Key Points at a Glance
- The heritable building right entitles the beneficiary to acquire ownership of a building on land owned by another party.
- The heritable building right offers a way to acquire ownership of a house without having to purchase the land itself.
- The beneficiary must pay the landowner a ground rent (Erbbauzins) for the use of the land.
- Heritable building rights are generally granted for a fixed term (e.g., 100 years).
What is a heritable building right?
A heritable building right grants the right to construct a house or another building on land owned by someone else. In Germany, the general legal principle is that the owner of the land automatically becomes the owner of any building erected on it. The heritable building right constitutes an exception to this rule by separating the ownership of the building from the ownership of the land. As a result, it allows a person to become the owner of a property without acquiring ownership of the underlying land.
The heritable building right agreement (Erbbaurechtsvertrag) governs the scope and terms of this right. It grants the holder extensive powers to use and develop the land. Therefore, the agreement precisely defines the conditions of use—such as the permitted scope of utilization, payment terms, and other contractual obligations.
What does a heritable building right agreement contain?
A heritable building right agreement consists of two main elements: first, the creation of the heritable building right, and second, provisions governing the ongoing use of the property.
- Creation: The creation clause regulates the initial establishment of the heritable building right.
- Use: The provisions governing the ongoing use of the land are similar to those found in a lease or tenancy agreement. They define, for example, whether and how the land may be used, as well as the amount of the ground rent (Erbbauzins).
Since a heritable building right is, in principle, transferable, such agreements—also referred to as Erbpachtverträge—are typically very comprehensive. The agreement must be drafted in sufficient detail to prevent uncertainties or legal disputes, even in the event of later transfers to new right holders.
The clauses relating to the creation of the heritable building right are usually brief, specifying the extent to which the right is established.
By contrast, the provisions governing the content of the heritable building right are much more extensive and typically cover the following:
- Use: The agreement defines how the property may be used—for example, what types of buildings are permitted, maintenance obligations, and whether the building must be insured.
- Term: Heritable building rights are generally granted for a fixed period, usually between 75 and 100 years. Although perpetual rights are theoretically possible, this is rare in practice.
- Cost allocation: As the holder of the heritable building right makes practical use of the property, it is often agreed that they must reimburse the landowner for property-related expenses, which would otherwise remain the owner’s responsibility.
- Consent rights: Although heritable building rights are, in principle, freely transferable, landowners often wish to maintain control over what happens on their property. Therefore, consent requirements are usually agreed, obliging the right holder to obtain approval for specific actions—such as the transfer or encumbrance of the right.
- Reversion: The reversion clause gives the landowner the right to demand the return of the heritable building right, typically in cases of material breach—such as non-payment of the ground rent. It serves as a protective mechanism for the landowner.
- Other provisions: Additional clauses may include granting the right holder a pre-emption right to purchase the land, stipulating contractual penalties, or providing for other specific contractual safeguards.
What is the heritable building rent?
The Erbbauzins is the consideration paid for the granting of a heritable building right. While the purchase of land involves a one-time payment of a purchase price, the consideration under a heritable building right typically consists of regular payments of the Erbbauzins. In principle, the Erbbauzins can be regarded as “rent” for the use of the land. It is usually paid annually or monthly and is roughly equivalent in amount to the market rent for comparable land.
- No need for financing: One advantage of the Erbbauzins is that the holder does not need to obtain financing for a large initial purchase price, as would be necessary when buying land outright.
- Value protection: Because heritable building rights are generally granted for very long periods, inflation would otherwise significantly reduce the real value of the Erbbauzins over time. Therefore, the amount of the Erbbauzins is usually indexed to a price index, ensuring that the payment amount increases in line with inflation.
Key information about the heritable building right
Heritable building rights (Erbbaurechte) are becoming increasingly important, especially in large cities. They allow public authorities to retain ownership and control over the land, while enabling the holder of the heritable building right to acquire ownership of a building without taking out a large loan to purchase the land. The following key points are important to understand:
- Transferability: A heritable building right can be transferred in the same way as ownership of land. Given their long duration, such transfers are common. Economically, the transfer corresponds to the sale of ownership of the building, which, however, is limited to the duration of the heritable building right.
- Notarisation: Both the creation and the transfer of a heritable building right require notarisation.
- Taxes: The acquisition and transfer of a heritable building right are subject to real estate transfer tax. The Erbbauzins (ground rent) constitutes rental income for the landowner, while the holder of the heritable building right is liable for property tax on both the land and the building.
What are the advantages and disadvantages of a heritable building right?
From the perspective of the holder of the heritable building right, the primary advantage lies in not having to take out a loan to purchase the land while still enjoying a position similar to that of an owner.
The main disadvantage is that the holder does not acquire a permanent asset. Moreover, the heritable building right provides less freedom than full ownership of land. The numerous consent requirements typically imposed by the landowner illustrate that the holder of the heritable building right has significantly less control over the property than an owner would.
