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 |  Dr. Dieter Jasper, LL.M.

Leasehold and its pitfalls - Part 1

Introduction and overview

Leasehold instead of purchase

Anyone who wants to build a house does not necessarily have to be the owner of the land on which the house is built. In times when land prices are skyrocketing and land is almost impossible to buy, heritable building rights, which have been enshrined in German law for more than 100 years, are experiencing a renaissance.

Land and house

Thereafter, ownership of the land can be separated from ownership of the house on it. Usually, ownership of the land and ownership of the house do not fall apart. This is because the owner of the real property automatically becomes the owner of a building on the real property, provided that the building is firmly attached to the real property. The law on heritable building rights allows the owner of the land to grant the heritable building owner the inalienable and heritable right to have a structure on or under the surface of the land. The granting of heritable building rights is particularly popular with the large Christian churches in Germany, which have considerable real estate but do not want to sell it, but at most encumber it.

Commercial and private use possible

The encumbrance with heritable building rights can be used for both private and commercial purposes. In practice, however, residential development is probably the most common case. Leasehold contracts can be ordered even before a corresponding plot of land is built on. The heritable building right can be extended to a part of this land not required for the building if the building remains the main economic asset. The heritable building right cannot be limited to a part of the building, e.g. to one storey.

Period and ground rent

Leaseholds are usually concluded for a period of 50 to 99 years. During this time, the leaseholder pays a ground rent. The contracts can be extended or renewed after expiry. Heritable building rights can be mortgaged for the purpose of financing, as well as resold, bequeathed or given away. This also applies to the landowner as the grantor of the heritable building right.

In the second part of our series on ground leases, which will be published shortly, we will explain what the contractual content of such a ground lease contract can and may be and what basic regulations apply to the ground rent.

Düsseldorf, 21 November 2022
Dr Dieter Jasper, lawyer

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