Anyone buying a house on a heritable building right (Erbbaurecht) acquires the building, but not the land. Real-estate transfer tax (Grunderwerbsteuer) is nonetheless due, because the heritable building right is treated as equivalent to a plot of land for tax purposes. How the tax is calculated, why the capitalised ground rent (Erbbauzins) is decisive, and what you should watch out for when buying a heritable building right in Düsseldorf and NRW: we explain it here clearly and step by step.
Heritable Building Right and Ground Lease: What Is Meant?
In everyday speech you often hear the term ground lease (Erbpacht). In legal terms, however, the correct name is heritable building right (Erbbaurecht), governed by the Heritable Building Right Act (ErbbauRG). In practice both terms refer to the same thing, yet the classic ground lease (Erbpacht) of earlier centuries no longer exists in that form. When someone speaks of a ground lease today, they almost always mean the heritable building right.
Under Section 1 ErbbauRG, the heritable building right is the transferable and inheritable right to have a structure on or beneath the surface of a third party's plot of land. This makes the decisive point clear: the land remains the property of the landowner, while the building belongs to the holder of the heritable building right. Right and ownership are thus split between two parties.
The heritable building right is regarded as a right equivalent to land. It receives its own land register sheet, the so-called heritable building right register (Erbbaugrundbuch), and can be sold, inherited and encumbered with a land charge just like a plot of land.
Ground Rent, Term and the Two Parties
Instead of a purchase price for the land, the holder pays a recurring fee, the ground rent (Erbbauzins). In practice it is often agreed as an annual percentage of the land value, with figures of roughly three to five percent being common. The ground rent is secured in the land register as a real charge.
The two parties are the grantor of the heritable building right (Erbbaurechtsgeber), i.e. the owner of the land, and the holder of the heritable building right (Erbbaurechtsnehmer), i.e. the beneficiary. Frequent grantors are municipalities, churches and foundations.
There is no statutory minimum or maximum term. In practice, long periods are agreed, typically between 75 and 99 years, so that the investment in the building is worthwhile. The remaining term is one of the most important figures when buying an existing heritable building right, because it affects value, financeability and also the real-estate transfer tax.
Why Real-Estate Transfer Tax Arises with a Heritable Building Right
Even though you do not buy the land with a heritable building right, you cannot avoid the real-estate transfer tax. The reason is set out in the law: under Section 2 Subsection 2 Number 1 of the Real-Estate Transfer Tax Act, heritable building rights are treated as equivalent to plots of land.
Several events are taxable: the initial creation of a heritable building right, the transfer of an existing heritable building right to a new beneficiary, and also the extension of a heritable building right. Anyone acquiring a terraced house or a condominium on a heritable building right therefore triggers the same taxable event as when buying full ownership.
The distinction from the ongoing ground rent is important: the individual annual payments do not trigger real-estate transfer tax anew each year. The tax is due once, on the acquisition transaction. The owner's mere claim to the ground rent also does not count as a plot of land under Section 2 Subsection 1 of the Real-Estate Transfer Tax Act.
Tax Base: The Capitalised Ground Rent
This is where the heritable building right differs markedly from a normal property purchase. With full ownership, the tax base is generally the purchase price. With a heritable building right, by contrast, the central consideration is the obligation to pay the ground rent over many years.
This obligation is converted into a one-off value, the so-called capitalised ground rent (kapitalisierter Erbbauzins). The relevant provision is Section 13 of the Valuation Act: the annual ground rent is multiplied by a factor that depends on the term, or remaining term, set out in Annex 9a to the Valuation Act. This factor takes into account a statutory interest rate of 5.5 percent. The longer the term, the higher the factor and thus the tax base.
If you buy an existing heritable building right together with the building, a further component regularly comes into play: the agreed purchase price for the structure. The tax base is then made up of the capitalised ground rent over the remaining term and the building purchase price.
Tax Rate in NRW and a Worked Example
The tax rate is set by the federal states. In North Rhine-Westphalia the real-estate transfer tax is 6.5 percent and has applied at this level since 1 January 2015. This rate is applied to the entire tax base.
A simplified example for orientation: suppose you acquire a heritable building right in Düsseldorf with an annual ground rent of 6,000 euros and a remaining term for which Annex 9a yields a factor of around 17. The capitalised ground rent then amounts to roughly 102,000 euros. Added to this is a building purchase price of, for example, 400,000 euros. The tax base would thus be around 502,000 euros, which at 6.5 percent results in a real-estate transfer tax of about 32,630 euros.
The figures serve only as an illustration. The exact factor depends on the specific remaining term, and the binding assessment is made by the tax office. Your tax advisor will assess your individual case.
What Buyers of a Heritable Building Right Should Pay Special Attention To
A heritable building right is a long-term commitment. You should check these points before buying:
- Remaining term: How many years does the heritable building right still run? A short remaining term can reduce the value and make financing more difficult.
- Adjustment clauses: Many contracts contain value protection clauses under which the ground rent is regularly adjusted to price developments. Check how and at what intervals this happens.
- Reversion (Heimfall): The contract may set out grounds on which the heritable building right reverts prematurely to the owner, for instance in the event of serious breaches of duty. Pay attention to the agreed reversion compensation (Heimfallentschädigung).
- End of the term: If the heritable building right expires through the passage of time, the building passes to the landowner. Compensation must be paid for this under Section 27 ErbbauRG; for residential buildings at least two thirds of the market value are cited in practice.
- Mortgageability: Clarify early with your bank whether and to what extent the heritable building right can be mortgaged. A sufficient remaining term is often decisive here, as are the owner's consent reservations.
The Buying Process and an Experienced Partner at Your Side
The process resembles that of buying full ownership: the purchase agreement for the heritable building right is notarised, the notary reports the transaction to the tax office, and you receive the real-estate transfer tax assessment. Only after payment does the tax office issue the clearance certificate, without which no entry is made in the heritable building right register (Erbbaugrundbuch). In addition, the landowner's consent to the transfer is often required.
As the arm of Wolfgang Richter GmbH, we have been supporting owners and buyers in the Düsseldorf and North Rhine-Westphalian market for more than six decades. Over the years, a grown network of more than 20,000 contacts has emerged, which helps us to bring buyers and suitable properties together discreetly and purposefully. We also value and market properties on a heritable building right and explain the special features to you clearly.
Whether you wish to sell or acquire a heritable building right: we take time for your questions and find, together with you, the path that suits your situation. The binding tax and legal assessment is handled by your tax advisor and notary.
