Leasehold (heritable lease)– for many, this sounds like a concept from a bygone era, but today it can be an interesting alternative to the traditional purchase of land. Instead of buying the land, you “rent” it on a long-term basis and pay a ground rent. This lowers the purchase price of the property, can reduce the equity hurdle, and open up new options in sought-after locations. We explain how leasehold works, what advantages it can offer, what you should look out for in contracts, and how it all affects your construction financing.
1. Summary
A heritable building right means that you can build your own building on someone else’s land in return for a regular payment.
A heritable lease means that you buy the house, not the land – and pay a regular ground rent for the use of the land.
The purchase price is significantly lower because the land value is not included – this can significantly reduce your equity requirements and monthly loan payments.
Especially in sought-after locations (cities, church properties, municipal land), a long-term leasehold can be the “door opener” to your dream location.
Important contract details include the term, amount, and adjustment of the ground rent, reversion provisions, and the conditions for renewal.
Those who understand leasehold and examine it carefully can realize real estate ownership that might otherwise be out of reach.
2. What exactly is a leasehold?
The landowner (e.g., church, municipality, foundation, or private individual) remains the owner of the land.
You obtain the right to build a house on this land or to use an existing building. For this right of use, you pay a regular ground rent, similar to rent for the land.
The leasehold is entered in the land register like a normal property and can be sold, inherited, or mortgaged (financed).
Typical terms are between 60 and 99 years. During this time, you have largely the same rights and obligations as a traditional owner—just without ownership of the land.
3. Financial advantages of leasehold
Even if leasehold sounds a little more complex, it offers tangible financial advantages:
Lower purchase price Since you are not purchasing the land, the purchase price of your property is often significantly reduced. This can be decisive if your budget or equity is limited.
Lower equity requirement Banks usually require a certain amount of equity. If the total purchase price decreases, the amount of equity required often decreases as well, making it easier to become a property owner.
Lower monthly payments Instead of taking out a large loan for the land and house, you only finance the building (and any modernization costs).
You do pay the ground rent in addition, but the loan installment can be significantly lower than for full ownership.
Access to good locations Local authorities, churches, and foundations often use leaseholds to provide family-friendly housing in good locations. Without leaseholds, these properties would often be impossible to sell – or significantly more expensive.
4. What to look out for in leasehold contracts
The advantages only come into play if the contract is well understood and clearly negotiated. Important points:
- Term of the leasehold
- The longer the remaining term, the better – both for planning security and for financing.
- If the leasehold expires within the financing period, financing becomes difficult.
- Special features of the calculation of real estate transfer tax
- The land value always takes into account the remaining term of the leasehold agreement.
- For developed properties and apartments, real estate transfer tax must be calculated once for the land value and once for the property value.
- For undeveloped properties, real estate transfer tax is calculated only on the land value and is therefore significantly cheaper than for properties without a leasehold.
- Amount and adjustment of the ground rent
- It is customary to use an annual percentage of the (original) land value.
- Important: Carefully check adjustment clauses (e.g., linked to the consumer price index or land value) – they determine how much the ground rent can increase in the future.
- Reversion clause
- At the end of the term, the building usually reverts to the landowner (reversion).
- The contract specifies the compensation you will receive – often a percentage of the building value.
- The fairer this clause is, the better it is for your long-term planning.
- Sale & inheritance
- Check whether the consent of the landowner is required for a later sale of the leasehold or for certain structural changes.
- This is normal, but should be clearly regulated and practicable.
- Financing
- Many banks finance leasehold rights, but examine the ground rent, term, and reversion more closely.
- It is worth consulting with your financing partner at an early stage.
5. For whom can leasehold be particularly appealing?
Leasehold is not the perfect solution for everyone, but it can be very attractive in certain situations:
- Families with limited equity who want to buy in a sought-after location where traditional building plots are hardly affordable.
- Young buyers who want to “settle down” and who place greater importance on the lower initial costs than on the question of who will own the land in 80 years.
- People who focus on quality of life rather than land ownership, for whom location, infrastructure, and surroundings are more important than the “complete package” of house and land.
- Buyers who take advantage of subsidy programs that also support the modernization or energy-efficient renovation of leasehold properties.
6. Example: Leasehold comparison
Simplified and without claim to completeness – for illustration purposes:
- Option A: Traditional purchase
- Land + house: $600,000
- Equity: $120,000
- Financing requirement: €480,000
- Option B: Leasehold
- House (without land): €450,000
- Equity: €90,000
- Financing requirement: €360,000
- Annual ground rent: e.g., 3% on €150,000 (fictitious land value) = €4,500 per year, or €375 per month
Result:
In option B, you need less equity and a smaller loan amount, which reduces your monthly loan payments.
In return, you pay the ground rent on a permanent basis and have to take the terms of the contract (adjustments, term, reversion) into account.
Which option makes more sense for you depends on your financial situation, your life plans, and the specific terms of the contract.
7. Conclusion
Leasehold is not an exotic niche model, but can be a clever tool for realizing your dream home in a good location – especially when land prices are high and budgets are limited. If you understand the mechanics behind ground rent, term, and reversion, and carefully review the contract details, you can benefit from a lower entry price and relaxed financing. We would be happy to work with you to determine whether a leasehold property fits your plans, what bank terms are possible, and how ground rent, loan installments, and long-term planning can be incorporated into a coherent financing concept—so that your home feels good not only today, but also in the future.