Finally owning your own apartment—that’s the dream of many people. For anyone on a limited budget, the hereditary leasehold offers a unique opportunity to invest in real estate on favorable terms. Learn how you can benefit from a hereditary leasehold, why buying a property on such a lot can pay off, and what you need to keep in mind.
Common in community gardens or on farms, but a bit of a rarity in the new-construction real estate sector: the colloquial term “lease.” When people talk about a “hereditary lease” today, they’re usually referring to the legal term “hereditary building right.” This refers to the transfer of a plot of land or a property in exchange for regular payments and for a previously agreed-upon period.
What's in the contract? What should I keep in mind when making a purchase?
Say goodbye to rent—thanks to leasehold rights, you can become a homeowner affordably, since you only pay for the building, not the land. This is a smart way to get started in the real estate market. And it’s not that complicated at all.
In a mutually agreed-upon and notarized contract, the two parties agree on a fixed monthly amount—the ground rent—as well as the term of the leasehold. The contract term starts at a minimum of 33 years but can also be longer and, if necessary, extended.
And this is also in the interest of the leaseholder: entities that lease leasehold properties typically offer a term of 99 years on their own initiative. If you take over an existing leasehold contract, you should find out the remaining term and have it adjusted if necessary.
The agreed-upon monthly “lease payment” or ground rent is generally more stable and secure than regular interest rates. (And probably much cheaper than your rent.) This is because the amount of the lease payment is based on the consumer price index; while it can be increased, it is somewhat easier to plan for than the fluctuating interest rates on conventional loans.
After the purchase is complete, a separate page is added to the land register—the “identity card” of a property—known as the leasehold register. In this way, the grantor of the leasehold grants the leaseholder the right to build on, reside in, and use the property. And you can finally move in.
All details regarding contracts and agreements are set forth in the leasehold land register extract. The exact terms, usage scenarios, possible structural alterations, the specified term, and the interest rate are individually negotiated therein. The payment method—such as quarterly or monthly—as well as other individual terms are also agreed upon separately in each contract. As a general guide: In Cologne, the average ground rent ranges from about 80 cents to 3 euros per square meter per month.
What does a leasehold mean for condominiums?
Not only entire properties but also condominiums can be located on land subject to a leasehold. Condominium owners often form what are known as condominium owners’ associations (WEG). In such cases, the term of the lease must always be the same, as the leasehold agreement does not allow for different terms within the same building. It is therefore not possible, for example, to agree on a 100-year term for one condominium unit while the other units in the building are granted a 33-year term. All condominium owners must accept the same terms. Here’s to good neighborly relations! These and other legal framework conditions are codified in the Heritable Building Rights Act (ErbbauRG).
For the landowners—primarily cities, municipalities, or church-affiliated organizations—this model offers the advantage of being able to make their land usable while retaining ownership of it. But how does leasehold benefit you as a buyer?
Why should I invest in a leasehold property?
Young families or investors with limited funds or no significant equity can invest in real estate on a relatively low budget. You won’t find a condominium this affordable anywhere else. Since you’re purchasing only the unit—not the land—the purchase price is relatively low. The ongoing costs are also generally lower, as they consist only of construction costs, regular utility and maintenance fees, insurance, and taxes.
Like any other property, a house or condominium located on leasehold land can be sold, rented out, or even bequeathed. The property then passes to the heirs or buyers, and the contract—including all rights, obligations, and agreements—remains in effect.
Anyone who buys a property or a plot of land must generally pay a one-time real estate transfer tax to the tax office. However, this tax is calculated differently for leasehold property than for regular land and is usually much lower. This is because, as you can see, only the value of the building—not the land—is taxed. Property tax, on the other hand, is paid annually and is a fixed expense you should factor into your calculations, even with a leasehold.
Speaking of calculations: Financing is simpler with leasehold rights. This is because the loan amount is naturally lower and is therefore more easily approved by banks. Some banks even offer special products with favorable terms. Just ask!
Especially in times of dynamic real estate price growth, leasehold is a fantastic and affordable option for anyone who wants to finally get a foot in the door of the real estate market.
