Circular economy and real estate: the legal (im)possibilities of operational lease

Abstract

Purpose A paradigm in circular economy (CE) is that suppliers retain ownership of their products and materials, and that the users “only” pay for services. In many legal systems, however, elements incorporated in a building are considered to be fixtures, and therefore legally part of the building. This means that ensuring multi-cyclic behaviour of individual building elements (e.g. the facade or a window) is not so evident. This paper explores, from the perspective of Dutch law, how to secure the ownership of the supplier or to find alternatives within the existing system of property law. Design/methodology/approach The authors performed a literature review of both CE and (Dutch) property law. The results of these reviews are discussed and illustrated by legal case studies. Findings The options principally advocated within CE to retain ownership of building parts leave legal uncertainties and do not offer a solid basis for the development of circular business models, especially considering immovables and fixtures. For these categories, buy-back and take-back contracts, and models for reuse and recycling seem more promising. Research limitations/implications The research is limited to a literature review. Although the legal principles discussed in this paper are valid for both civil and common law systems, and similar findings might, therefore, be expected internationally, this study focused on the specific Dutch legal context. Comparative legal research and research of best practices in the building industry is needed to test the applicability of the findings in an international context. Practical implications Following the findings, CE initiatives within real estate and the construction industry should focus on alternative implementations of the operational lease concept, taking into account CE’s ambitions to reduce the extraction of raw materials. Originality/value At the moment the challenges that property law poses CE, real estate and operational lease are hardly discussed within the literature. This paper explores this gap.

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