the matter more seriously than simply an annual payment. In large municipalities, it is a contract with market impact, policy risk, and sometimes collateral tax consequences.