Leasehold: VON POLL IMMOBILIEN - the podcast

In encyclopedia episode 2 of the VON POLL IMMOBILIEN podcasts, Tim Wistokat, lawyer and head of the legal department at VON POLL IMMOBILIEN, and host Petra Konradi conduct an exciting interview on the major topic of leasehold.

For whom and under what circumstances is leasehold worthwhile? And which points should prospective customers absolutely consider? You can listen to the exciting conversation about these and other topics here now directly or read through as a transcript in 'traditional manner'. We hope you enjoy it!

Podcast episode 'Erbbaurecht' - complete transcript

Moderator Petra Konradi:

You have already read it in the title - in this episode we clarify compactly and to the point the most important questions on the subject of hereditary building rights. Because the land on which you build your house does not necessarily have to belong to you. The hereditary building right makes it possible to lease a plot of land and pay the owner in return an annual amount, the so-called ground rent.But even if land prices continue to rise... Is it worth it for you? And if so, under what circumstances? What is actually behind the heritable building right? And what should you pay attention to? We now clarify these questions with Tim Wistokat. He is a lawyer and head of the legal department at VON POLL IMMOBILIEN.

My name is Petra Konradi, I am the host of the podcast. Welcome.

Tim Wistokat, lawyer and head of the legal department at VON POLL IMMOBILIEN:

Hello Ms. Konradi, thank you very much for the invitation.

Petra Konradi:

At first glance, the heritable building right seems to be a cost-effective alternative to buying land. However, it is advisable to weigh both options and to consider some pitfalls.

Mr. Wistokat, building on someone else's land - how does that work?

Tim Wistokat:

Well, practically speaking, it's very simple at first. The grantor of the ground lease, i.e. the owner of the land, transfers to the leaseholder, i.e. the tenant of the land, a right to use the land in question. The latter may then build a property on it or purchase a property already located on the land. Thus, the ground lease holder becomes the owner of the property, but not the owner of the land.

Petra Konradi:

In return, the tenant pays a kind of rent?

Tim Wistokat:

Yes exactly, we are talking about the annual ground rent. Previously, it was also called hereditary lease, which is basically freely negotiable in the amount. As a rule, however, the amount of the ground rent is about 3 to 5% of the land value.

The special feature and thus also a point that should be considered carefully by the tenant: The ground rent can be adjusted every three years by the ground lease provider.

Petra Konradi:

What else should prospective tenants consider?

Tim Wistokat:

In addition to the agreed payments, the parties should agree on maintenance and the possibility of making structural changes to the existing property.

In addition, it should be clarified in advance whether the property may be sublet by the leaseholder. In order to record all agreements in writing, the parties involved conclude a ground lease contract and so that this is legally binding, it is notarized by the notary.

Followed by the registration of the ground lease in the land register of the property and additionally in a separately established ground lease land register.

Petra Konradi:

Can anyone give a heritable building right?

Tim Wistokat:

In principle, yes.

In principle, anyone can grant a heritable building right. In practice, however, land is mostly leased by municipalities, churches, communities or companies. Especially the church often appears in Germany as a lessor of land, so as to enable young families with less equity to buy real estate or build a house.

Petra Konradi:

The trick is often in the details, even with hereditary building rights?

Tim Wistokat:

Yes, I can confirm that. As a rule, the term of the ground lease is between 50 and 99 years. After the expiration of the ground lease, the ground lease expires and the property becomes the property of the ground lease provider. However, the latter must then pay the leaseholder appropriate compensation for the building and this is based on the current market value.

Even in the event of a sale or inheritance of the land or property, the hereditary building right does not expire as a right of use in rem. Rather, the new owner of the land or real estate takes over the leasehold contract as well as its remaining term. However, this does not mean that the agreed term is automatically renewed or extended. It is rather to be understood in the sense that a new start of the term can be negotiated with the new owner. The more remaining term is left, the better the chances are, of course, when the property is resold.

Petra Konradi:

What is it about the so-called reversion?

Tim Wistokat:

If the leaseholder does not fulfill his contractual obligations or does not pay the agreed ground rent for at least two years, the landlord can assert his right of reversion. In this so-called right of reversion, the leaseholder must return the ground lease to the landowner. The contract is terminated prematurely and the ground lease provider becomes the owner of the building. However, care must be taken here. In the event of a reversion, the ground lease owner must also compensate the leaseholder appropriately. Here, too, there is the possibility that the parties agree among themselves on a mutually agreeable extension of the contract.

In addition, although the ground lease grantor can grant the ground lease holder a right of first refusal on the property, the ground lease holder is not entitled to a contract extension.

Petra Konradi:

For whom is the ground lease worthwhile?

Tim Wistokat:

Who has little equity, but still does not want to do without a home of their own, for which the heritable building right can be worthwhile under certain circumstances, since only the purchase price for the house, but not for the land must be raised. In this case, the total amount for real estate financing is naturally somewhat lower. Prospective buyers then pay in addition to the purchase price for the property usually still the property tax, insurance and maintenance costs and the annual ground rent.

Petra Konradi:

First of all, the leasehold seems to be tempting for prospective buyers with only little equity. But a closer look reveals some not insignificant concerns. Probably the biggest disadvantage: While the repayment of a regular bank loan for a plot of land ends over time, the ground rent continues to run until the end of the contract. Especially in times of low interest rates, conventional financing often proves to be more financially advantageous.

In addition, the ground rent can be adjusted every three years. Due to this, there is a possibility that the ground rent payments will exceed the total land cost over the years. Although a regular real estate purchase usually seems more expensive in the acquisition, it usually proves to be less complicated and less expensive in the long run.

If you have any questions about this or other topics, please feel free to contact our experts or find even more info on our website and in the VON POLL IMMOBILIEN - App. You can find the links in the show notes of our podcast.

VON POLL IMMOBILIEN - the podcast: you can find us on Spotify, Apple Podcast, Google Podcast or in the VON POLL IMMOBILIEN app and on Amazon Music or via Alexa. Just tell Alexa, play the VON POLL IMMOBILIEN podcast.