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

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

Podcast episode 'Erbbaurecht' - complete transcript

Moderator Petra Konradi:

You have currently read it in the title - in this episode we clarify compactly and to the point the most important concerns on the topic of genetic building rights. Because the land on which you develop your home does not always have to belong to you. The genetic structure 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 rates continue to rise ... Is it worth it for you? And if so, under what situations? What is really behind the heritable structure right? And what should you take notice of? We now clarify these concerns 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 really much for the invitation.

Initially glance, the heritable building right appears to be a cost-effective alternative to purchasing land. However, it is suggested to weigh both options and to consider some risks.

Mr. Wistokat, constructing on another person's land - how does that work?

Well, practically speaking, it's extremely easy initially. 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 utilize the land in question. The latter might then develop a residential or commercial property on it or buy a residential or commercial property already found on the land. Thus, the ground lease holder becomes the owner of the residential or commercial property, but not the owner of the land.

In return, the tenant pays a sort of lease?

Yes precisely, we are speaking about the annual ground lease. Previously, it was also called hereditary lease, which is essentially freely negotiable in the amount. As a guideline, however, the amount of the ground rent has to do with 3 to 5% of the land worth.

The special feature and hence likewise a point that ought to be considered thoroughly by the renter: The ground lease can be changed every 3 years by the ground lease provider.

What else should potential occupants think about?

In addition to the agreed payments, the parties ought to concur on upkeep and the possibility of making structural modifications to the existing residential or commercial property.

In addition, it must be clarified beforehand whether the residential or commercial property may be sublet by the leaseholder. In order to tape all agreements in composing, the celebrations included conclude a ground lease contract and so that this is lawfully binding, it is notarized by the notary.

Followed by the registration of the ground lease in the land register of the residential or commercial property and in addition in an independently established ground lease land register.

Can anyone offer a heritable building right?

In principle, yes.

In principle, anyone can give a heritable building right. In practice, nevertheless, land is mainly rented by municipalities, churches, neighborhoods or companies. Especially the church typically appears in Germany as a lessor of land, so as to allow young households with less equity to buy genuine estate or construct a house.

The technique is typically in the information, even with hereditary structure rights?

Yes, I can verify that. As a rule, the regard to the ground lease is between 50 and 99 years. After the expiration of the ground lease, the ground lease expires and the residential or commercial property ends up being the residential or commercial property of the ground lease service provider. However, the latter need to then pay the leaseholder proper compensation for the building and this is based upon the existing market value.

Even in the occasion of a sale or inheritance of the land or residential or commercial property, the genetic structure right does not end as a right of usage in rem. Rather, the new owner of the land or property takes control of the leasehold contract along with its remaining term. However, this does not suggest that the predetermined term is immediately restored or extended. It is rather to be comprehended in the sense that a new start of the term can be worked out with the brand-new owner. The more remaining term is left, the better the chances are, of course, when the residential or commercial property is resold.

What is it about the so-called reversion?

If the leaseholder does not fulfill his legal responsibilities or does not pay the agreed ground lease for at least two years, the property owner can assert his right of reversion. In this so-called right of reversion, the leaseholder needs to return the ground lease to the landowner. The agreement is ended too soon and the ground lease supplier becomes the owner of the building. However, care must be taken here. In case of a reversion, the ground lease owner must likewise compensate the leaseholder appropriately. Here, too, there is the possibility that the celebrations agree amongst themselves on a mutually acceptable extension of the contract.

In addition, although the ground lease grantor can approve the ground lease holder a right of very first refusal on the residential or commercial property, the ground lease holder is not entitled to an agreement extension.

For whom is the ground lease rewarding?

Tim Wistokat:

Who has little equity, however still does not wish to do without a home of their own, for which the heritable structure right can be beneficial under particular circumstances, since only the purchase cost for the home, however not for the land needs to be raised. In this case, the total amount for real estate financing is naturally rather lower. Prospective purchasers then pay in addition to the purchase cost for the residential or commercial property generally still the residential or commercial property tax, insurance coverage and maintenance costs and the yearly ground rent.

Petra Konradi:

Firstly, the leasehold seems to be appealing for prospective buyers with just little equity. But a closer appearance reveals some not irrelevant issues. Probably the biggest drawback: While the payment of a regular bank loan for a plot of land ends over time, the ground rent continues to run until completion of the contract. Especially in times of low rate of interest, conventional funding typically shows to be more economically advantageous.

In addition, the ground rent can be adjusted every 3 years. Due to this, there is a possibility that the ground lease payments will exceed the overall land cost for many years. Although a routine realty purchase usually seems more costly in the acquisition, it typically shows to be less complex and cheaper in the long run.

If you have any concerns about this or other subjects, please feel complimentary to contact our professionals or find even more details on our website and in the VON POLL IMMOBILIEN - App. You can discover the links in the show notes of our podcast.

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