Home ownership under building right: more than just a reasonably priced alternative?

On the search for home ownership, it is not uncommon to lack the right plot of land or the necessary small change for the perfect home. A leasehold property can be a suitable solution for precisely such scenarios. But what exactly is behind this legal concept? We take a closer look at what it means to own residential property with building rights and what aspects need to be taken into account.

Definition of building right

When purchasing a property with building rights, the buyer acquires the right to erect and use a building on a third-party plot of land for a fixed period of time. The land itself remains the property of the landowner. As compensation for this right of use, the buyer usually pays an annual building lease fee. In order to establish the building lease with legal effect, it must be entered in the land register as a permanent and independent easement. The duration of the building lease can be agreed for a minimum of 30 years, but a maximum of 100 years. When the building lease contract expires, the building lease holder receives predefined compensation (reversion) for his property, which then becomes the property of the building lease provider – unless the building lease contract is extended.

The building right contract

All details of the building right are set out in the building right contract. These include, for example, the scope of the building right (what may be built?), the duration of the building right, the building right interest or the reversion conditions. This contract must be publicly notarized and recorded in the land register in order to be legally effective.

What should be noted in particular?

Building lease holders must consider their personal projects and plans at an early stage due to the clearly defined term. Who the grantor of the building lease is also plays a major role in these considerations. In many cases, the grantor of the building lease is a public sector institution with an interest in extending the building lease early. It is also important to consider how the ground rent is defined and whether it is linked to an independent inflation index.

What advantages do I have as a building lease holder?

As the buyer of a property with a building lease, you benefit from a lower purchase price as you are buying the property without the underlying land. Accordingly, the equity required, the mortgage and consequently the interest charge are lower than for a property without building rights. A building lease fee is payable for the right to own and design the property on the plot as you wish.

Conclusion

All in all, building rights are an attractive and flexible alternative for constructing buildings on third-party land. However, a thorough examination of all aspects of building rights is essential and the use of independent professional advice is highly recommended. This can ensure that all interests are examined, critically scrutinized and protected.