Dutch Civil Law
A right of ownership may come to existence when a new movable or immovable thing is formed. The law has specified in which circumstances a right of ownership of a thing arises. The owner is a proprietor of an independent property right. The powers embedded in his property right are indicated by law as well. The law points out which powers the owner has over the movable or immovable thing that he owns and what other may and may not do with regard to that thing. The owner has all rights and powers over the movable or immovable thing. That's the effect the law has attached to his right of ownership of the thing.
As the proprietor of a right of ownership the owner exercise all rights and powers himself. Sometimes, however, the owner has no need to use the thing himself for a certain period of time or he merely wants to use some of the powers over the thing. He then may grant a third party these powers for a specific time, usually in exchange for a financial counter performance. In order to accomplish this result, the proprietor (owner) may transfer his property right (right of ownership in the thing) to another party. But if he doesn’t want to lose his property (the thing) for ever or if the third party has no need to obtain all the powers in his property right, he may also grant him a temporary or limited right of use of his thing. He then remains the principal proprietor of the thing, but has to tolerate that the assigned third person makes use of it in a certain way and/or for a specific period of time. The third person is, for instance, allowed to use the owner’s house and to enjoy all its natural and civil fruits during the agreed period. Or he is entitled to make use of the owner’s car or business assets. On the expiry of the agreed period of use, the powers which the third party could exercise over the owner’s thing cease to exist, and automatically may be used again by the principal owner.
When the proprietor of a right of ownership wants to grant a temporary or limited right of use to a third party, he has two options.
First of all the owner of a thing may enter into an agreement with a third party who wants to make use of his thing. In that case an obligation arises out of this agreement which orders the owner to tolerate that the opposite party, his creditor, exercises a number of powers with respect to his thing ('open system of obligations'). The owner of a small field may, for instance, grant another person a right of use of it, known as ‘loan for use’. Legally the lender is still the owner of the field. The borrower only has the right to use it in a specific way during the agreed period. Since the borrower only has obtained an obligatory claim against the lender, and not a real property right in the field itself, he will lose the possibility of exercising his claim when the lender transfers his right of ownership of the field to another person. The new owner is not obliged to comply with the obligations of his legal predecessor, not even with those that are in some way related to the thing of which he has acquired the right of ownership. This makes the claim of the borrower less sustainable. So, an important disadvantage of this construction is that the creditor loses his right to use the thing as soon as its owner loses his right of ownership thereof. The law has chosen for this system because claims aren’t published outside the legal relationship between the creditor and debtor, as a result of which others cannot see whether there are debts attached to the thing to be acquired.
To avoid this legal effect the owner and third person may also choose for another solution, namely to split off some of the powers which are enclosed in the right of ownership with 'real effect'. Sometimes a person wants to be sure that he is able to use someone else’s property (thing) during a fixed period of time without running the risk of losing his right of use. He wants to obtain a right of use of the thing which he may upheld against everyone, irrespective to whom the thing will belong afterwards or who might make use of it in a specific way. Such a real effect is particularly desirable when the user has to make considerable investments that become worthless as soon as the owner, whose thing he may use, would lose his right of ownership. Before someone builds a factory on a land plot that is only accessible by means of a road over the land of the neighbouring property, he wants to be sure that he can use this road in future for a long period, without facing the risk that the neighbouring land after two years shall become the property of someone who is not bound by the obligation to allow him the use of that road. He wants to obtain a right of use with real effect. The law has responded to this need by creating, in addition to ownership, seven other real property rights which can be split off by the owner of his right of ownership with real effect. A real property right that has been split off of a right of ownership is called a limited real right, this because the powers embedded in it are, compared to a full ownership of the thing, restricted to certain rights of use of the thing and/or to a fixed period of time. The powers that stay with the owner are known as 'stripped ownership'. The full ownership, with all its legal possibilities, has been stripped down to merely a few of its original rights and powers. The split off rights and powers, captured in the limited real right, can be exercised by the limited proprietor against everyone, including the owner and his legal successors in title or persons who may obtain a right of use of the encumbered thing. Of course the limited proprietor shall only have these rights and powers as long as his limited real right exists. The limited real right and the stripped right of ownership jointly embrace all rights and powers of a full right of ownership. When the limited real right ends, for example by course of time, the stripped right of ownership grows back to full ownership, with all its original powers and possibilities.
From the earlier mentioned 'closed system' follows that limited real rights cannot be split off freely. The law doesn't permit every random division of the right of ownership in all kinds of different limited property rights with real effect. This would require to much awareness of other people, who all have to respect and observe these rights. For this reason the law regulates explicitly to what extent rights and powers can be broken away from the right of ownership with real effect. Only the rights that are split off in the legally required form and with the required content are recognised as a limited real right and have the desired quality that they can be enforced against everyone, regardless who owns the thing to which they are attached.
According to Dutch property law an owner of an immovable thing may split off only six different limited real rights of his right of ownership: long leasehold, easement, usufruct, right of superficies, apartment right (all real rights of enjoyment) and a mortgage (a real security right). An owner of a movable thing may only split off two different limited real rights of his right of ownership, namely a usufruct (real right of enjoyment) and a pledge (real security right).
As mentioned before, limited real rights have real effect, so that they can be exercised against every other person in the world. This, however, requires that these persons must be able to recognize whether such a limited real right is vested on a thing and, if so, which kind of limited real right is concerns, its duration and content and the identity of its proprietor. Therefore all limited real rights in movable or immovable things have to be published in such a way that other people are able to obtain knowledge of these legal facts. Without the required publication, a limited real right cannot come to existence and misses its real effect.
Sometimes the law allows that limited real rights are split off with real effect of another limited real right. The long leaseholder may, for example, grant a mortgage on his long leasehold to the bank. In general a real right of enjoyment can be encumbered with another real right of enjoyment or with a real security right. It’s, however, not possible to vest another real property right on a real security right, like a mortgage or a pledge.
The limited real rights which may be established on movable or immovable things or on limited real rights in such things, are explained here first. As it will show, the legal requirements and effects of a split off of a limited real right of a right of ownership are the same as the ones to be observed when a limited real right is split off of another limited real right in a thing. Therefore the term ‘immovable property’ will be used often in order to indicate that what is said applies to both situations.
Besides ownership, there are, within the closed system of Dutch property law, seven other real property rights. The most comprehensive one is a ‘long leasehold’, that can only be established on immovable property. It gives its proprietor – the leaseholder - almost the same rights and powers as a right of ownership of the immovable thing, but there are specific restrictions. Like an owner the leaseholder has the full use of the immovable thing (Articles 5:85 (1) and 5:89 DCC) and he is entitled to all its natural and civil fruits (Article 5:90 DCC). And although he is not able to alienate the right of ownership of the thing, he can transfer his long leasehold to someone else and, by doing so, grant this other person the full use of the encumbered immovable thing in accordance with the rights and powers derived from the long leasehold. Nevertheless, the right to transfer a long leasehold to someone else may be restricted in the deed of establishment (Article 5:91 DCC). The leaseholder is also entitled to establish a sub long leasehold on the immovable thing encumbered with his long leasehold (Article 5:93 DCC) and he may as well grant a third person a right of use of that thing or of certain parts of it under a lease or farm lease agreement, again unless the deed of establishment does not provide differently (Article 5:94 DCC).
A long leasehold may be established for a fixed period of time, but it may also be granted for ever (Article 5:86 DCC). It may be terminated by the leaseholder on grounds to be mentioned in the deed of establishment (Article 5:87 (1) DCC). The owner may, on the other hand, only terminate the long leasehold when the leaseholder is in default of payment (Article 5:87 (2) DCC). It’s not possible to derogate from this rule to the disadvantage of the leaseholder, but it is allowed to restrict the owner’s rights of termination even further (Article 7:87 (3) DCC). A notice of termination must be effectuated by bailiff’s writ (Article 7:88 DCC).
Although a long leasehold in many ways resembles a right of ownership, there are significant differences. The proprietor of a right of ownership is in principle free to use his immovable thing as he pleases, as long as he doesn’t harm the interests of third persons, especially of his neighbours, which in general are protected by a rules of law. A long leasehold, however, may enclose a lot of restrictions with regard to the way how the immovable thing may or may not be used, imposed on him in the deed of establishment by the stripped owner of that immovable thing (Article 5:89 (1) DCC). The owner may for instance have stipulated that the leaseholder is only entitled to let a maximum number of sheep graze on the encumbered meadow or have ordered that the concerning business premises may not be used by heavy trucks or not for manufacturing plastic instruments. Such a stipulation has real effect, in the sense that it must be observed by all following leaseholders, just as the long leasehold itself must be observed by all future stripped owners of the encumbered property. The owner may even demand that the leaseholder performs specific activities, provided that they are directly related to the encumbered immovable thing itself. It is possible, for example, to stipulate that the land and buildings must be maintained properly and on a regular base on the penalty of a fine, or that the leaseholder has to exterminate all vermin or that he must keep the water mark at a certain level and so on.
A second difference with a right of ownership is that the proprietor of a long leasehold usually has to pay an annual compensation ('ground rent') to the owner of the immovable property (Article 5:85 (1) DCC), sometimes next to a lump sum for the acquisition of the long leasehold. The owner pays a single amount when he obtains his right of ownership, but isn’t bound afterwards by any periodically to be paid compensations to another person for the use of the thing he owns. Of course both may have to pay taxes and other public charges, but that’s a different matter.
A third distinction is that a long leasehold can be established for only a certain period of time so that it will end once (Article 5:86 DCC). In that case it expires after course of time. If that happens, the stripped right of the owner grows back to a full right of ownership. All rights and powers, which were temporarily in the hands of the leaseholder, fall back to the owner. But a long leasehold can also be granted for eternity (perpetual leasehold). Then only the other differences with ownership sustain. Although the leaseholder may transfer his long leasehold to another person, he of course can't transfer the stripped ownership of the owner to someone else. On the other hand: as long as the long leasehold exists, the owner can only transfer his stripped ownership to a third party, not a full ownership, because the new owner has to respect the long leasehold as well. It is according to law a real property right, that can be exercised against everyone, provided it is established correctly and published in the required way. Only when and after the long leasehold ends, the new owner regains the full right of ownership of the immovable object.
An easement is a real property right with which a land plot (the servient land) is encumbered on behalf of the owner of a neighbouring land (the dominant land) and which forces the owner of the encumbered land to tolerate that the owner of the neighbouring land makes use of his property in a certain way or that the owner of the neighbouring property is allowed to do something on his own land which the owner of the servient land otherwise could have stopped (Article 5:70 (1) DCC). The owner of the neighbouring - dominant - land has consequently a number of rights and powers to be exercised with respect to the servient land of someone else. For this reason the owner of the servient land has no longer a full right of ownership. He isn't able, as a normal owner would, to stop his neighbour from using the servient or dominant land in accordance with the easement. To this point his right of ownership has been stripped with certain rights, that now belong to the proprietor of the easement. Characteristic for an easement is that its proprietor can uphold these rights not only against the owner of the servient land who has established this limited property right on his property, but against all succeeding owners of that land as well as against all proprietors who have acquired a limited property right in that land themselves after the establishment of his easement.
An easement can only impose well defined legal duties on the owner of the servient land. But these duties cannot imply a duty to do something, although there are some exceptions. So in general, the owner of the servient land cannot be forced to fulfil any activity on behalf of the owner of the dominant land. He only has to tolerate that his neighbour does or has something that he, as owner of the servient land, would not have to accept if there wouldn’t have been an easement, or that he, as owner of the servient land, has to refrain from actions that he otherwise would have been allowed to perform in view of his right of ownership of his own land (Article 5:71 DCC). The stripped owner (this is the owner of the servient land) preserves therefore all other possibilities to use his property himself. In that sense the rights and powers derived from an easement are much less damaging for the owner of the encumbered immovable thing (servient land) than the rights and powers that are granted in the form of a long leasehold.
The deed of establishment determines the content of an easement and the way in which its rights and powers may be exercised (Article 5:73 (1) DCC). Where the deed of establishment doesn’t provide for a specific rule, the content of the easement is determined by common practice (Article 5:73 (1) DCC). An easement may include the following duties.
First of all it’s possible that the owner of the servient land has to accept that the owner of the dominant land makes use of the servient land in a specific way (Article 5:71 (1) DCC). Then the rights and powers of the owner of the dominant land, derived from the easement, will be restricted to detailed rights of use such as the right to walk or ride on a path or road on the servient land (‘servitude’), the right to place a wall or a support strut on the servient land, the right to remove water from the dominant land to the servient land, the right to place a balcony partly over the parcel limits or the right to have pipes or cables in, on or over the servient land.
An easement may secondly be related to a duty for the owner of the servient land to refrain from performing certain actions which he otherwise could have performed on the basis of his right of ownership (Article 5:71 (1) DCC). The owner of the servient land is, for instance, not allowed to have trees within ten meters of the boundary wall or to make a construction on his land that exceeds a maximum height of two meters.
Thirdly an easement may impose a duty on the owner of the servient land to accept that the owner of the dominant land uses his own property – the dominant land - in a way which the owner of the servient land otherwise would not have to tolerate under the provisions of Title 5.4 of the Civil Code (‘Rights and duties of owners of neighbouring properties’) (Article 5:71 (1) DCC). The owner of the dominant land is, for example, entitled to have windows with a direct view over the servient land (Article 5:50 DCC) or to plant trees within a distance of two meters of the boundary line of the servient land (Article 5:42 DCC).
An easement may, finally, imply a waiver of rights by the owner of the servient land that he otherwise could have exercised by virtue of Title 5.4 of the Civil Code (‘Rights and duties of owners of neighbouring properties’), like the right to set up a partition-wall on the boundary between their properties of two meters height (Article 5:49 DCC) or to place scaffoldings on the dominant land in order to be able to perform activities on the servient land on behalf of his own property (Article 5:56 DCC).
As a rule the owner of the servient land cannot be forced to perform an act for the benefit of the owner of the dominant land. Nevertheless, the deed by which the easement is established, may include an accessory duty to place constructions, works or plants on the servient land as far as this is necessary to enable the owner of the dominant land to exercise the rights and powers derived from the easement (Article 5:71 (1) DCC). An example of this could be the duty for the owner of the servient land to build a bridge on his property to allow the owner of the dominant land to use a road on the servient land in accordance with the easement.
The burden which an easement imposes on the servient land may also consist of an obligation to perform maintenance services with regard to the servient land or with regard to buildings, constructions or plants that are entirely or partially situated on that land (Art. 5:71 (2) DCC). This may be the main duty imposed by the easement; it may also be an accessory duty. Other activities, however, cannot be forced upon the owner of a land by establishing an easement on his property.
An easement must be exercised always in a way that is the least aggravating for the owner of the servient land Article 5:74 DCC). The owner of the servient land has, moreover, the possibility to point out another part of his immovable thing to be used by the owner of the dominant land, provided this doesn’t diminish the latter’s enjoyment of the servient land (Article 5:73 (2) DCC).
Easements may be established for ever or for a limited period of time. They are usually granted against the payment of an annual compensation (the ‘ground fee') and/or as a counter performance for accepting certain disadvantages resulting from a split up of land or an alteration of the cadastral maps.
The right of superficies is a real property right which enables its proprietor - the superficiary - to have or obtain for himself buildings, constructions or plants in, on or above an immovable thing owned by someone else (Article 5:101 (1) DCC). A right of superficies is, in other words, a limited property right that provides its proprietor the full ownership of a component of another person’s immovable thing. This thing may be someone else’s land, but it’s possible as well to establish a right of superficies on just a part of a building on that land, for instance on the left wing of a castle. A right of superficies may in addition serve to obtain the ownership of pipes, cables and tubes under or above someone else’s land.
The purpose of a right of superficies is to break through the so-called rule of accession to property. According to this rule the owner of land automatically becomes the owner of everything that is situated in, on or above his land in such a way that it is strongly connected to it. All buildings, constructions, works and plants attached to the land become by operation of law a component of that land. Since the right of ownership of that thing covers all its components, irrespective of who has build or placed them, a person cannot own just a part of the thing. He may have an obligatory claim to use a certain component against the owner of the immovable thing and he may acquire a real property right with regard to the entire immovable thing, but not a real property right in a part of that thing. A right of superficies now makes it possible to obtain a real property right in just one of the components of someone else’s immovable thing.
The rights and powers of the owner of the immovable thing include all rights an powers over its components, for instance over a building, a work or a plant on his land. As far as these rights and powers are related to one of the components, they may be split off with real effect of the right of ownership of the land by establishing a right of superficies. In fact a right of superficies must be regarded as an independent right of ownership that is limited to one of the original components of the land. It grants its proprietor no rights or powers in the remaining parts of the immovable thing, like in other buildings or plants attached to the land, nor in the land itself. These components still belong to the owner of the immovable thing. But with regard to the split off component the superficiary has almost the same rights and powers as an owner. Both, the superficiary and the stripped owner of the immovable thing, can, with respect to their own property, exercise all the rights and powers which are embedded in a right of ownership. Because the original right of ownership of the entire immovable thing has been stripped with all rights and powers with respect to one of its components, the remaining ownership makes out a stripped ownership.
A right of superficies may independently be established on a component of someone else’s immovable thing. More often, however, it is established in connection with a right of use of (a part of) another person’s immovable thing, of which its existence then depends (Article 5:101 (2) DCC). The lessee with a claim derived from a lease agreement to use someone’s immovable thing may, for example, want to build his own constructions or works on that thing for the time he is allowed to make use of it. A right of superficies on these constructions ensures him that he is allowed to remove these works without having to pay any compensation or damages to the owner of the thing. It also makes sure that at the end of the lease agreement he is towards the stripped owner entitled to a compensation for the value of the buildings, constructions and plants that he has placed rightfully on the encumbered immovable thing (Article 5:105 DCC and Article 5:99 DCC). Since a right of superficies is a real property right, this entitlement to a compensation can be upheld against every person who owns the immovable thing at the end of the lease agreement, regardless how he might have acquired his right of ownership.
Where it concerns an independent right of superficies, the superficiary can transfer or encumber his right freely, without consent of the stripped owner (Article 5:104 and 5:91 DCC and Article 3:89 and 3:84 (1) DCC). Nevertheless the deed by which the right of superficies has been established, may provide differently, in the sense that the superficiary is not able to transfer, encumber or split up his right without approval of the stripped owner (Article 5:104 (2) DCC). A right of superficies that has been established as being accessory to another right of use of the immovable thing, can by its nature not be transferred or encumbered independently. It always follows the right of use to which it is accessory (Article 3:82 DCC). In practice, however, an accessory right of superficies is sometimes mortgaged anyway on its own (HR 7 March 1979, NJ 1980, 116)
The superficiary’s rights and powers are not restricted to the buildings, constructions and plants that he owns, but they relate as well to the remaining parts of the immovable thing that is encumbered with his right of superficies. The superficiary is entitled to use and enjoy this immovable thing, although it is still owned by someone else (stripped owner). But the right to use the other components of the encumbered immovable thing only exist as far as this is necessary to be able to exercise and enjoy all the rights and powers enclosed in his right of superficies (Article 5:103 DCC). He may, for instance, walk over the encumbered land in order to get access to his buildings, constructions or plants. He may maintain the immovable thing where this serves his limited property right. The superficiary with an independent right of superficiary may even lease out the encumbered immovable thing to a third party (Article 5:104 (2) DCC and Article 5:94 DCC) or encumber it, thus the immovable thing itself, with another right of superficies (Article 5:104 (2) DCC and Article 5:93 DCC). The deed by which the right of superficies has been established, may grant the superficiary more rights and powers with regard to the use of the encumbered immovable thing. Of course, where it concerns an accessory right of superficies, the superficiary is already entitled to make use of that thing by virtue of another right, for instance a lease agreement or another limited property right.
When someone obtains an independent right of superficies on an existing component of an immovable thing, he usually has to pay a sum at once to the owner of that thing. In fact he then buys the ownership of it from him. But parties may agree as well that the superficiary has to pay periodically a ground fee, for instance once a year, especially with respect to the right to use and enjoy parts of the encumbered immovable thing which are not immediately burdened with the right of superficies (Article 5:101 (3) DCC). When the lessee of immovable property acquires an accessory right of superficies on the buildings and works that he has placed on the leased immovable thing himself, he usually doesn’t have to pay anything for it to the owner. He already has paid the costs of construction.
The length of an accessory right of superficies depends on the duration of the right of use of the immovable thing to which it is attached. As soon as this other right ends, also the accessory right of superficies ceases to exist. The length of an independent right of superficies is specified in the deed by which it was established (Article 5:104 (2) DCC and Article 5:86 DCC). In such an event parties are free to determine the length of the right of superficies themselves. It may be established for a fixed period of time, but also eternally.
When the right of superficies ends, all its rights and powers return to the stripped owner of the encumbered immovable thing (Article 5:105 (1) DCC). He regains the full right of ownership thereof. The law indicates that the superficiary has a right to remove the buildings, constructions and plants he has placed on the immovable thing or which he has acquired from its predecessor or from the stripped owner, unless the deed of establishment stipulates differently (Article 5:105 (2) DCC). When the right of superficies has ended, the superficiary is towards the owner of the immovable thing entitled to a compensation of the value of buildings, constructions and plants that have been placed rightfully on the encumbered immovable thing by himself or his predecessor or that have been taken over from the owner of the immovable thing for a valuable consideration (Article 5:105 (3) DCC and Article 5:99 DCC).
An apartment right is a separate legal part of a building which is subdivided in several independent apartment units. The apartment right gives its proprietor – the apartment owner – all rights and powers of the right of ownership, but then restricted to one individual apartment unit. Also an apartment right must be seen as a way to break through the so-called rule of accession to property. This rule states as well that the owner of a building (for example of a condominium or of a block of flats) automatically is the owner of all its components, like all apartments and other units (hall, elevator, stairs, parking place), that together from one building (one immovable thing). The building itself is the object of the right of ownership. The different apartments are only a component of this thing. They belong as such to the owner of the building, in the same way as the owner of a bicycle is automatically the owner of the wheels of that bicycle. This legal result is, however, not always practical. People want to have the full ownership of an individual apartment unit in a building. By establishing one or more apartment rights it's possible to legally separate the different apartments units (components) from each other and from the main building, so that they will be regarded by law as an independent object to which a limited property right can be attached. The apartment owner obtains thus the right of ownership of one separated apartment, whereas the owner of the building preserves only the stripped property of that building. Both – the apartment owner and the stripped owner of the building – have all the powers with regard to the object of their rights, taking into account their mutual legal relationship.
Therefore, an apartment right is in effect a share in a building that has been split up legally in different parts which are to be used as separate private units (Article 5:106 (4) DCC). This share may include the exclusive right to use certain parts of the land belonging to that building, so that each apartment owner has for instance his own garden or parking spot. Usually it also includes the right to make use of commonly owned parts of the building or of the related land, such as the hall way, the elevator, the entrance, a swimming pool, a common garden and so on. Sometimes the apartment owners may use the remaining property of the stripped owner for specific purposes, for example to dump their garbage.
The split up of the building in different apartment rights is only implemented legally, not factually. The owner of the building has split off all rights and powers of his right of ownership as far as they are related to an individual unit and granted them to a specific apartment owner. Not just an owner can split up his property right like that. Also a leaseholder or a superficiary is able to split up his rights and powers, enfolded by his leasehold or right of superficies, and pour them into different apartment rights (Article 5:106 (1) DCC). The stripped owner, leaseholder and superficiary, each with a real property right related to a group of buildings, may even jointly split up their rights in order to establish several individual apartment rights. The formalities of a split off and the possibilities to create apartment rights in this way can be found in Articles 5:106 – 5:116 DCC.
The law specifies how the apartment owners must behave mutually and what they may and may not do in their own apartment unit. Important in this respect are the internal arrangements (Article 5:111 (d) DCC), of which the content is largely determined by law (Article 5:112 DCC). An apartment owner may change the interior of its own apartment as far as this is permitted by the internal arrangements (Article 5:119 DCC). He has the exclusive right to use and enjoy his own apartment and is entitled to all its fruits (Article 5:120 (1) DCC). An apartment owner in principle may transfer his apartment right to someone else and encumber it with a limited property right (Article 5:117 and 5:122 DCC). He may, for example, establish on his apartment an easement (Article 5:118 DCC), a leasehold or a right of superficies (Art. 5:118a DCC). If a usufruct has been established on the apartment right, the law regulates the legal position between the stripped apartment owner and the usufructuary (Article 5:123 DCC). The apartment owner may grant another person a right of use of his apartment and even a right of lease, provided that the lessee observes all applying rules (Article 5:120 (2) (3) DCC). The deed by which the apartment rights have been split off and the internal arrangements may limited these rights and possibilities to a certain extent. Where an apartment owner needs the approval or cooperation of the other apartment owners or of the Association of Owners to exercise one of the before mentioned rights with regard to his own apartment, he always may ask the court for a substitute authorisation (Article 5:121 DCC).
Characteristic for apartment rights is that they also include a share in the common property that is to be used by more apartment owners jointly. This problem is dealt with by the incorporation of an Association of Owners (Articles 5:124 and 5:125 DCC). This is a legal person that administers and manages the community of property of and for the joint apartment owners (Article 5:126 DCC). In principle it has no saying about the parts which are intended to be used exclusively by the apartment owners as their separate private apartments. The organisation of the Association of Owners is well defined by law (Articles 5:127 – 5:135 DCC), including what has to be observed with regard to rights derived from insurance contracts related to the community of property (Articles 5:136 and 5:138 DCC). Furthermore, the law pays special attention to the process of amending the deed by which the apartment rights have been split off and established (Articles 5:139 – 5:142 DCC) as well as to the termination of the splitting up (Articles 5:143 – 5:147 DCC). Overall it is a detailed piece of legislation that is quite easy to comprehend.
A usufruct is a real property right that gives its proprietor – the usufructuary - the right to use another person's property during a limited period of time (Article 3:201 DCC) and to percept all its fruits in the meantime (Article 3:216 DCC). It differs in a number of ways from a long leasehold. First of all a usufruct always ends when the original usufructuary dies, irrespective of the person to whom the right of usufruct belongs to at that moment and irrespective of the duration for which the right was granted initially (Articles 3:201 and 3:203 DCC). Secondly, a usufruct can be established on immovable property as well as on movable things and even on other property rights, such as other limited real rights and claims derived from an obligation (Article 3:201 DCC). As a result, it is particularly suitable to assign a right of use of someone's entire estate for a limited period of time to another person. Finally, also the relation between the usufructuary and the stripped owner of the encumbered assets differs from that of the leaseholder and the owner of an immovable thing encumbered with a long leasehold.
Prior to the moment on which the main proprietor delivers the involved assets to the usufructuary an inventory list must be made, describing all assets which shall be encumbered with the usufruct (Article 3:205 DCC). Only if the main proprietor has demanded this in advance, the usufructuary is compelled to give security for the obligations he has to comply with (Article 3:206 DCC).
The deed by which the usufruct is established, makes clear how the usufructuary may use the encumbered assets. In principle he may only use and enjoy them in accordance with their nature and purpose (Article 3:207 (1) DCC). He is not allowed to change their function or purpose without permission of the main proprietor (Article 3:208 (1) DCC). But he may lease out the encumbered assets as far as parties have not stipulated differently at the establishment of the usufruct (Article 3:217 DCC).
Where claims are subject to the usufruct, the usufructuary may demand performance from the debtor and accept and collect the payments that result from these claims (Article 3:210 DCC). As far as sums of money, including bank accounts, belong to the encumbered property, the money must be invested in consultation with the main proprietor or spend in the interest of the assets subject to usufruct (Article 3:214 DCC). When the encumbered assets are mutually in such a way linked to each other that they can be regarded as a group of connecting assets, it is possible that the debts with a strong connection to this group of assets fall under the scope of the usufructuary as well. This is for instance the case when the usufruct is vested on assets derived from the same heritage or on assets that together make out the business capital of a commercial enterprise. As a rule there will be debts and liabilities that directly are related to the heritage or commercial enterprise. These debts belong in that case also to the usufruct. This, however, doesn’t mean that they are legally attached to the usufruct, in the sense that these debts have become the debts of the usufructuary. The main proprietor remains towards his creditors the only person liable for them. His creditors cannot recovered their claim from the property of the usufructuary, since he is not liable for these debts of the main proprietor. But they can recover them from all assets belonging to their debtor, this is the main proprietor, including his stripped property that is encumbered with the usufruct. This may even lead to a sale under execution (foreclose) of their debtors stripped ownership, on the understanding that the person who bought this right at a sale by foreclosure has to respect all real property rights, including the usufruct, that were already established on the sold thing. When debts of the main proprietor are connected in the before mentioned way to the assets subject to usufruct, the main proprietor may demand that the usufructuary satisfies these debts on his behalf out of the encumbered property. As far as the main proprietor has satisfied such debts from his own recourses, therefore from assets that were not encumbered with any usufruct, he may demand that the usufructuary supplies to him an equivalent value from the assets encumbered with the usufruct. Where a debt, related to a group of connecting assets, has been satisfied by the usufructuary from his own recourses, not belonging to the encumbered property of the stripped owner, the main proprietor must reimburse this payment to the usufructuary, but only at the end of the usufruct (Article 3:222 DCC).
The usufructuary must take care of the encumbered assets and manage them properly (Article 3:207 (2) (3) DCC). He has to take out an insurance policy on the encumbered property in favour of the main proprietor (Article 3:209 DCC). Ordinary repairs have to be made by the usufructuary. Extraordinary repairs may be carried out by him at his own expense, but he isn’t obliged to do so. Although the usufructuary has the duty to inform the main proprietor of the necessity to make extraordinary repairs, the main proprietor isn’t obliged either to perform any repair services to the property himself (Article 3:220 (1) DCC). Of course he may want to make such repairs in order to maintain and preserve his property. En exception to this rule applies when the main proprietor remains partly entitled to the fruits of the encumbered assets. He then has to participate in the costs of repair made by the usufructuary (Article 3:220 (2) DCC). If the usufructuary seriously fails to manage the encumbered assets properly, the court may, upon the request of the main proprietor, grant the administration of these assets to the main proprietor or place the usufruct under a fiduciary administration of property of a legal administrator (Article 3:221 DCC).
After the usufruct has ended, the usufructuary or his legal successor is compelled to place the encumbered property at the disposal of the main proprietor (Article 3:225 DCC). The usufructuary is, however, entitled to take away adjustments and additives he has made to the encumbered property himself, provided that the property is restored to its original condition (Article 3:208 (2) DCC). He only has to return the assets that he initially has received or that can be regarded to have come in the place of these assets.
The usufructuary is only allowed to dispose of one or more encumbered assets or to burden them with a limited property right if the main proprietor has given him permission to do so, unless an encumbered asset, by its nature and in connection with the nature of the usufruct, has the purpose to be alienated, or unless the usufructuary has obtained the power of disposition at the moment that the usufruct was established (Article 3:212 DCC). Where the usufructuary has rightfully transferred of encumbered one or more assets subject to usufruct, any counter performance received by him as a result, shall immediately belong to the main proprietor, though it will be encumbered as well with the same usufruct under the same conditions until that usufruct has ended (Article 3:213 DCC).
It is possible that the usufructuary is allowed to dispose of and to use up or consume the encumbered assets in full or in part, without the need to replace or compensate them at the end of the usufruct (Articles 3:207 (1) and 3:215 DCC). The main proprietor is in that event only entitled to claim the return of what is left of his property at the end of the usufruct. It is not certain whether money, encumbered with a usufruct, is by its nature intended to be spent or to be used up. Scholars have different opinions on this matter. But usually at the establishment of the usufruct it will be made clear if the money is to be used in compliance with Article 3:214 DCC or that the usufructuary may spend it without any necessary repayment.
One has to notice that the above mentioned rules to a large extent may
be set aside when the usufruct is established or even afterwards, with
mutual consent of the owner and usufructuary.
As a general principle all creditors of a debtor are ranked equally (‘paritas creditorum’). When their debtor is no longer able to settle his debts, they all will receive the same percentage of the value of their claim from the net proceeds (after deduction of costs of foreclosure) of the sold off assets of their debtor. Yet, there are some exceptions to this principle.
First of all it’s possible that a creditor has agreed with his debtor that his claim will be ranked secondary to those of other creditors. Such an agreement is valid and has the wanted effect. This creditor, usually the parent company of the debtor, shall only receive any payments from the net proceeds when all other creditors are satisfied.
But more often a creditor wants to gain access to a more privileged position, so that he will receive payment prior to all other creditors of his debtor. Dutch law provides them with several possibilities.
The law specifies that when someone holds a thing for another person (the real owner of that thing), he may withhold the return of that thing if and as long as this other person still has to perform an obligation to him. When the owner for example refuses to pay the costs of repair, the repairman may refuse to give the repaired thing back until he has received full payment of his obligatory claim. This so-called right of retention is regulated in Article 3:290 DCC.
The supplier of movable things may deliver the sold goods under retention of title. This means that he will remain the owner of these goods, even after they actually have been handed over to the buyer, just until the full purchase price is received (Article 3:92 DCC). This makes that the supplier is entitled to take the goods back from the buyer when he doesn’t receive full payment.
Sometimes the law itself indicates that a creditor may recover his claim prior to all other creditors from the proceeds of one specific asset or even from all the assets of the debtor. Such a particular or general privilege arises directly from law and can’t be stipulated by the creditor (Section 3.10.3 DCC). As soon as the factual circumstances meet the requirements set by law, the creditor has obtained a general or particular privilege which enables him to recover his claim from the net proceeds of all assets (general privilege) or of a specific asset (particular privilege) of his debtor.
A creditor may also demand, before he enters into an obligation with a debtor, that a third party engages himself towards him, the creditor, to perform that obligation if the debtor himself fails to comply with it. This third party then has concluded a surety agreement with the creditor which enables the creditor, if necessary, to recover his claim against the debtor from the net proceeds of the property of that third person Title 7.14 DCC).
Prior to the introduction of the new Dutch Civil Code in 1992 it was common to transfer property solely for security purposes. The creditor obtained a right of ownership of a movable thing of the debtor, under the obligation to transfer it back to him as soon as the debt was satisfied. Only when the debtor failed to perform his obligation properly, the creditor was allowed to keep the acquired thing and to sell it in order to recover his claim from the net sale proceeds. Since 1992 such a transfer is no longer possible. Article 3:84 paragraph 3 DCC stipulates that a juridical act performed with the intention to transfer an asset merely to provide security for a debt or performed without the intention of bringing an asset into the property (capital) of the acquirer, is no valid legal basis for a transfer of that asset. Such a transfer is, in other words, null and void and has not the intended effect that the acquiring party has obtained any property right in the asset. Not everyone was pleased with this deviation from commercial practice. All the same, Article 3:84 paragraph 3 DCC was accepted. Afterwards the Dutch legislator has abandoned this rule as far as it concerns foreign trusts which have to be recognised under the Hague Trust Convention (Article 4 Act Conflict of Law Rules for Trusts), while the Dutch Supreme Court has sanctioned ‘repo-transactions’ between large financial institutions and Article 7:15 DCC has been incorporated in the meantime in the Dutch Civil Code, under influence of European Law, in which financial collateral agreement to transfer collateral as security for an obligation are acknowledged explicitly between parties in the financial world.
Nevertheless, Article 3:84 paragraph 3 DCC remains in force with regard to all other situations. This means that a creditor, who wants to obtain real security for his claim, still has just two possibilities under Dutch civil law. He may stipulate a mortgage on registered property (immovable property and registered vessels and aircraft) or a pledge on movable property, obligatory claim or intellectual property rights. A pledge and a mortgage are both limited real rights, intended to provide recourse against the property subject to the pledge or mortgage. They grant their proprietor (pledgee and mortgagee) the power to sell the pledged or mortgaged property (Article 3:284 and 3:268 DCC) and to recover their claims from the net sale proceeds prior to all other creditors. A pledge and a mortgage both include an additional right of pledge on all claims for compensation related to the pledged or mortgaged asset, including claims resulting from a depreciation of that asset, that take the place of the pledged or mortgaged property itself. Such a legal right of pledge has priority over other pledges established on these claims (Article 3:229 DCC).
The pledgee and mortgagee are only entitled to sell off the pledged or mortgaged asset when the debt, for which the pledge or mortgage serves as security, is not satisfied. In that event, however, they do not need the approval of the court to proceed to a sale by foreclosure of the encumbered assets. This right is embedded in the pledge or mortgage itself.
The pledgee and mortgagee may not execute the sale procedure of the pledged or mortgaged asset themselves. A pledged movable thing must be sold by public auction under supervision of a bailiff. When a pledge is vested on an obligatory claim, the pledgee may, however, immediately collect the performances made by the debtor of that claim. In the case of a mortgage the sale by foreclosure has to be done in public in front of a notary. Exceptionally, when there’s a real opportunity to achieve a higher return, the mortgaged asset may be sold by private sale, provided that the court gives its authorization to do so.
A pledge and mortgage may be established as security for a future claim, provided that this claim is already sufficiently determinable at the time (Article 3:231 DCC). So the claim that is secured by the pledge or mortgage does not yet have to exist at the moment on which these real security rights are established. As soon as it comes to existence, it will automatically be secured as well by the already vested pledge or mortgage. Another question is whether it is possible to encumber a not yet existing asset with a pledge or mortgage (as security for either an existing or future claim)? A pledge can indeed be established on future movable things and future claims. As soon as these assets come to existence, they are immediately available for taking recourse. But it’s not possible to establish a mortgage on an immovable thing that has still to come to existence in future (Article 3:236, paragraph 2 DCC and Article 3:97 paragraph 1 DCC).
A pledge and a mortgage can't be transferred independently. They are dependant rights (Article 3:7 DCC), linked to the claim for which they serve as security. When the pledgee or mortgagee transfers this claim to someone else, this other person automatically will obtain the accessory pledge or mortgage too. So the new creditor is not only the new proprietor of the claim against the original debtor, but also the new pledgee or mortgagee. This means that he can sell the pledged or mortgaged asset when the debtor doesn't perform his debt to him. When the debt, on the other hand, is settled, the pledge and mortgage automatically cease to exist, since the purpose for which they were established is no longer relevant.
Usually the debtor himself encumbers his assets with a pledge or a mortgage
as security for his debt. But this may be done also by a third party,
who then establishes a pledge or mortgage on his own property on behalf
of the creditor as security for the debtor’s debt (so-called third
party pledge or third party mortgage). This third party is not the debtor
of the secured debt himself. He merely has accepted in a separate agreement
with the creditor that his property may be sold under execution if the
debtor fails to perform the obligation for which the pledge or mortgage
serves as security.
All limited real rights are attached to a movable or immovable thing. Because of their real character they can be upheld against everyone who encounters that thing. The holder of the limited real right (limited proprietor) may expect that everyone respects his rights and powers. Third parties must, for this reason, be able to see if such a limited real right is established on a thing and, if so, what kind of limited real right it is dealing and to whom it belongs. The law demands therefore that the creation of a limited real right is published in such a way that everyone has the possibility to become aware of its existence. The formalities, necessarily to establish a limited real right, include that this right is put down in a specific form and is published permanently so that everyone is able to recognize it. It speaks for itself that the law has chosen for the same system as for the publication of the right of ownership, because a limited real right is a split off part of this principal right in rem. The creation of a limited real right can be seen as a (temporary) transfer to another person of a part of the rights and powers of the owner of a movable or immovable thing. The formalities which must be observed at the establishment of a limited real right correspond thus completely with the formalities which apply to the transfer of ownership of movable or immovable things.
The establishment of a limited real right attached to an immovable thing, such as a usufruct, long leasehold, easement, right of superficies, apartment right or mortgage on a land or house, takes place by drawing up a notarial transfer deed, followed by its registration in the public register for registered property. So when someone wants to know if a land or a house is encumbered with a limited real right, he may consult this public register to examine this. Only after a limited real right has been registered, it has come to existence. When consulting the public registers anyone can see to whom this immovable thing belongs and if it is burdened with one or more limited real rights. The public registers show as well what kind of limited real right is established, the name and address of its proprietor and its duration.
Only two limited real rights can be attached to a movable thing: a pledge and usufruct. The establishment of a limited real right on a movable thing (like a usufruct or pledge on a machine or goods in stock), is effectuated by handing over the movable thing to the limited proprietor (usufructuary, pledgee), in order to enable him to hold it actually under control. By exercising the actual power over the movable thing, he continuously published his real property right. Anyone may assume that he has a real property right in the movable thing.
The owner, who has handed over his movable thing to the usufructuary of pledgee, only did so to establish a usufruct or pledge, not to transfer his property. Between the owner and limited proprietor of the movable thing it is clear that no transfer has been brought about, but that the limited proprietor is only entitled to use the powers which are embedded in the granted usufruct of pledge. So when the owner of a watch wants to encumber it with a pledge on behalf of a pawnbroker, usually in order to get a loan, he has to leave his watch behind at the pawnshop. But the pawnbroker hasn't become the owner of the watch. He knows that he's not allowed to use it himself or to sell it to another person. The watch still belongs to the person who gave it to him. Only when this person doesn't repay the loan, the pawnbroker is allowed to sell the watch on a public sale by auction. Naturally, it is possible that the pawnbroker does not stick to the appointment with the owner of the watch. Because he actually holds the watch in his hands, he can present himself towards the outside world as the owner of the watch. Third parties may assume that the pawnbroker owns the watch and therefore has the power to dispose of it. A third party who in good faith has received a watch from the pawnbroker, is protected by law. The law says that he, because he couldn't know that the pawnbroker wasn't really the owner of the watch, has obtained the ownership thereof. The person who gave the watch to the pawnbroker has lost his right of ownership. Of course he can sue the pawnbroker and claim damages, because the pawnbroker didn’t live up to the pawn agreement.
Yet, a pledge may be established also just by means of a notarial deed or a registered private deed between the pledgor and pledgee, without actually handing over the movable thing to the latter (‘non-possessory pledge’). The pledgor then keeps the encumbered asset in his actual power. He may use it, even though it is burdened with a pledge. In such an event, the existence of the pledge is not visible for other people. They still may assume that the pledgor, who actually holds the pledged asset under control, is the owner and has power of disposition over it. So when the pledgor transfers this asset to a third party (in return for a valuable counter performance), this third party is protected by law because he acquired the movable thing in good faith. The pledgee, who failed to publish his limited real right properly, has lost his pledge and, with that, his real security. He can no longer sell the asset, which now belongs to the third party, to recover his claim against the debtor. The pledgee may, however, always convert his non-possessory pledge into a full pledge by taking the pledged asset under control. This means that a pledgee with a non-possessory pledge who fears that the debtor, despite of the fact that he is not allowed to do so, soon might transfer the pledged asset to someone else, has to take this asset quickly in his power.
The proprietor of a limited real property right may transfer his right to another person, unless something else has been provided for at the establishment of that limited property right. The leaseholder may, for instance, sell and transfer his long leasehold to a third person who as of then will take over his entire position as leaseholder under the existing long leasehold. The transfer of a limited real right is subject to the same legal requirements and formalities as the establishment of such a right. This means that the transfer of a long leasehold is effectuated by means of a notarial deed of transfer, drawn up between the old and new leaseholder, followed by the registration of this deed in the public registers for registered property. After this registration, everyone is able to see that someone else has acquired this limited real right. The usufructuary of an inventory, may transfer his limited real right by actually handing over the encumbered movable things to the new usufructuary.
A limited real right is always drawn from a right of ownership of a movable or immovable thing. The owner of that thing has granted some of his rights and powers with real effect to someone else, the limited proprietor. The split off limited real property right forms in itself a separate property right. The limited proprietor may transfer it to another person, unless something else has been provided for at the establishment of his limited property right or unless his right forms a dependant right that cannot be alienated separately from the property right to which it is unbreakably attached. An easement, pledge and mortgage are in that sense dependant rights that cannot be alienated seperatly.
The limited proprietor who is able to transfer (alienate) his limited real right independently to another person, is also able to encumber it with another limited real right, but only insofar the law offers this possibility. The law specifies that a usufruct, mortgage or pledge may be established on another limited real right. This means, for instance, that the leaseholder may encumber his long leasehold with a usufruct or mortgage, or that the usufructuary of a movable thing may take a pledge on his usufruct. Special provisions have been made with regard to the encumbrance of long leaseholds, rights of superficies and apartment rights. The leaseholder may encumber the immovable thing which is burdened with his own long leasehold, with a sub-leasehold (Article 5:93 DCC). The superficiary may encumber the immovable thing on which his right of superficies is established, with a long leasehold (Article 5:104 in connection with Article 5:93 DCC). And an apartment owner is allowed to encumber his own private unit with an easement, a long leasehold or a right of superficies (Articles 5:118 and 5:118a DCC). Limited real rights that have been split off of another limited real right can never exist longer than the principle right from which they were drawn. When the principal limited real right comes to an end, all limited real rights established on it will cease to exist as well.
The legal requirements and formalities to encumber a limited real right with another limited real right again are the same as for the transfer and establishment of the encumbered right itself. So when a leaseholder wants to encumber his long leasehold with a mortgage, he and the mortgagee must go to a notary and ask him to draw up a notarial deed of establishment of the mortgage. As soon as this deed is registered in the public registers for registered property anyone has the possibility to detect that an immovable thing (like a land plot) is burdened with a long leasehold, which limited real right in itself is encumbered with a mortgage.