What comes after the end of the lease?

Leasehold rights usually run for almost 100 years. That sounds like an eternity. But for financial reasons, it makes sense to think about the expiry of the contract very early.

Hanover (dpa / tmn) - Families use the heritable building right to fulfill their wish for a house. You save the high expenses for the purchase of a property. Instead, they lease the area through a leasehold agreement. But what happens when the contract expires?

Churches, municipalities and foundations are typical institutions that lease land. In return, they receive the ground rent. According to a study by the real estate consultancy JLL, it averages 3.7 percent of the current property value.

Especially in expensive metropolitan areas, municipalities grant leasehold rights so that families can afford their own houses. For example, Frankfurt, Berlin and Hamburg each have more than 4,000 such rights in the documents, the majority of them for housing.

Use of the land limited in time

The use of the land is generally fixed for 99 years. Then the agreed leasehold lapses. The site goes back to the owner. And without any major explanation or announcement.

The owner of the property then automatically becomes the owner of the house built on it. This is entered in the land register. It is regulated by law. "The plot and the house are once again united in one hand," explains Matthias Nagel, the managing director of the Erbbaurtsverband. At the same time, Nagel works for the Klosterkammer Hannover, the largest leasehold promoter in Germany with 17,000 contracts.

For users, a silent and silent transition has consequences: they can no longer sell their house, become tenants in their own four walls or, in the worst case, have to move out.

Contact the leaseholder in good time

If you want to avoid this, you should speak to the leaseholder about an extension at an early stage. Nagel advises that you contact the church, municipality or foundation at least two years before the contract ends. Some institutions even register ten years in advance or even earlier. Homeowners should be given enough time to consider how to proceed.

In the case of an extension, not only the future contract term is discussed, but also the new interest rate to be paid by the user. This is measured according to the current standard land value. If it shoots up, the interest rises accordingly. Then it grinds: "In total, it can mean a considerable additional burden for the leaseholder," admitted Nagel.

Opportunities for stable interest rates differ in city and country

This particularly affects people who have lived or inherited their home for several generations. The basic interest rates are usually very low here. In rural regions with low or stagnant land values, the chances of users for a stable interest rate are currently better than in popular cities.

An early extension of the contract makes it easier to take out a loan, for example for a new roof or a new heating system. Depending on the costs, banks will close ten years before the building lease expires.

During this time, according to the requirements of most donors, the loan had to be paid off, explains Frank Lösche from the mortgage broker Dr. Small in Hamburg. To make the investment worthwhile, he would take out a 60,000 euro loan twenty years before the leasehold contract expired. Payments are made for ten years, and the next ten years will be spent.

First extend, then sell

Owners should also keep the ten-year rule in mind when planning to sell their real estate: the shorter the term of the leasehold, the less attractive the house becomes. Because in addition to the bank's credit conditions, which are likely to be worse, the purchaser is dragging the uncertainty as to how the leasehold contract will continue in the future. From the seller's point of view, this depresses the price. Experts like Lösche and Nagel therefore recommend that you first extend and then sell.

If the contract expires, homeowners receive compensation. According to the law, they are entitled to at least two thirds of the market value. "With this, the owner is likely to make a relatively large financial loss," says Lösche. Contracts rarely provide 100 percent compensation.

Users should pay attention to this condition when concluding their leasehold contract, so that they reduce the risk of a later nasty financial surprise. The contract also states whether there is any entitlement to an extension.

Users who do not have the higher lease interest can stay in the house as tenants. However, at the market rent. This issue could be financed from the compensation, says Matthias Nagel. Whether the previous homeowners are happy with this solution is another matter.