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Strengthening the Position of Clients in Construction Projects – Blog III

Due to an amendment to the Civil Code effective from 1 January 2024, the position of clients in construction projects has been strengthened. In our first blog in the series 'The Position of the Client in Construction Projects,' we discussed the client's position in relation to post-completion liability. The second blog in the series covered the contractor’s financial information obligation. In this third blog, we address the contractor’s duty to warn, which has also changed concerning construction contracts.

Duty to Warn for All Types of Work Contracts

Until 1 January 2024, the duty to warn was legally stipulated in Article 7:754 of the Civil Code and included the following obligation for the contractor:

‘The contractor is required, when entering into or executing the contract, to warn the client of any inaccuracies in the assignment, to the extent that he knew or should reasonably have known of them. The same applies to defects and unsuitability of items provided by the client, including the land on which the client has the work carried out, as well as errors or defects in the plans, drawings, calculations, specifications, or execution instructions provided by the client.’

This duty to warn has not changed. It applies to all types of work contracts, including, for example, dry cleaning services. It is important that parties may deviate from this legal provision and make different arrangements in their specific contract.

In construction contracts, the duty to warn follows the contractor’s initial obligation in a project: to assess whether he can properly execute the work requested by the client. The contractor must evaluate the client's request and determine the appropriate execution process (materials, equipment, methods, etc.). He will want to align these with the client's requirements and the provided data. The contractor does not have an independent obligation to verify the accuracy of the client's requirements or data. However, if the contractor discovers that the requirements or information are insufficient or incorrect while determining a suitable execution process, he must warn the client!

This warning is important because if the contractor fulfills his duty to warn (and there are no other reasons for his failure), the consequences of defective work execution will fall on the client (Article 7:760, paragraphs 2 and 3, Civil Code).

Specific Duty to Warn for Construction Contracts

For construction contracts, a new rule now applies. The second paragraph of Article 7:754 of the Civil Code states:

‘For construction contracts, the warning referred to in paragraph 1 must be given in writing and unequivocally, and the contractor must timely inform the client of the potential consequences for proper fulfillment of the agreement. This paragraph cannot be deviated from to the disadvantage of the client if the client is a natural person not acting in the course of a profession or business.’

In construction contracts, the contractor must give the warning in writing and unequivocally. In the digital age, ‘in writing’ is a broad term, encompassing email or messaging apps. The warning itself must also be clear (unequivocal). What constitutes clarity depends on the specific circumstances, but it is crucial that there is no ambiguity about whether the contractor has fulfilled his duty to warn. Despite project time constraints, it is advisable to pay sufficient attention to clearly wording and appropriately delivering the warning.

If the written and unequivocal warning requirements are met, there is still another condition the contractor must satisfy. The contractor must inform the client of the potential consequences for proper fulfillment of the agreement. This must be done ‘timely,’ as stated by law. The legal commentary does not fully clarify what ‘informing of potential consequences for proper fulfillment’ means, but in practice, it might include warnings about additional costs (from unchanged continuation) or the need for unusual measures to avoid risks to third parties due to errors in the assignment.

Finally, it is important that the duty to warn in construction contracts cannot be deviated from to the detriment of a consumer client. Non-professional clients are thus given extra protection. If you exclude the duty to warn as stipulated in Article 7:754 of the Civil Code in a construction contract with a private client, you risk that the consumer client can always invoke this article. A differing agreement is, in principle, void.

If you have any questions following this blog, please contact Erwin den Hartog or Petra Lindhout from our office.

Financial disclosure obligation

The Civil Code was amended from 1 January 2024 such that the position of the principal in construction projects was strengthened. In our first blog in this series, we discussed the position of the principal in relation to post-completion liability.

In this second blog, we discuss the financial disclosure obligation of the contractor in private contracting introduced from 1 January 2024.

New construction of owner-occupied houses for private individuals is overwhelmingly (around 90%) built under a guarantee and warranty scheme of the Garantiewoning Foundation. Such a guarantee and deposit scheme offers protection to consumers against possible insolvency of the contractor during construction. If the contractor goes bankrupt, another contractor will still build the house. In addition, such a guarantee and warranty scheme offers a construction guarantee which means that if there are construction defects and the contractor is unwilling (or unable) to remedy them, they can still be repaired.

Nevertheless, around 10% of new construction houses are still built without such a guarantee and warranty scheme. This may be because a contractor does not wish to join such a guarantee scheme or because the construction (home) is uninsurable, for example because of a highly innovative technique being used. Business clients are expected to be able to be well informed about the risks involved. However, orders from private clients are subject to a specific information obligation that the contractor must comply with.

Additional protection applies when building a new home for private clients with effect from 1 January 2024. Article 7:765a of the Civil Code states:

1. Before the principal is bound by an agreement as referred to in Article 765 or by an offer to that effect, the contractor shall inform the principal unequivocally in writing whether and, if so, in what way the fulfilment of his obligations to perform the work and his liability for defects attributable to him are or will be covered by insurance or another financial security. This information shall be provided in a clear and comprehensible manner for the client and shall in any case include the scope of the insurance or financial security, the degree of cover, the term and the sum for which the insurance has been taken out or the financial security has been provided.
2. The information referred to in the first paragraph shall form an integral part of the agreement.

The contractor must therefore inform the private client in writing prior to the conclusion of the contract (to build a new home) and in a manner that is clear and understandable as to whether he has insurance or can provide some other form of financial security for his obligations under the contract to build. And if so, he should inform the client about some key elements of this insurance/security. It should be clear what the extent of the insurance or financial security is, what the coverage level is, how long the insurance or security is provided and up to what sum the insurance or security applies.

The legal provision, as indicated, is mandatory. It cannot be deviated from. Not even in general terms and conditions. The information provided by the contractor is considered an integral part of the agreement to build the new home.

The private client is thus given additional protection. After all, with the information provided, he can check whether the contractor is actually insured (or can provide security) and in what way. Note that the provision only applies when building a house, not for building other structures.

For its part, the contractor will want to be able to prove that it has complied with the information requirement, especially if it cannot provide any or sufficient security/insurance. With the insurance information having to be provided prior to the conclusion of the contract, it is advisable to ensure an acknowledgement/statement of receipt.

Indeed, a private client can dissolve the contract if the contractor has not fulfilled the obligation to provide information, because the contractor then fails to fulfil the contract. Depending on the situation, a claim for damages (Section 6:277 of the Civil Code) also follows such a dissolution. If the contract does remain in force (and is therefore not dissolved), there may also still be a claim for damages based on a failure to perform the contract because of a breach of the duty to provide information (Section 6:74 of the Civil Code). It is therefore important as a contractor to ensure that one can prove that one has complied with the obligation to provide information.

Finally – depending on the circumstances – the private client can invoke error (Article 6:228 of the Civil Code) or conflict with the law (Article 3:40(2) of the Civil Code) and annul the contract or bring a claim based on tort (Article 6:162 of the Civil Code).

Do you have any questions following this blog? Please contact Erwin den Hartog or Petra Lindhout from our office.

Special Expropriation Law – Blog IV: Compensation for Third Parties

When you, as the owner of a plot, are expropriated, it is naturally logical that you are compensated. However, owners are not the only parties who can suffer damage from expropriation. Third parties can also experience losses. In this fourth and final part of the special blog series on expropriation, we address the situation of these groups.

In the first blog, we discussed the change effective from 1 January 2024, shifting from expropriation via a Crown decision to expropriation via an expropriation order and the associated administrative procedure. In the second blog, we covered the criteria for expropriation. The third blog focused on the procedure for determining compensation. Finally, in this last blog, we explore compensation for third parties.

Based on the 'clearing effect' of the registration of an expropriation deed, all charges and rights attached to the expropriated property are lost upon registration. The damage caused to those whose names those charges and rights were registered under is called third-party damage. The extent to which third parties can claim compensation for expropriation is provided by law.

Although expropriation is initially thought to only cause damage to the owner of the expropriated property, many more people can suffer losses due to expropriation. For example, the expropriated property could be a house rented to third parties. These third parties must vacate the house before the lease term expires and must find alternative accommodation.

Additionally, the property owner may not be the property occupant. For instance, if the property owner allowed a family to live in the house decades ago, and the grandson of this family eventually occupies the house believing it to be his own, expropriation reveals otherwise. The grandson suffers a loss as he no longer has a home and must find new accommodation.

A third and final example is the right of way. The owner of the 'dominant estate' has agreed with the owner of the 'servient estate' to use a path across the servient estate to access their home. When the servient estate is expropriated, this right of way is nullified. The owner of the dominant estate then has a problem as they can no longer access their home, thus suffering a loss due to the expropriation.

Now, let’s examine the legal basis for compensating third parties, such as tenants, occupants, and owners of dominant estates.

Legal Basis for Third-Party Compensation

Article 15.27 of the Expropriation Act (Ow) is a so-called linking provision. This means that this article extends the application of Articles 15.17 to 15.26, which primarily apply to owners, to the list of persons specified in this article.

Article 15.27 Ow provides an exhaustive list of persons who also have the right to compensation after expropriation. These include:

• Leaseholders
• Building right holders
• Owners of a dominant estate
• Right holders to use and habitation rights
• Right holders as per Article 150(5) Transitional Act New Civil Code
• Occupants
• Tenant buyers
• (Sub)tenants
• (Sub)leaseholders
• Creditors as per Article 6:252 of the Civil Code

Anyone not listed in this exhaustive list in this article generally has no independent claim to compensation for expropriation. Generally, because in some cases, it is still possible to be compensated if not included in the exhaustive list. For example, the mortgage holder and the registered lien holder can file a statement of defense in the compensation procedure to have their losses compensated.

To illustrate, let’s explain how tenants are compensated.

The Tenant

The tenant is generally entitled to full compensation. This is different if the lease was entered into after a draft expropriation order was published. In that case, the tenant has no right to compensation but can claim damages from the landlord.

The strength of the tenancy affects the amount of compensation. A capitalization factor is used, which is the annual rent divided by the purchase price of a property. Generally, a capitalization factor of 7 is used, but a lower factor applies if the tenancy is weaker, such as when the lease term is nearly complete. It must be considered whether the tenancy would have continued beyond the lease term. If so, factor 7 is used; otherwise, a lower factor applies.

Conclusion

In conclusion, not only owners but also third parties can be compensated. However, this only applies to those listed in the exhaustive list of Article 15.27 Ow. If a person is not listed, they generally have no independent claim to compensation for expropriation. Generally, because there are some cases where compensation is still possible.

This concludes our special blog series on expropriation. We have aimed to explain the expropriation process as clearly and simply as possible in four blogs. If you have any questions about the expropriation process after reading this blog series, please contact Gerard van der Wende, Petra Lindhout, or Fleur Huisman.

With effect from 1 January 2024, a number of changes have been made to the regulations on quality assurance in construction. Much has already been written about it and market players have made the necessary investments to comply with the new rules. Those rules, on the one hand, deal with the required quality of construction (public law framework), where the contractor engages a quality assurance company to ensure that the quality of the construction work complies with laws and regulations. Currently, that system applies only to consequence class I structures and is limited to new construction. Because the change in the public law framework is extensive, much has been written about it in particular. In the context of this blog, we will not go into that further now. But the Civil Code has also been amended with effect from 1 January 2024, and this is to strengthen the position of the principal in construction projects (civil law framework). The amendments cover the following aspects:

1. Liability after completion (Section 7: 758 of the Civil Code)
2. Introduction of a contractor’s financial information obligation (section 7:765a of the Civil Code)
3. More concrete requirements apply to the implementation of the contractor’s duty to warn (section 7:754 of the Civil Code)
4. Introduction of a consumer file (Section 7:757a of the Civil Code)
5. The conditions surrounding the right of suspension (5% rule) have changed (section 7:768 of the Civil Code)

 In this blog, we address the changes in the liability regime (point 1 above), as we find in practice that many contractors/SMEs are still unfamiliar with the changes that have taken place.

Liability after completion

Liability after completion is governed by Section 1 of Title 12 Book & Civil Code (contracting work in general). Section 7:758 BW stipulates the following:

1. If the contractor has given notice that the work is ready to be delivered and the client does not inspect the work within a reasonable period and accepts it with or without reservation or refuses to accept it with indication of defects, the client is deemed to have tacitly accepted the work. After acceptance, the work shall be considered delivered.
2. After delivery, the work is at the client’s risk. Consequently, he remains liable for the price, regardless of any destruction or deterioration of the work due to a cause not attributable to the contractor.
3. The contractor is released from liability for defects that the client should reasonably have discovered at the time of delivery.
4. Notwithstanding the third paragraph, in the case of building contracts, the contractor shall be liable for defects that were not discovered when the work was delivered, unless such defects cannot be attributed to the contractor. This paragraph may not be derogated from to the detriment of the client to the extent that the client is a natural person not acting in the exercise of a profession or business. In other cases, this paragraph can only be deviated from to the detriment of the principal if this is explicitly included in the agreement.

Importantly, construction works (paragraph 4) are thus just subject to a different rule from the main rule set out in paragraph 3. For construction works, the contractor remains liable for defects not discovered at the time of delivery (paragraph 4). This can only be different if the defects cannot be attributed to the contractor. Suppose a contractor finds that the defects were caused by an expert hired by the client, the contractor can argue that the defect is not imputable to him.

With regard to this construction liability regime, the following is important:

• A construction contract for the construction of structures between professional parties may deviate from this liability regime. Deviation from the scheme must be done in the contracting agreement itself. Referring to general terms and conditions is not sufficient. Incidentally, the standard terms and conditions commonly used in the construction industry, such as the UAV 2012 and the Model Basic Agreement with UAV-GC 2005, have not yet been adapted to the new liability scheme at this time. This means that if you declare these terms and conditions applicable and do not include an explicit deviation from section 7:758(4) of the Civil Code in the agreement itself, the liability scheme from the standard terms and conditions is voidable under section 3:40(2) of the Civil Code. After all, the liability scheme from the standard terms and conditions is intended to protect only one of the parties. Since the main agreement does not explicitly deviate from Section 7:758(4) of the Civil Code, the contractor’s contracting party can in such a case invoke the voidability of the liability scheme in the standard terms and conditions.
• In a contract of hire with a private client, this statutory regulation may not be deviated from. This gives the private client (consumer) extra protection against defects that were not discovered at the time of delivery.
• Small entrepreneurs are not equated with private individuals and therefore simply fall under the rules for professional parties. The legislator did not want to make an exception for small entrepreneurs, such as greengrocers, ZZP-er or GPs. Although these parties are much like private contractors, they are classified as professional parties. The small entrepreneur should therefore take extra care when concluding a building contract to see what agreements one wants to make regarding liability for defects.

Finally, it is important to note that – insofar as it concerns construction works to which the ‘system of quality assurance’ applies from 1 January 2024 (consequence class I/new construction), in the event of financial damage on the basis of the liability scheme, the contractor can also consider whether this damage or part of it was not caused by the quality assurance officer being (partly) liable for the damage. The task of the quality assurance officer is to check for shortcomings with regard to the building regulations in the Building Works Decree for the living environment. To this end, he applies quality assurance instruments. The moment the quality assurance officer makes mistakes in this and therefore fails to notice a defect, for example, he may have wrongly issued a statement (that the building is in accordance with the rules), causing damage. In such a case, the contractor – who is himself liable for damage from defects in any case – may be able to recover part of the damage from the quality assurance officer. How much exactly will depend, among other things, on what has been contractually agreed between the contractor and the quality certifier.

Do you have any questions or would you like us to review your contracts? Please contact Erwin den Hartog or Petra Lindhout from our office.

In this blog series, we discuss the main aspects of expropriation law.

In the first blog of this series, we discussed the change effective from 1 January 2024, whereby expropriation no longer occurs through a Crown decision but through an expropriation order and the associated administrative procedure. In the second blog, we covered the criteria for expropriation. This third blog focuses on the procedure for determining compensation.

Once an expropriation order is announced, the expropriator can request the court to determine the associated compensation. Unlike the determination of the expropriation order (which is established by the administrative court), the compensation is determined by the civil court, hereafter referred to as ‘the court.’ The expropriator can request the court to determine the compensation even before the expropriation order becomes irrevocable. Whether this is advisable is beyond the scope of this blog and will depend on the specific situation.

If the expropriation order becomes irrevocable and the expropriator does not submit a compensation request within twelve months, the expropriation order lapses (Art. 11.12 Environmental Act). In other words, the expropriator cannot delay submitting the compensation request for too long.

In the request, the expropriator specifies the compensation offered to each interested party. It provides an overview of how the expropriator intends to compensate those affected by the expropriation. In response to the request, interested parties can submit a defense if they believe the proposed compensation is insufficient.

The court then schedules an oral hearing (before the expert report), during which parties can also express their views on which experts should be appointed by the court to advise on the compensation.

The next step in the procedure is the appointment of experts by the court. Article 15.39 of the Environmental Act requires the court to appoint an odd number of experts to provide advice on the compensation. The court cannot deviate from this requirement. The court also appoints a judge-commissioner who acts as the point of contact for the experts and parties during the preparation of the expert report.

The appointed experts then visit the site (descente) to assess the location and situation of the expropriated parcels. A judge-commissioner and a clerk are also present (Article 15.40 Environmental Act).

After the site visit, the court will determine a provisional compensation for each interested party as soon as possible. This provisional compensation serves as an advance on the final compensation.

Meanwhile, the experts conduct their investigation and will produce a draft expert report with their compensation estimates. In practice, interested parties and the applicant (expropriator) are given the opportunity to respond to the draft expert report. The final expert report is then submitted to the court.

The procedure continues with the court scheduling another oral hearing where parties can further explain their positions. The experts are also present to answer any questions from the court about their report or to provide their perspective on the parties' positions.

After the oral hearing, the court issues a final decision on the compensation (Art. 15.45 Environmental Act). The previously granted advance is deducted from the compensation in the final decision. The costs of the compensation procedure are borne by the expropriator. If legal and other expert assistance costs incurred by an interested party are reasonable, they are also eligible for reimbursement.

Unlike typical civil procedures, there is no right of appeal against the court's final decision. Only an appeal in cassation is possible (Art. 15.48 Environmental Act) within three months of the court's decision.

This concludes the civil compensation procedure. However, to effectuate the expropriation, ownership transfer must still occur. This is done through the execution of the expropriation deed by the notary. The notary must always check whether all requirements for the execution of the expropriation deed have been met (Article 11.16 Environmental Act). The expropriation deed is signed by the expropriator, and the notary ensures its registration in the public registers, whereby the expropriator acquires the expropriated property.

The above outlines the compensation procedure in a nutshell. It is well known that an expropriated owner must be compensated. However, others (third parties) can also suffer losses due to expropriation. The fourth (and final) blog in this series will address this group and how expropriation law affects them.

Need help and advice on expropriation issues? Contact us.

Have you ever faced enforcement proceedings that, in your opinion, were disproportionate or with which you disagreed? In a few cases, you may then be vindicated and the enforcement procedure is indeed deemed disproportionate. This was the case, for example, in the ruling we discuss in this post.

First, a word of theory. Enforcement by the government is possible only when laws and regulations provide for it. The government has a duty of principle to enforce. This means that, in principle, the government, or at least the competent authority, must enforce whenever possible under laws and regulations. Nevertheless, the government may refrain from enforcement in the event of special circumstances. Special circumstances exist if there is a concrete prospect of legalisation, or if enforcement is disproportionate in relation to the interests to be served.

In its judgment dated 13 December 2023 (ECLI:NL:RBAMS:2023:7985), the Amsterdam District Court had to rule on the proportionality of enforcement by the municipality. This case involved the following facts. The owner of a house had replaced a window frame in his house with one made of a different material, which did not enlarge the frame, but which caused the window layout to change. Under previous legislation (Wabo), a permit requirement for this was included in section 2.1(1)(a) of the Wabo. The college then received an enforcement request from local residents against replacing the window frame because the frame is of different material and causes a different window layout.

The court then ruled that the college could take the view that enforcement action was disproportionate in relation to the interests to be served by it. The board could therefore refrain from enforcement. After all, the dimensions and colour of the window frame had not changed, so that the replacement of the window frame had a minor spatial change, the interests of third parties were not disproportionately affected, and there was no question of an exception to the building regulations and no real nuisance for local residents. The court also took into account that the college had made it known that if a permit application had been submitted for the change of the window frame, it would have to grant it because of the absence of the ground for refusal. Finally, the change of window frame is not subject to a permit requirement under the Environment Act, and although the Environment Act does not apply to this case, it is relevant in the context of balancing interests. The college was therefore also allowed to consider this aspect in its decision-making.

If enforcement proceedings have been initiated in 2023 against works carried out by you without the required environmental permit, it is therefore wise to check whether a ground for refusal would exist if you submitted a permit application and whether similar works would also require an environmental permit under the Environment Act. After all, if this is not the case, there is a chance that enforcement would be disproportionate. Whether this is the case will always have to be considered on a situation-by-situation basis.

Are you yourself facing (disproportionate) enforcement proceedings or do you have other questions about enforcement proceedings? If so, please contact Gerard van der Wende, Petra Lindhout or Fleur Huisman.