Heritable building rightsa house on someone else's land

How a heritable building right works

The landowner (the grantor, Erbbaurechtsgeber) grants the leaseholder (Erbbauberechtigter) the right to have a building on their land. The heritable building right is entered in its own leasehold land register (Erbbaugrundbuch) and can be sold, inherited and encumbered with land charges – almost like a plot of land.

The building belongs to the leaseholder, the land to the grantor. For its use, the leaseholder pays a ground rent (Erbbauzins).

Ground rent and adjustment

The ground rent is usually 3 to 5% of the land value per year, and sometimes less for families on church and municipal land. Most contracts contain a value-protection clause (Wertsicherungsklausel) that links the rent to the consumer price index. For residential buildings, increases are limited by law (§ 9a ErbbauRG): at most every three years and no more than the general development of incomes.

Example: A 600 m² plot with a land value of €120/m² = €72,000. At a ground rent of 4%, you pay €2,880 a year, i.e. €240 a month.

Term, reversion and compensation

Heritable building rights usually run for 60 to 99 years. If the right ends because the term expires, the building passes to the landowner, who must pay compensation – for residential buildings for low-income families, at least two thirds of the value of the building. The right is often extended.

Reversion (Heimfall) is something different: in the event of serious breaches of contract – e.g. ground rent arrears over several years – the landowner can demand the transfer of the heritable building right, again in return for compensation.

Advantages

• Much lower capital requirement, because the land is not bought
• Lower land transfer tax (Grunderwerbsteuer), based on the capitalised ground rent and the value of the building
• Access to plots that would otherwise not be sold (churches, foundations, municipalities)

Disadvantages and risks

• Ongoing ground rent that can rise with inflation
• Loss of value as the remaining term shrinks, especially below 40 years
• Banks are more cautious about lending and often require a remaining term well beyond the loan term
• Consent requirements: sale and encumbrance often require the grantor's consent
• The leaseholder does not benefit from any increase in the value of the land

What buyers should look out for

1. Remaining term and extension options
2. Level of the ground rent and how it is adjusted
3. Consent requirements for sale, letting and encumbrance
4. Compensation rules on expiry and reversion
5. Option to buy the land – some grantors offer this

Buy the land or take a leasehold? A comparison over 30 years

Whether a heritable building right is worthwhile only becomes clear when you look at the whole holding period. Example: a plot in Bayreuth, 550 m², land value €180/m², i.e. €99,000. Same house, two options:

In this example, the heritable building right is more expensive over 30 years – and at the end the land does not belong to you. It can still be a good choice if you don't have the equity, if the ground rent is well below 4% (for instance with church programmes for families), or if there are simply no plots for sale in the location you want. Always work through your specific case with current interest rates; the Financing guide can help.

How a heritable building right is valued

Put simply, the value of a heritable building right is the value of the building plus a land value share. This share is positive if the agreed ground rent is below the market rate – the leaseholder then pays "too little" for the land and has an economic advantage. If the ground rent is above the market rate, the share becomes negative.

The shorter the remaining term, the more the value falls, because the building will foreseeably pass to the landowner. From around 40 years of remaining term, buyers notice this clearly; below 30 years, financing becomes difficult. For some regions, the local valuation committees (Gutachterausschüsse) publish their own market adjustment factors for heritable building rights. General information on valuation can be found in our guide Determining the value of a property.

Financing a heritable building right

Banks do finance heritable building rights, but check them more closely:

• Remaining term: It should exceed the loan term by at least 10 to 20 years.
• Ranking: The ground rent is usually entered as a charge on land (Reallast) in the leasehold land register. Many banks require the charge to survive a forced sale ("versteigerungsfest") or to rank behind the land charge (Grundschuld).
• Consent: The land charge often requires the landowner's consent. Churches and municipalities have established procedures for this, but they can take a few weeks.
• Lending value: It is lower than with freehold ownership, because the land does not serve as security.

So allow more time between the decision to buy and the notary appointment. We help with the coordination – see Financing.

Selling a heritable building right

The sale works in principle like that of any property, with three special features:

1. Obtain the grantor's consent – it may only be refused for good cause, but it takes time.
2. Enclose the heritable building right contract: buyers and banks want to see the term, rent, adjustment clause and consent requirements.
3. Set a realistic price: comparable prices for houses with their own land don't fit. We value heritable building rights using a separate approach.

Sometimes it is worth talking to the landowner before the sale about an extension or buying the land. An extended heritable building right or freehold ownership sells much better. General steps can be found in our guide Selling a property: the process.

For landowners: a heritable building right instead of a sale?

If you own a plot but don't want to sell it – for example out of family tradition – you can grant a heritable building right. Advantages: ongoing income, the land stays in the family, and at the end of the term the building passes back to you in return for compensation. Disadvantages: a long commitment, administrative effort, and the ground rent is taxable income. For undeveloped plots, we are happy to compare both routes – see Selling a plot and Property developers.

Heritable building rights in Upper Franconia

In Upper Franconia, heritable building rights are common mainly where churches, foundations or municipalities own larger areas of land – for example in parts of Bamberg, Bayreuth and Coburg, and in some new development areas of smaller municipalities. Church grantors sometimes offer special terms for families with children, such as a reduced ground rent in the first few years. Municipalities increasingly use heritable building rights to keep land in their ownership while still providing building land.

For buyers, this means: when looking for building plots in your preferred municipality, ask whether heritable building right offers are also available. And with existing houses, check the property brochure carefully for a heritable building right – sometimes it is only mentioned in the small print.

The end of the term: what happens?

The closer the end, the more important early negotiation becomes. Anyone who talks about an extension 20 or 30 years before expiry is in a better position than someone who has to negotiate shortly before the end – and can also sell the property more easily until then.

Checklist before buying a heritable building right

• Read the heritable building right contract in full, including all addenda
• Remaining term and extension provisions
• Current ground rent and adjustment mechanism
• Consent requirements for sale, encumbrance, letting and alterations
• Compensation on expiry and reversion
• Option to buy the land
• Ranking of the ground rent in the leasehold land register
• Conversation with the grantor about consent and a possible extension
• The bank's financing commitment for this specific heritable building right

More on general checks in our guide Checklist for buyers.

Heritable building rights and owner-occupied flats

Owner-occupied flats can also stand on leasehold land. This is called a heritable building right for flats (Wohnungserbbaurecht). Each flat owner pays a share of the ground rent, and the owners' association must take care of an extension in good time. Buyers of such flats should carry out the same checks as for houses – plus a look at the declaration of division (Teilungserklärung) and the minutes. → Owner-occupied flats, owners' associations (WEG) and service charges