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Leasehold: Often a bargain, sometimes a risk
Leasehold: Often a bargain, sometimes a risk

Video: Leasehold: Often a bargain, sometimes a risk

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Video: Hawaii Real Estate : LEASEHOLD- ("Why is it so cheap?", "Benefits and Cons", "Who buys them?) 2023, January

The leasehold is an alternative to buying land and is particularly suitable for families on a tight budget. But even in coveted locations, leasehold can make sense and make the dream of your own four walls possible. Here you can find out which advantages you can take and what you should pay attention to.

Leasehold contracts are often offered by municipalities, churches or foundations. But private individuals can also be inheritors. This enables builders to lease a property over a period of mostly 99 years and build their own home on it. The ground rent is usually four to six percent of the property value annually.

Purchasing such a property can make sense if you absolutely want to live in your own home, but only have limited resources to do so. The costs of buying a property are eliminated. With the ground rent, tenants virtually pay a rent for long-term use. You live like an owner, but you only own the house that is on the ground - not the floor.

The leasehold agreement

The leasehold contract usually runs for 60 to 99 years. It describes exactly how the property is to be built - with a home, a row house or an apartment building with garages.

The ground rent, which averages four percent of the property value, will increase over the years. The contracts usually contain adjustment clauses - the interest rate is adjusted accordingly to the current consumer price index of the Federal Statistical Office.

Petra Uertz
Petra Uertz

"With the ground rent, tenants virtually pay a rent for long-term use, " explains Petra Uerz, federal director of the Association for Home Ownership.

Photo: The HOUSE

Neither the leaseholder nor the property owner can terminate the contract during the term. The exception is the so-called home case: the owner can request the retransfer if the user does not build on the property within a certain period of time, is in arrears with his interest payments for a longer period of time or violates other obligations from the contract, for example if he uses the property let go neglected.

The user then receives compensation for the house (or if the contract ends regularly). The law stipulates two thirds of the property's market value. Both parties can prematurely terminate the lease. In order to avoid disputes, it should be clear when the contract is concluded, according to which criteria the value of the house will be calculated later. An expert opinion from a publicly appointed expert or an expert committee is possible. This also includes the value of the remaining term of the leasehold. The heritable building right must also be entered in a special land register, the hereditary building land register, and the contract must be notarized.

Sale of leasehold

The leaseholder can sell the leasehold during the term of the contract - with the consent of the property owner. The buyer can decline if, for example, the potential buyer does not have a good credit rating. Otherwise the purchaser takes the place of the original user, the contract continues on the same terms. As a rule, both sides grant each other preemption rights in the leasehold agreement.


Before deciding on a lease, you should weigh the advantages and disadvantages against each other and make sure that the lease rate is lower than the mortgage loan.

Advantages and disadvantages of leasehold

When low prices lure in expensive locations, it is not uncommon for the leasehold to be involved. This can be an opportunity - or involve more costs than initially anticipated.


When interest rates are high, leasehold is usually a cheap alternative to the financing rates that would arise when buying land. However, to begin with, check that the ground rate is really lower than the mortgage loan. If the lease ends, the leaseholder must be compensated for the house that he has built on the property.

You should have already determined the amount or basis of calculation and payment modalities with the leaseholder when the contract was concluded. Leasehold contracts with the church can be particularly interesting, because members often receive land at particularly good terms and large families or families with disabled people benefit from financial advantages.


A major disadvantage of the leasehold is that the property does not belong to the tenant. For example, he has to pay a lease for 99 years and cannot pay off the amount within 30 years as with a mortgage loan. There is also always the risk that the lease rate will increase significantly over time. An adjustment can be made every three years. Often, property owners only raise interest rates after 30 to 40 years, but then by hundreds of percent.

Another disadvantage is that the leaseholder can sometimes not freely dispose of his property. Certain rights to have a say in the contract, which affect the renovation or expansion of the house, are often set in the contract. However, a purchase obligation may also be included in the contract. This means that the house owner must buy the property if the lessor so requests.

The rising ground rent bears risks especially for long existing ground lease contracts. Some leaseholders who are retired or widowed are no longer able to pay the rent because the income is suddenly lower or ceases to exist. Therefore, interest groups are committed to the amendment of the heritable building right. Your demands: term of the lease not less than 99 years, determination of the basis of calculation of the lease interest, right of first refusal for the property and reimbursement of the full market value of the property at the end of the contract.

Do you have to pay a real estate transfer tax on leasehold?

A land transfer tax must also be paid on the property in the case of a leasehold agreement. But this is calculated in a different way than with the average property purchase. Because normally the respectively valid soil portion is determined. In the case of a leasehold, however, the real estate transfer tax is determined based on the agreed annual lease, a conversion factor and the term of the lease. This means that the property transfer tax on the leasehold is cheaper than on the classic property purchase. Just like buying land, the rights must also be entered in the land register in the case of a leasehold.


The lease agreement specifies, among other things, what is to be built on the property. As a result, the lessee can usually not decide freely about his property and must consult the property owner when converting.

Photo: Bernd Leitner /

End of the leasehold agreement

The heritable building right expires when the contractually agreed time expires. The user is only entitled to an extension if this is stated in the contract. However, he has a privilege to conclude a new contract if the property is to continue to be used as a leasehold property. However, he may have to agree to new conditions. If the user wants to extend the term of the leasehold agreement, he should start an interview early. The extension must be entered in the land register before the time expires. "If the leasehold agreement is not extended, the leaseholder must be compensated for the house that he has built on the property. You should determine the amount or basis of calculation and payment modalities with the leaseholder when the contract is concluded. In the contract in the event of the sale of the property, you must also agree a right of first refusal for yourself.

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