The 5% scheme for new-build homes explained

The 5% scheme is laid down in the Dutch Civil Code (article 7:768). It is meant to protect the private buyer or client of a new home. For you as a developer or contractor, it means part of the construction price comes in later, and that you have to take a few fixed steps to receive that money. Since the Dutch Quality Assurance for Building Act (Wkb), extra rules have been added.

How does it work?

With the final instalment of the construction price, the buyer pays 5% not to the developer or contractor but to the notary, who holds it in escrow. Instead, the builder can also provide a bank guarantee or other substitute security. In principle the money is released three months after handover, unless the buyer reports before then that there are defects which haven't been fixed.

Who does it apply to?

The scheme applies when a home is built for a private client: someone who is not acting in the course of their profession or business. A business buyer or client is not covered. The scheme cannot be excluded in general terms and conditions.

What the Wkb changed

Since the Wkb, the contractor must inform the client in writing within the first two months after handover of their right to keep the escrow in place. A copy of that notice goes to the notary. If the notary doesn't have that copy, they may not transfer the amount to the contractor, not even after three months. For construction contracts concluded before the Wkb, this step did not yet apply.

What happens after three months?

If the buyer hasn't reported anything within three months, and the notary has the copy of your notice, the notary transfers the amount to you. If there are still defects, the buyer tells the notary which amount must stay in escrow. That amount must be proportionate to the defects: with a few minor points, the full 5% will not stay in place. Earlier release is also possible, for example with the buyer's consent, if you provide equivalent substitute security, or if the court finds the escrow no longer justified.

Why does the scheme exist?

Almost every handover comes with snagging items, small and large. The 5% scheme protects the buyer: part of the payment is held back until those items are resolved. For you, it's a reason to deal with snagging items quickly and in a way you can prove.

Other Wkb rules in brief

The Wkb brought more changes to the relationship between contractor and client. The contractor is liable for defects not discovered at handover, must supply information afterwards about what was built (the consumer file), and must inform a private client about the financial cover of certain risks. There is also a duty to warn.

What should a developer keep track of?

• For each plot, the amount held in escrow, or the security you have provided
• The handover date, so the three-month period runs correctly
• Informing the buyer in writing within two months of handover and sending a copy to the notary
• Snagging items per home, and signing them off with photos
• Having the escrow released after three months, or dealing with reported defects

How does Corvo Apex handle it?

With the final instalment invoice, Corvo Apex tracks for each plot which part is held in escrow and when it's released. The handover file with photos sits in the buyer portal. See Corvo Apex for property developers. This article is a general explanation, not legal advice; if in doubt, ask your notary or lawyer.