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 amazing interview on the significant topic of leasehold.

For whom and under what circumstances is leasehold beneficial? And which points should potential customers definitely think about? You can listen to the exciting conversation about these and other topics here now straight or read through as a transcript in 'standard way'. We hope you enjoy it!

Podcast episode 'Erbbaurecht' - total 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 concerns on the topic of hereditary structure rights. Because the land on which you construct your home does not necessarily have to come from 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 rates continue to rise ... Is it worth it for you? And if so, under what situations? What is in fact behind the heritable building right? And what should you take note of? We now clarify these questions with Tim Wistokat. He is an attorney 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, legal representative and head of the legal department at VON POLL IMMOBILIEN:

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

At very first look, the heritable structure right seems to be an economical alternative to buying land. However, it is recommended to weigh both choices and to consider some pitfalls.

Mr. Wistokat, developing on somebody else's land - how does that work?

Well, virtually speaking, it's very easy at first. The grantor of the ground lease, i.e. the owner of the land, transfers to the leaseholder, i.e. the renter of the land, a right to use the land in question. The latter might then build a residential or commercial property on it or purchase a residential or commercial property currently located on the land. Thus, the ground lease holder ends up being the owner of the residential or commercial property, but not the owner of the land.

In return, the tenant pays a type of rent?

Yes exactly, we are speaking about the annual ground lease. Previously, it was likewise called genetic lease, which is basically easily flexible in the quantity. As a guideline, nevertheless, the quantity of the ground lease has to do with 3 to 5% of the land value.

The unique feature and therefore also a point that must be considered thoroughly by the occupant: The ground lease can be adjusted every 3 years by the ground lease company.

What else should potential occupants think about?

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

In addition, it needs to be clarified in advance whether the residential or commercial property might be sublet by the leaseholder. In order to tape-record all agreements in writing, the parties included conclude a ground lease agreement therefore 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 residential or commercial property and in addition in an individually established ground lease land register.

Can anybody offer a heritable structure right?

In concept, yes.

In concept, anybody can give a heritable structure right. In practice, nevertheless, land is mainly leased by towns, churches, neighborhoods or companies. Especially the church typically appears in Germany as a lessor of land, so regarding enable young households with less equity to buy property or develop a home.

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

Yes, I can validate that. As a guideline, 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 residential or commercial property becomes the residential or commercial property of the ground lease supplier. However, the latter must then pay the leaseholder suitable payment 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 residential or commercial property, the genetic structure right does not expire as a right of use in rem. Rather, the brand-new owner of the land or genuine estate takes control of the leasehold agreement along with its staying term. However, this does not indicate that the predetermined term is automatically restored or extended. It is rather to be comprehended in the sense that a brand-new start of the term can be negotiated with the new owner. The more remaining term is left, the better the chances are, obviously, when the residential or commercial property is resold.

What is it about the so-called reversion?

If the leaseholder does not fulfill his contractual responsibilities or does not pay the agreed ground lease for at least 2 years, the landlord can assert his right of reversion. In this so-called right of reversion, the leaseholder should return the ground lease to the landowner. The contract 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 should also compensate the leaseholder appropriately. Here, too, there is the possibility that the parties agree amongst themselves on a mutually reasonable extension of the contract.

In addition, although the ground lease grantor can give the ground lease holder a right of first rejection on the residential or commercial property, the ground lease holder is not entitled to a contract extension.

For whom is the ground lease rewarding?

Tim Wistokat:

Who has little equity, however still does not desire to do without a home of their own, for which the heritable building right can be rewarding under specific scenarios, given that only the purchase rate for your home, however not for the land must be raised. In this case, the total quantity for real estate financing is naturally somewhat lower. Prospective buyers 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 upkeep expenses and the annual ground lease.

Petra Konradi:

First of all, the leasehold seems to be appealing for potential buyers with just little equity. But a closer look exposes some not insignificant concerns. Probably the most significant drawback: While the repayment of a routine bank loan for a plot of land ends in time, the ground rent continues to run till the end of the contract. Especially in times of low rate of interest, standard financing frequently shows to be more economically advantageous.

In addition, the ground lease can be adjusted every 3 years. Due to this, there is a that the ground lease payments will surpass the overall land cost over the years. Although a regular realty purchase usually seems more pricey in the acquisition, it usually proves to be less complicated and less costly in the long run.

If you have any concerns about this or other topics, please feel complimentary to call our specialists or discover a lot more details on our site and in the VON POLL IMMOBILIEN - App. You can find the links in the program notes of our podcast.

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