Rental agreement
Homeownership in someone else’s property – a risky model?
Updated 11/13/2025 – 07:11Reading time: 6 minutes
Building a house without buying land? It worked in Germany. This is made possible by hereditary building rights – also known colloquially as hereditary tenancies.
On the basis of hereditary building use rights, the builder rents a plot of land that does not belong to him and builds a house on it. This means home builders save money on land. But what at first glance seems tempting can pose financial risks.
In this guide we will explain to you why it makes more sense to buy not only a house, but also the property that comes with it.
The idea of the rental building act, which went into effect in 1919, was to allow low-income people to afford home ownership. The term “leasehold” originally referred to the right to use agricultural land. This form of land management originating from the feudal system is no longer permitted today. In contrast, the term “leasehold right” is used in everyday language to refer to the concept of leasehold rights.
From a legal perspective, the parties entering into a rental agreement include (1) Lessor and (2) Tenant or Leasehold holder. The grantor of the leasehold right is mandatory Property ownerthe lease holder is Owner. Tenants can be legal entities or individuals.
Usually, you get a rental property from a social institution such as a foundation, church, or city government – but sometimes also from a private owner. If you are a builder, you do not own the property when you sign the contract, but rent it out.
Contract terms usually vary between 50 and 99 years, but can also be shorter or longer. As compensation, the home builder pays the so-called Rent land. The rate is usually 2.5 to 5 percent of the property value. This in turn is based on the value of the land. Land rent is contractually agreed between the property owner and tenant and is not based on the central bank’s key interest rate.
The amount of ground rent – called rent – compared to the interest rate on the building loan when purchasing the property is a determining factor when drawing up a contract. Leaseholds are especially useful if you don’t have enough equity to purchase a property or if property prices in your desired location are very high.
However, you should be aware that with a rental agreement, you are bound to long-term obligations. This means that payment is due as long as the contract runs. Ground rental payments over the entire term of the contract can eat away at initial financial gains. For example, after 50 years you could pay double the value of the property.
The amount of land rent can generally be negotiated freely and is not regulated by legal provisions. However, you should be aware of the long-term development of property values before signing a contract.
It is common to have a contractual provision that the ground rent can be adjusted at certain intervals, usually every three years. These adjustments are usually made by relating them to the consumer price index or property market value and not to current real estate or construction loan interest rates.
