Need makes debt: the ladder test for hotels

In recent years, the hotel industry has been showing an upward trend in several ways. Not only are room rates increasing and occupancy rates rising, but the number of hotels is also increasing. So no shortage of need, you might say. Yet hotel plans are regularly struck down in the administrative courts precisely because of a lack of need. How this is possible and - more importantly - how this can be prevented can be read in this article.

In the best locations for realization of a hotel, there is usually a zoning plan that does not allow hotels. For the development of a hotel, a new zoning plan must usually be adopted, or an environmental permit must be obtained to deviate from the zoning plan. It is well known that this can be quite a challenge. From sufficient parking spaces to disruption of protected species, from shadow effects to the municipal hospitality policy: all kinds of aspects are involved in the assessment of the plan. This is quite apart from the nitrogen issue, which has taken off with the recent 'PAS ruling' by the Council of State.

Hotels and the 'ladder test'

Even if all these hurdles are taken, however, the need for the additional hotel rooms must still be properly mapped. This obligation stems from the "ladder for sustainable urbanization" (also known as: SER ladder), codified in Article 3.6.1 paragraph 2 of the Spatial Planning Decree. This paragraph obliges a zoning plan that allows for new urban development to describe the need for it. Until recently, even an "actual regional need" had to be demonstrated (and thus not just described), but that requirement has been toned down. Background of the rule is to prevent building for vacancy. This is especially true if that building takes place outside existing urban areas.

The need for a hotel falls into the quantitative and the qualitative need for it. The quantitative need involves the calculated demand for the number of hotel rooms in a defined study area. This uses national and regional figures and assumes a healthy occupancy rate of the hotels involved in the study area. The qualitative need is the need for the specificity of the hotel. Even if the quantitative need for a hotel is limited, its special design can generate its own demand, making the qualitative need decisive.

Whereas qualitative need is mostly about a "good story," calculating quantitative need comes close to exact science. This is evident from several rulings on the subject by the Administrative Law Division of the Council of State (the Division), the highest administrative court.

Quantitative need: higher math?

First, the region must be properly defined. This requires a case-by-case consideration of the scale appropriate to the development envisioned by a plan. For example, the study area can be delineated by using a maximum distance of 20 car minutes from the plan area. The relevant Cebuco catchment area can also be used: a geographical area consisting of municipalities concentrated around one or more economic service centers. As long as the delineation is well justified, it does stand the test of criticism.

It is then necessary to determine the number of available hotel rooms in the study area in order to calculate the market space for additional hotel rooms based on their occupancy rates. However, "counting" the number of available hotel rooms is not as simple as it seems. This is because not only must the number of hotel rooms that are actually present be taken into account, but also the hotel rooms that have not (yet) been realized but for which irrevocable planning permission has already been granted. This concerns the so-called "hard plan capacity" of hotel rooms. This test is strict, and just as you cannot be "a bit pregnant", there is no such thing as hard plan capacity.

In a procedure concerning a zoning plan for realization of a hotel near Epse (south of Deventer), the city council, which adopts the zoning plan, had not included "non-relevant hard planning capacity" in the need calculation. In fact, according to the council, there was no short-term prospect of realization of that hotel. The Division "does not follow the council in this reasoning" and put a big line through it in its October 17, 2018 ruling.

In a May 22, 2019 ruling on a zoning plan for an expansion of Hotel Mastbosch in Breda, things went wrong in a similar way. In determining the supply of hotel rooms, the council had not taken into account hard plan capacity whose chance of realization was estimated at less than 75%. According to the council, it was not likely that this capacity would actually be utilized. Therefore, the council was of the opinion that only part of the hard planning capacity could suffice in the needs assessment. The Division did not go along with this and again ruled that the zoning plan was flawed.

Conclusion: calculating need more important than outcome

When developing a hotel, the need for it seems obvious, if only because there is apparently a business case. For a zoning plan, however, the need must be accurately assessed. What is important here is not so much that a certain quantitative need is demonstrated, but rather that the need (or lack thereof) is correctly identified and that all available capacity is actually included in the description. Only then can the municipal council, which knows the regional and local circumstances and is responsible for spatial developments, assess whether the plan for the hotel can be approved.

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