Leasing in the energy transition: ownership and security
Leasing allows a user to go green without having to invest itself. Solar panels, heat pumps, charging points and batteries are leased ever more often. In legal terms that is not straightforward. Installations attached to a building may, through accession (natrekking), become the property of the owner of the land. The lessor then loses its security. A sound contract, a right of superficies and a careful tax assessment prevent that problem.
The short answer
- Under an operating lease the lessor remains both legal and economic owner. The lessee pays for use.
- Under a finance lease the lessee bears the economic risk and qualifies as owner for tax purposes.
- That choice determines who may depreciate the asset and who can claim investment allowances.
- Article 5:20 and Article 3:4 of the Dutch Civil Code (Burgerlijk Wetboek, BW) mean that installations may become the property of the building owner through accession or by becoming a constituent part.
- A right of superficies (opstalrecht) under Article 5:101 BW breaks that accession, but requires a notarial deed and registration.
- Retention of title offers insufficient protection once the installation has become a constituent part.
Two forms of lease
| Operating lease | Finance lease | |
|---|---|---|
| Character | Use against payment, comparable to hire | Financing of a purchase |
| Economic ownership | With the lessor | With the lessee |
| Residual value risk | Lessor | Lessee |
| Depreciation | Lessor | Lessee |
| Investment allowance | In principle not for the lessee | In principle yes for the lessee |
| VAT | VAT on each instalment | VAT in principle in full at the outset |
The label used in the contract is not decisive. What matters is who carries the economic interest in the asset. An agreement called an operating lease that places the full residual value risk on the lessee is assessed differently for tax purposes.
For anyone wishing to use the Energy Investment Allowance, this classification is crucial. The allowance accrues to the party that qualifies as the investor for tax purposes.
When leasing is attractive
Leasing moves the investment to a party with more financing capacity. That is useful where the user does not have the capital. It also helps where the payback period is long, or where the user does not wish to carry the technical risk.
There are drawbacks. The total cost is usually higher than outright purchase. The agreement also often ties the user in for longer than it keeps the premises in use. Assess, therefore, whether the term of the lease matches the term of the tenancy agreement or your ownership horizon.
A third point is circularity. Under a lease the supplier retains an interest in reusing the installation. That works only if it can in fact take the installation back at the end. It is precisely here that property law creates friction.
The core problem: accession
Under Article 5:20 BW, ownership of land includes the buildings and works permanently united with that land. Article 3:4 BW further provides that anything that forms part of a thing according to common opinion is a constituent part of it.
In the Portacabin judgment the Supreme Court (Hoge Raad) set out when a structure is permanently united with the land. What matters is whether the construction, by its nature and design, is intended to remain in place permanently, judged by externally recognisable circumstances. Arrangements between parties that are not recognisable to third parties play no part.
The consequence is far-reaching. If a heat pump or a solar panel system becomes a constituent part of the building, ownership passes to the building owner. The lessor is then left with a claim only, not with a proprietary right. On the lessee’s bankruptcy it joins the queue as an unsecured creditor.
Solutions in property law
Right of superficies
Article 5:101 BW provides for the right of superficies. It confers the power to own buildings, works or plantings in, on or above immovable property belonging to another. Creating the right before installation breaks the accession. The right of superficies is a limited right and has effect against third parties.
Creating it requires a notarial deed and registration in the public registers. That brings costs and calls for the cooperation of the owner of the land or the building. With rented premises, the landlord’s consent is therefore also needed, and sometimes that of the mortgagee.
Retention of title
Retention of title under Article 3:92 BW protects the supplier for as long as the thing remains movable and independent. Once the installation becomes a constituent part, that protection falls away. For fixed installations, retention of title is therefore insufficient.
Right of pledge
An undisclosed right of pledge can be created over movable property. That too loses its object once the asset becomes a constituent part. For demountable units, such as loose batteries or charging points that are easy to remove, a right of pledge can offer a solution.
Points to watch in contracts
- Consent of the owner. Record in writing that the building owner agrees to installation and to the creation of a right of superficies.
- Chain clause. Oblige the owner to impose the same obligations on a successor on a sale, reinforced by a penalty clause.
- Access and maintenance. Record when the lessor has access and who carries maintenance, insurance and replacement.
- Right of removal. In tenancy situations, Article 7:216 BW provides that the tenant is entitled to remove alterations it has made. Align your arrangements with that.
- End of the agreement. Settle dismantling, restoration of the roof or facade, and the condition on hand-back.
- Grid connection. Record who is the contracting party with the grid operator and who bears the risk of transmission restrictions.
- Transfer. Settle whether the lessee may transfer the agreement on a sale of the premises.
Tax consequences
The classification works through in three areas.
- Profit tax. Whoever is the economic owner capitalises the asset and depreciates it. The other party deducts the instalments as costs.
- Investment allowance. Only the investor for tax purposes qualifies for the Energy Investment Allowance or the environmental investment allowance (milieu-investeringsaftrek).
- VAT. Under an operating lease, VAT is charged on each instalment. A finance lease is usually treated as a supply, with VAT due in full at once.
The municipal valuation of the building may also be affected if an installation is classified as immovable. Factor this into the business case in good time. See also our page on environmental law.
Financial reporting
Undertakings reporting under IFRS recognise almost all lease agreements on the balance sheet as a right-of-use asset with a corresponding liability. Under Dutch reporting rules, the distinction between operating and finance leases still determines the balance sheet presentation. That difference matters for covenants in financing documentation, such as a solvency ratio.
Frequently asked questions
Do solar panels always become immovable?
No. That depends on how they are fixed and on common opinion. Roof-integrated panels are more readily a constituent part than panels on a free-standing mounting system. Have this assessed project by project.
Is a right of superficies always necessary?
Not always, but it is often advisable for fixed installations with a long term. The cost of creating it is usually outweighed by the risk of losing ownership on bankruptcy.
Can the lessee claim the Energy Investment Allowance?
Under a finance lease, in principle yes, because the lessee qualifies as economic owner. Under an operating lease, no. Record the chosen form and its justification before you file the notification.
Are you considering a lease structure for solar panels, heat pumps or charging infrastructure? The solicitors at Law & More in Eindhoven and Amsterdam will review your contracts and, where needed, arrange the creation of a right of superficies. We work in Dutch and English. Please get in touch.
