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Buying a leasehold (Erbbaurecht) in Germany

Last updated: 25 August 2026 · Reading time approx. 7 minutes

A German Erbbaurecht — a heritable building right, the closest German law comes to a long leasehold — looks like a discount in the listing: the house is there, the land belongs to someone else, the price sits below freehold. That discount is not a reduction but an instalment plan: the ground rent (Erbbauzins) keeps running long after the mortgage is repaid. What you are buying is therefore written less in the listing than in the Erbbaurecht contract. This article separates what the German Heritable Building Rights Act (ErbbauRG) settles from what it leaves to the contract.

What a heritable building right is

A plot is encumbered so that the holder has "the transferable and inheritable right to have a structure on or below the surface of the land" (§ 1 (1) ErbbauRG). Two words there matter most: transferable and inheritable. An Erbbaurecht can be sold and mortgaged — it is not a lease of the land but a right ranked alongside land ownership, with its own page in the land register.

Two statutory limits are rarely known: the right cannot be confined to part of a building, "in particular a storey", and it cannot be made subject to a condition subsequent (§ 1 (3) and (4) ErbbauRG). A contract that ends the right automatically works against the wording of the statute.

The contract is the real object of purchase

§ 2 ErbbauRG lists what the parties may make part of the content of the right — agreed in rem, binding on every later acquirer. Which makes the list your due-diligence checklist:

Agreement under § 2 ErbbauRGWhat it means for you
Erection, maintenance and use of the structure (no. 1)Can impose a maintenance duty at a defined standard and fix the permitted use — residential only, for instance. Conversion or adding a storey is then not your call.
Insurance and rebuilding after destruction (no. 2)A duty to rebuild binds you even where a new build no longer makes commercial sense.
Bearing public and private charges (no. 3)Settles who pays property tax and public charges. As a rule, you do.
Reversion, Heimfall (no. 4)The duty to transfer the right back to the landowner on defined events. The sharpest lever in the contract.
Contractual penalties (no. 5)Sanction for breaches, often tied to maintenance or a use restriction.
Priority right to renewal (no. 6)The right to be asked first once the term ends. Without it your position simply ends with the term.
Landowner's duty to sell (no. 7)The obligation to sell the land to whoever holds the right — the route into freehold.

Read nos. 4, 6 and 7 first. They decide your exit, your renewal and your residual value. Everything else can be priced in; a missing priority right to renewal cannot be negotiated in afterwards.

Ground rent: when it may be increased

The provisions on real charges apply accordingly to a ground rent agreed as recurring payments (§ 9 (1) ErbbauRG) — it is secured in rem. Almost every contract adds an escalation clause, and for residential buildings the statute caps it:

The familiar wording that the ground rent is "adjusted to the consumer price index every three to five years" is therefore a contract clause, not a statutory rule. For a residential building § 9a ErbbauRG sits on top of it as a ceiling — for a commercial property it does not.

Arrears are capped. Default can trigger the reversion claim only where the holder "is in arrears with the ground rent by at least two annual amounts" (§ 9 (4) ErbbauRG). One missed instalment does not cost you the right — two annual amounts of arrears very much do.

Selling and mortgaging: the consent requirement

It can be made part of the content of the right that a sale (§ 5 (1) ErbbauRG) and an encumbrance with a mortgage, land charge, annuity charge or real charge (§ 5 (2) ErbbauRG) require the landowner's consent. That is in almost every contract, and it touches both ends of your calculation: financing and exit.

It is not a blank cheque. The holder may demand consent where the purpose of the right is "not substantially impaired or endangered" and the buyer offers assurance of proper performance (§ 7 (1) ErbbauRG); for an encumbrance it is enough that it is "compatible with the rules of sound management" (§ 7 (2) ErbbauRG). Where consent is refused without sufficient reason, the local court can substitute it (§ 7 (3) ErbbauRG). It still remains one extra station in the process — one that belongs in your liquidity plan, the way every other recurring item belongs in the cash-flow calculation of a property.

What happens when the term ends

Where the right expires by lapse of time, the landowner "must pay the holder compensation for the structure" (§ 27 (1) sentence 1 ErbbauRG). The second sentence matters more: agreements may be made about the amount, the manner of payment and even the exclusion of that compensation. It is the statutory default — and contractually disposable.

The "two thirds" do not apply to every residential building. Only where the right was created "to satisfy the housing needs of less well-off sections of the population" must compensation amount to at least two thirds of the market value, and only then can the landowner not rely on a deviating agreement (§ 27 (2) ErbbauRG). For an ordinary investment property that minimum does not apply automatically.

The landowner can also avert payment by extending the right before it expires "for the probable remaining life of the structure"; if you decline, the claim lapses (§ 27 (3) ErbbauRG). On reversion — the transfer during the term under § 2 no. 4 ErbbauRG — the owner owes "appropriate payment"; that too can be agreed away entirely, and there too the two-thirds floor applies only in favour of less well-off sections of the population (§ 32 (1) and (2) ErbbauRG).

Tax: deductible as it runs, but not depreciable

For a let property the ground rent is expenditure to acquire, secure and maintain income, and therefore deductible (§ 9 (1) sentence 1 EStG). Three points regularly fall through the cracks:

  1. A lump sum is spread. Where "expenditure for a grant of use for more than five years is made in advance, it must be spread evenly over the period" (§ 11 (2) sentence 3 EStG). The landowner may spread the income accordingly (§ 11 (1) sentence 3 EStG).
  2. No purchase-price split needed. What is depreciated is the building (§ 7 (4) EStG); no share of the land is acquired, so the split between land and building does not arise. Which rates apply is covered in the article on building depreciation (AfA).
  3. Transfer tax applies to leaseholds too. Heritable building rights rank equally with land (§ 2 (2) no. 1 GrEStG), and the tax is measured on the value of the consideration (§ 8 (1) GrEStG). Recurring payments are taken at their capitalised value — the multiple of the annual value from Annex 9a to the Valuation Act, computed at 5.5% (§ 13 (1) BewG). How much of that enters the tax base depends on the contract, so never budget acquisition costs on the building price alone.

The numbers: cheaper entry, longer tail

Assume the same flat is available once as a leasehold and once as freehold; the land share is worth €120,000 and the ground rent is 3% of it, i.e. €3,600 a year or €300 a month. Both are financed with 20% equity and an annuity of 5.8% (3.8% interest plus 2% repayment).

ItemLeaseholdFreehold
Purchase price€220,000€340,000
Equity€44,000€68,000
Loan€176,000€272,000
Annuity per year€10,208€15,776
Annuity per month€850.67€1,314.67
Ground rent per month€300.00—
Total per month€1,150.67€1,314.67

Here the leasehold is €164.00 a month cheaper and ties up €24,000 less equity. The advantage has an expiry date, though: the annuity ends with repayment, the ground rent does not.

For valuation the capitalised value is the more honest figure than the annual instalment: at a remaining term of 75 years the multiplier from Annex 9a to the Valuation Act is 18.345, turning €3,600 a year into €66,042. By roughly that margin the price should sit below freehold before anyone calls it an advantage. How a property is otherwise valued from its income is shown in the article on the income capitalisation approach.

Ground rent belongs in the property file

RenoDiary keeps every property with its purchase price, loans, running costs and cash flow — the ground rent is a recurring item there like any other.

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What the courts have decided

Whether an excluded reversion payment in the contract is really the last word was only settled by the Federal Court of Justice (Bundesgerichtshof, BGH) in 2024 — in practice the question that matters most to investors around reversion.

BGH, judgment of 19 January 2024 – V ZR 191/22

A contractual exclusion of the reversion payment is valid in itself — even in a leasehold granted by a municipality. But it has a flip side: enforcing the reversion claim is then subject to a strict proportionality review. Demanding the building back without compensation can be disproportionate, and therefore ineffective, where the reversion does not rest on a serious breach of contract, the building is largely finished, the leaseholder has made substantial investments, and the owner will foreseeably be able to use or realise the building another way. Practical consequence: a contract without a reversion payment is not a blank cheque for the landowner — someone who has already built and invested is not automatically unprotected.

Frequently asked questions

Can a leasehold be financed normally?

Yes, it can carry a mortgage, land charge or annuity charge. Where the contract contains a consent requirement under § 5 (2) ErbbauRG, creating the security needs the landowner's consent; there is a claim to it where the encumbrance is compatible with the rules of sound management (§ 7 (2) ErbbauRG).

What if the remaining term is short?

As the remaining term falls, so does the value of the right, and financing tightens because the loan term cannot exceed it. What then decides matters is the priority right to renewal (§ 2 no. 6 ErbbauRG) and the compensation rule (§ 27 ErbbauRG).

Can the landowner raise the ground rent at any time?

No. Without an escalation clause there is no claim to an increase at all. With a clause and for a residential building, the three-year period and the fairness ceiling of § 9a (1) ErbbauRG apply; for commercially used structures that ceiling is absent.

Can I buy the land later?

Only where the contract obliges the landowner to sell to whoever holds the right (§ 2 no. 7 ErbbauRG), or where the owner sells voluntarily. There is no statutory claim to acquire the land.

Is the ground rent deductible for an owner-occupied home?

The deduction under § 9 (1) sentence 1 EStG presupposes income being acquired, secured and maintained. An owner-occupied flat has no such source of income.

Sources

This article provides general orientation and does not replace individual tax or legal advice within the meaning of § 3 StBerG. Which rights and duties a particular heritable building right carries follows from the individual contract and the land register entry.