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 perform an interesting interview on the significant subject of leasehold.

For whom and under what circumstances is leasehold worthwhile? And which points should potential clients absolutely consider? You can listen to the exciting discussion about these and other subjects here now straight or go through as a transcript in 'traditional 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 crucial questions on the subject of hereditary building rights. Because the arrive at which you build your house does not necessarily need to belong to you. The hereditary building right makes it possible to rent a plot of land and pay the owner in return a yearly quantity, 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 structure right? And what should you pay attention to? We now clarify these questions with Tim Wistokat. He is a legal representative 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, attorney and head of the legal department at VON POLL IMMOBILIEN:

Hello Ms. Konradi, thank you quite for the invite.

Initially look, the heritable building right appears to be a cost-effective option to buying land. However, it is recommended to weigh both choices and to think about some risks.

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

Well, virtually speaking, it's very easy in the beginning. 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 concern. The latter may then develop a residential or commercial property on it or purchase a residential or commercial property already found on the land. Thus, the ground lease holder becomes the owner of the residential or commercial property, however not the owner of the land.

In return, the tenant pays a kind of rent?

Yes exactly, we are talking about the annual ground rent. Previously, it was likewise called hereditary lease, which is basically easily negotiable in the amount. As a guideline, however, the quantity of the ground rent has to do with 3 to 5% of the land value.

The special function and hence likewise a point that should be considered thoroughly by the occupant: The ground lease can be adjusted every three years by the ground lease service provider.

What else should potential occupants think about?

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

In addition, it should be clarified beforehand whether the residential or commercial property might be sublet by the leaseholder. In order to record all arrangements in composing, the celebrations included conclude a ground lease agreement therefore 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 and in addition in an individually developed ground lease land register.

Can anybody offer a heritable structure right?

In concept, yes.

In principle, anyone can give a heritable building right. In practice, nevertheless, land is primarily rented by towns, churches, communities or companies. Especially the church often appears in Germany as a lessor of land, so regarding make it possible for young families with less equity to purchase realty or develop a house.

The technique is frequently in the details, even with hereditary structure 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 ends and the residential or commercial property ends up being the residential or commercial property of the ground lease supplier. However, the latter should then pay the leaseholder suitable compensation for the structure and this is based upon the current market value.

Even in the occasion of a sale or inheritance of the land or residential or commercial property, the genetic building right does not expire as a right of usage in rem. Rather, the brand-new owner of the land or realty takes control of the leasehold contract along with its staying term. However, this does not indicate that the agreed term is immediately 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 much better the opportunities are, of course, when the residential or commercial property is resold.

What is it about the so-called reversion?

If the leaseholder does not satisfy his contractual obligations 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 must return the ground lease to the landowner. The agreement is terminated prematurely and the ground lease supplier ends up being the owner of the building. However, care should be taken here. In case of a reversion, the ground lease owner need to likewise compensate the leaseholder properly. 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 grant the ground lease holder a right of first rejection on the residential or commercial property, the ground lease holder is not entitled to an agreement extension.

For whom is the ground lease worthwhile?

Tim Wistokat:

Who has little equity, but still does not wish to do without a home of their own, for which the heritable structure right can be worthwhile under specific scenarios, since just the purchase rate for your home, but not for the land must be raised. In this case, the total quantity genuine estate financing is naturally rather lower. Prospective purchasers then pay in addition to the purchase rate for the residential or commercial property typically still the residential or commercial property tax, insurance coverage and upkeep expenses and the yearly ground rent.

Petra Konradi:

Firstly, the leasehold appears to be tempting for potential buyers with only little equity. But a closer appearance reveals some not unimportant issues. Probably the most significant disadvantage: While the payment of a regular bank loan for a plot of land ends with time, the ground lease continues to run up until the end of the contract. Especially in times of low rate of interest, traditional funding frequently proves to be more financially beneficial.

In addition, the ground lease can be changed 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 regular realty purchase normally seems more expensive in the acquisition, it generally shows to be less complicated and more economical in the long run.

If you have any questions about this or other subjects, please do not hesitate to call our specialists or find a lot more info on our website and in the VON POLL IMMOBILIEN - App. You can find the links in the program notes of our podcast.

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