The leasehold entitles the leaseholder to have a building on or below the surface of land which is owned by a third party (leasehold owner).1
Leaseholds are regulated in the Erbbaurechtsgesetz (ErbbauRG – German Leasehold Act). By acquiring a leasehold, the beneficiary receives the right to build and use its own building on land without having to acquire it. Instead of the purchase price for the land, the leasehold owner receives ground rent (usually annual payment) for the use of the land. This creates a financing advantage for the beneficiary as it does not have to acquire the land. For the leasehold owner there is the advantage that the ownership of the land does not have to be relinquished. This form is often used by churches.
The property is encumbered by a leasehold by way of a limited right in rem in Division II of the land register. A separate leasehold land register sheet is added at the same time. This has the same structure as a land register sheet.
In principle a leasehold follows the rules of the German Civil Code on property law and thus cannot just be sold but encumbered as well. This marketability makes it a land right.
There are no restrictions on the type of building. Thus, in addition to residential and commercial buildings, underground car parks, transport facilities, recreation grounds, etc. can also be built. The type and nature of the building is usually regulated in the leasehold agreement.2
The duties of the leaseholder include the regular payment of the ground rent. This is typically between 4% and 5% of the value of the land per year. It can be secured by an indexation clause for long terms. The leasehold agreement can stipulate other duties of the leaseholder. For example, these can include repairs and maintenance, payment of charges and insurance.3
The term of the right can be freely chosen. However, it is usually limited to 99 years in practice, as otherwise the owner would actually be giving up ownership indefinitely. The leasehold expires after the end of its term. The building thus becomes an integral part of the property and therefore falls to the property owner. The owner must pay the leaseholder appropriate compensation. A right to buy on the part of the leaseholder can be agreed after the end of its term.4