If you want to realize your dream of owning a house, you have to spend a lot of money these days. In particular, the costs of construction materials and land have increased significantly in recent years. It makes sense to think about an alternative, at least when it comes to real estate costs, rent. The property is not purchased, but only rented. Below you will find out exactly what lies behind a rental agreement and what you should pay attention to:
WHAT IS A PROPERTY RIGHT?
Hereditary building rights, previously also known as hereditary tenancies, are regulated in the Hereditary Building Law (ErbbauRG) of 1919 and describe the limited real right to be able to construct a building and/or a cellar on or under the surface of someone else’s property. With the rental contract, the ownership of the property does not pass to the entitled person. Instead, it acquires only a right of construction and temporary use.
The rental agreement is alienable and heritable. The person entitled to the leased property pays the owner compensation for the right granted current land rent. In the end that specified in the rental contract Duration, usually between 60 and 99 years, the surface right on third-party property expires and the building located on the property becomes the property of the property owner. However, a contract extension is generally possible. Otherwise, upon expiry of the contract, the entitled party will receive the amount indicated in the contract Compensation for loss of building.
Cities and municipalities, as well as churches and foundations, mainly offer hereditary building rights on the land they own. Especially churches, as the largest landowners in Germany, often act as landlords to support young and large families.
THESE CONTRACT DETAILS ARE IMPORTANT FOR HERITAGE CONSTRUCTION LAW
The rental contract is equivalent to a purchase contract for a property. Therefore it must also be certified by a notary. Furthermore, the hereditary land right is registered in a hereditary building land register to be established for the respective property.
In the interests of both contracting parties, the rental agreement should set out in as much detail as possible what type of building will be constructed on the property. Furthermore, here you can adjust the deadline within which the construction project must be completed. Your nearest construction partner will be happy to help you with the individual planning and timely construction of your personal dream house on the rental property.
The owner of the residential property, upon expiry of the term established in the contract, is obliged to compensate the person entitled to the rented property for at least two thirds of the market value for the loss of the property pursuant to § 27 para. 2 ErbbauRG. In this context it is essential that the rental agreement regulates the way in which the value of the house is calculated at expiry. In this way, disputes that would otherwise inevitably arise in the future are avoided.
You can also contract for higher compensation, which would greatly ease the pain of losing the building. Even better than a high fee is the agreement in the lease agreement that the person previously entitled to the lease is granted the right to an extension of the lease upon expiration of the term. In this way, hereditary building rights are in fact very close to the purchase of a property. The extension of the lease with an appropriate ground rent in case of doubt must be notarized again.
Regarding the land rent, the land lease agreement usually not only regulates the interest rate and the tax base, which is derived from the current value of the property. Many contracts also contain a clause on the frequency of possible value adjustments, for example based on the development of the consumer price index of the Federal Statistical Office, during the term of the rental contract. If possible, avoid a more or less automatic adjustment to the current inflation rate. Ultimately, the property owner benefits from the resulting increase in the value of the property.
It is recommended that those entitled to the lease agree to a right of first refusal in the event that the owner wishes to sell the property.
Further provisions of the lease may relate to reservations of consent by the property owner regarding building alterations, sale of the leasehold property or mortgage charges. Important to know: According to §7 ErbbauRG you have the right to the consent of the property owner if this does not cause him any significant disadvantage.
FALL OF SEAT BEFORE THE END OF HERITAGE LAW
Neither the owner of the property nor the entitled party can unilaterally terminate the lease during the term. However, consensual cancellation is possible.
Furthermore, the rental contract may contain clauses that provide for reversion, i.e. the return of the rental property and therefore of the property to the owner of the property before the expiry of the agreed term. This can happen, for example, if the property is not built within the agreed deadline, or if the tenant does not pay the ground rent for a longer period of time or if he breaches other contractual obligations. If at this point there is already a building on the property, the person entitled to rent is entitled to at least the agreed compensation. However, for your protection, you should under no circumstances accept a repossession for the property owner’s personal use.
WHEN DOES A PROPERTY RIGHT MAKE SENSE?
Many people initially hesitate to build a house because they might miss it on paper. However, leasing offers builders on a budget the chance to live in their dream home, as the property does not require additional financing.
However, just like on a loan, interest accrues on the lease over the term. And you have to be careful that the ground rent doesn’t increase so much through a value adjustment clause that you end up paying X times the initial value of the property in interest over time. In this regard, the property owner is best a church or municipality that can afford socially acceptable accommodation and that is not dependent on the high current income from your rental agreement.
Leasehold rights become attractive in times when mortgage interest rates are higher than pioneer interest rates. They typically represent 3 to 6% of the property value. For a long time it was unattractive. However, with housing interest rates currently rising, the picture is slowly changing.
The biggest disadvantage of leasing is the limited ability to sell the home at a later time, especially if the lease has a short term remaining.
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