These days, for many occupiers of commercial real estate the annual property tax assessment seems more like a complete surprise than a realistic indication of the value of their accommodation. Redept investigated the existing property tax system and the results are striking. Because of this there is a possibility for tenants and owner-occupiers to substantially reduce their property tax assessments.

The Valuation of Real Estate Act (Wet WOZ) came into force on 1 January 1995 and, moreover, since 2007 an annual revaluation is obligatory. The intention of this legislation is to create a uniform basis for the taxes that are levied by the various levels of government. The municipalities’ attempts to achieve this are, however, far from realistic in the context of the real estate market in 2015, or at least insofar as it relates to the category “non-residential”.

The Valuation of Real Estate Act

The basis for the valuation of real estate for the WOZ is determined in article 17. For non-residential, real estate has to be valued on the basis of the concept Economic Value (Waarde in het economische verkeer), i.e. the value that is attributed to the property if the complete and unfettered ownership thereof could be transferred and where the purchaser could take it into use, immediately and fully, in its existing condition. In other words: with vacant possession.

Experience shows us that on this point municipalities lose the plot. The difference between the actual market value of a vacant office building and the result of the application of the valuation system employed by municipalities is scandalous. Unfortunately, municipalities are not aware of it. In a court hearing where the property tax value was in dispute and Redept acted as expert witness on behalf of the occupier the municipality involved claimed that in applying a capitalisation factor of nine times the rental value sufficient discount had been applied to account for the vacancy risk. That in a municipality with a stubborn vacancy rate of more than 25%.

Valuation Indicator

This claim can be declared on the basis of the Valuation Indicator that is published every year by the Association of Netherlands Municipalities (VNG). The Valuation Indicator strives towards a uniform approach by all municipalities to the annual WOZ valuations, partly by dictating standard valuation methods and providing standard data. On the face of it an admirable intention were it not that the standard data are purely theoretical and bear no relation at all to specific situations.

Section 24 of the Valuation Indicator proscribes how a capitalisation factor should be compiled: it starts with a base rate of interest that is derived from the return on government bonds for the year in question. A risk premium is calculated on top of the base rate – and this is where it goes wrong. We are currently aware of numerous examples in the market of hopeless and semi-hopeless office properties that have been sold for capitalisation factors of between one and six times the rental value. The VNG is still under the impression that the lowest capitalisation factor that can be applied to empty office buildings is around nine times the rental value. The question is, what is this based on? Redept analysed the Valuation Indicator and established that the authors have derived their risk premiums from the publication Nederland Compleet by broker DTZ. This contains a snapshot of the gross initial yield (GIY) per region. Then, the median of DTZ’s reported series of GIYs is taken. The base rate of interest is subtracted from the median and what remains is the VNG’s risk premium. Of course, this approach cuts no ice for a number of reasons but particularly because it ignores the fact that the DTZ GIY numbers are derived from investment transactions. In other words: sale transactions for buildings that are absolutely not vacant and where a healthy cash flow is derived from rental agreements. In the GIY there is undoubtedly an implicit premium for possible future vacancy. Where no account is taken is for the vacancy assumption of the Valuation of Real Estate Act. With as a consequence that property taxation values are sometimes substantially higher than the Economic Value as per article 17. In practice, the municipal valuers obediently make use of these standard data and the confusion between investment transactions and the assumption of vacant possession is ubiquitous.

Reference transactions

According to the Valuation Chamber (Waarderingskamerall transactions may be used for which analysis dictates that they are suitable. Only transactions without consideration and transactions with a consideration of € 1 are not viewed as sales and do not have to be analysed. It is not necessary that a transaction complies with all the valuation assumptions. The Valuation Chamber confirms that the market details must be adjusted for details that are established if the details lead to a different price than that which would have been arrived at had account been taken of the assumptions. Every real estate professional will affirm that a property with a rental agreement and long-term rental income represents a totally different value than a vacant property. A correction to the capitalisation factor is easily supported on this basis.


The court Arnhem-Leeuwarden adjudicated some time ago that the municipality may not blithely apply the Valuation Indicator: “it pleases the Court to report that the Valuation Indicator is nothing more than a resource to set the value as meant in article 17 of the Valuation of Real Estate Act. Should application of the Valuation Indicator lead to a different determination of value than that which would have been arrived at if the valuation concept of article 17 of the Act were applied, the latter valuation concept must prevail.”

Any point in appealing?

For most occupiers however there is little point in appealing against the property tax assessment due to the limited advantage that a successful appeal provides compared with the costs of an external advisor. Hence this often leads (consciously or unconsciously) to acquiescence in the payment of an assessment that is based on the wrong principles.

For large occupiers of office space – and particularly for owner-occupiers – property tax represents a substantial cost where it is worth the effort to have the assessment set at the lowest possible level. More so because the property tax value is applicable as basis for other taxes and all taxes recur on an annual basis.

In its newsletter of December 2014 VNO-NCW (Confederation of Netherlands Industry and Employers) noted that many municipalities are bridging their budget gaps at the cost of entrepreneurs by means of the property tax.  VNO-NCW asserts that particularly municipalities that are in financial difficulties have increased their tariffs by more than the macro-norm of three per cent with as highlight the City of The Hague with an increase of 22%. Another reason to carefully review the assessment!

Case in practice

On behalf of one of our clients, Redept entered an appeal. The background was a property tax valuation based on the application of the Valuation Indicator with an excessive capitalisation factor.  Redept demonstrated that there were sufficient reference transactions by which the value with vacant possession turned out to be 75% less than the municipality’s original assessment. The municipality involved also had the propensity to use completely incomparable office buildings as comparables. The court judged in favour of Redept’s client which meant the realisation of a saving of € 22.000, recurring on an annual basis.

The role of Redept

Redept can appeal incorrect assessments as expert advisor. On the basis of our knowledge of the real estate market and our expansive database of the right reference transactions we are able to successfully amend the property assessment with a convincing justification. A justification that gives the lie to the Valuation Indicator used by the taxation officials.

U gebruikt een verouderde browser van Internet Explorer die niet meer wordt ondersteund. Voor optimale prestaties raden wij u aan om een nieuwere browser te downloaden. Hiervoor verwijzen wij u door naar: sluiten