Erbbaurecht apartments: a lower purchase price, but what else are you buying?

With an Erbbaurecht apartment, you buy the flat and a time-limited right to keep the building on someone else's land. You do not buy the land. The lower price comes with a ground rent that usually rises, landowner consent for selling and mortgaging, a possible forced return of the right, and a value that depends on the years remaining. Whether that makes a cheaper investment depends on the contract, not the asking price.

This guide covers what is specific to the heritable building right (Erbbaurecht). The checks for every purchase are in our pre-purchase guide.

An Erbbaurecht is a transferable, inheritable right to have a building on or under another person's land (§ 1(1) ErbbauRG). Often translated as leasehold, it is a registered property right, not a lease. The building belongs to the right and becomes part of the land when the right ends (§ 12 ErbbauRG).

For apartments, the right is divided into shares, each tied to one unit (Wohnungserbbaurecht) with its own register sheet; otherwise the condominium rules apply (§ 30 WEG). You still join the owners' association (WEG) and pay the service charge (Hausgeld). For property tax (Grundsteuer), land and building are valued together and attributed to you (§ 261 BewG; § 10 GrStG): you pay property tax on land you do not own.

Contracts often run for 70, 80 or 99 years, says the association of granting landowners (Deutscher Erbbaurechtsverband). What counts is the term left when you buy and when you sell. Pfandbrief banks must reflect the remaining term and the compensation agreed for the building at expiry in their lending valuation, and deduct for contractual restrictions (§ 21 BelWertV). Your buyer's lender will ask the same, with fewer years left.

The ground rent (Erbbauzins) is secured on the right as a rent charge (Reallast) (§ 9(1) ErbbauRG). The landowners' association calls 2 to 6 per cent of the land value a year usual, with consumer-price indexation common for housing. Index clauses are allowed in contracts of at least 30 years (§ 4 PrKG). For housing, a contractual claim to raise the ground rent is generally unreasonable beyond the change in general economic conditions since the contract, land values are generally disregarded, and an increase can be claimed no earlier than three years after the contract or the last increase (§ 9a ErbbauRG).

Two apartment checks:

• Arrears. You are personally liable for instalments due while you hold the right (§ 1108(1) BGB), and arrears are secured on the right itself (§ 1107 BGB). Get the landowner's confirmation that the seller is up to date.
• Split or joint. After division, unit holders are in principle jointly liable for the whole ground rent (§ 1108(2) BGB, via § 9(1) ErbbauRG) unless it was split by agreement with the landowner. Check that your unit carries only its share.

The contract can make a sale, and a land charge (Grundschuld) on the right, subject to the landowner's consent (§ 5 ErbbauRG). Without it, the sale is ineffective (§ 6(1)) and the land registry will not register the transfer or the charge (§ 15). The holder can demand consent where the right's purpose is not materially impaired, and the local court can replace a refusal without sufficient reason (§ 7).

Your purchase therefore needs two consents: for the sale and for your bank's charge. Both add time before payment (the purchase process), and some landowners charge for them. The notary usually requests them (our notary guide).

The Erbbaurecht must rank first in the land's register (§ 10(1) ErbbauRG). In the right's own register, the ground rent usually ranks ahead of your bank's charge. Banks want first rank, so one of three arrangements is common:

• Subordination (Rangrücktritt): the bank's charge moves ahead of the ground rent.
• Standstill declaration (Stillhalteerklärung): in a forced sale, the landowner claims only current and overdue ground rent, never future ground rent. One church landowner notes that many banks ask for this (Stiftungen der Erzdiözese Freiburg).
• Surviving ground rent: the ground rent survives a forced sale, and a charge may rank ahead of it up to a set amount (§ 9(3) ErbbauRG).

Before offering, ask your lender which it needs, its minimum remaining term and how much it lends. At 80 rather than 90 per cent, the leasehold buyer below needs €18,500 more equity.

The contract can oblige you to transfer the right to the landowner on defined events (Heimfall) (§ 2 no. 4 ErbbauRG). The landowners' association cites arrears and insolvency as triggers; breaches of maintenance or use duties can be others. Arrears count only from two years' ground rent (§ 9(4)). The landowner owes appropriate compensation, which the contract can limit or exclude, except for rights created to house lower-income households: at least two-thirds of the right's market value (§ 32). Land charges survive (§ 33). Check that the use clause permits letting (§ 2 no. 1).

On expiry, the landowner compensates you for the building, but the contract can set the amount or exclude it. For rights created for lower-income housing, it must be at least two-thirds of the building's market value (§ 27(1) and (2) ErbbauRG). The landowner can instead extend the right for the building's expected life; refuse, and the claim lapses (§ 27(3)). That option is the landowner's, not yours. Your lender's rights attach to the compensation (§ 29), and your tenancies pass to the landowner (§ 30).

Renewal is not guaranteed. A preferential right to renewal exists only if the contract grants one, applies only if the landowner grants a new right to someone else for the same purpose, and lapses three years after expiry (§ 31). The contract can oblige the landowner to sell the land to the holder (§ 2 no. 7); check both registers for pre-emption rights.

• Ground rent on a let apartment is deductible as an income-related expense (Werbungskosten) (§ 9(1) EStG; Haufe). Prepayments covering more than five years are spread (§ 11(2) EStG). A deduction lowers taxable income; it is not a refund.
• Depreciation (AfA). The building is yours as part of the right and depreciates as in any rental (our tax overview). There is no land share: commentary allocates the whole cost to the building where the price paid only for the building (Haufe). Agree the split with your tax adviser (Steuerberater).
• Transfer tax. An Erbbaurecht counts as land (§ 2(2) GrEStG) and ground rent is not a permanent charge (§ 9(2) no. 2 GrEStG), so the tax base generally includes the capitalised ground rent you take over (BFH, II R 64/06), using the factors in Anlage 9a BewG.
• Sale. The ten-year rule names the Erbbaurecht expressly (§ 23(1) EStG; selling after ten years).
• New builds. A developer's first instalment is capped at 20 rather than 30 per cent (§ 3(2) MaBV; Bauträger payment plans).

Illustrative example. Fictional figures, not offers or valuations. Freehold: Apartment A from our cash-flow guide, Leipzig, 65 m², built 1996, price €240,000, purchase costs 11.07 per cent. Leasehold: a fictional twin with the same rent and Hausgeld, a Wohnungserbbaurecht ending 31 December 2092 (about 67 years left at purchase, 37 after 30 years), price €185,000, ground rent €1,500 a year (2.5 per cent of an assumed €60,000 land value), adjusted every three years, assuming 2 per cent inflation. Both: contract 15 January 2026, transfer 1 April 2026; 90 per cent loan at 3.7 per cent nominal with 2 per cent initial repayment, one rate for the whole term; freehold value rising 1.5 per cent a year. Leasehold costs: transfer tax of 5.5 per cent on price plus capitalised ground rent (€1,500 × 18.165 = €27,248), agent 3.57 per cent, notary and land registry 2 per cent of price. Rent, Hausgeld and property tax are equal and left out. Before tax; not discounted.

The leasehold needs €10,090 less equity, costs €110 a month less at the start, ground rent included, and absorbs €30,429 less cash over 30 years. But the ground rent rises and outlasts the loan, while the freehold owner keeps the land. Here, the leasehold matches the freehold only if it is still worth about 92 per cent of the freehold value with 37 years left (83 per cent with all cash flows discounted at 3 per cent a year). A rough after-tax check at a 42 per cent marginal rate (ground rent, interest and AfA deducted) narrows the gap by about €13,900. It does not close it.

A lower ground rent, a bigger discount or a longer term would favour the leasehold. A low price is not a bargain by itself: rerun the numbers with the actual contract.

Alpha Minoris's Buyer's Agent service can obtain the contract with its amendments, both register extracts and the landowner's consent documents, and coordinate specialist questions during a purchase in Berlin, Dresden or Leipzig, without you living there. Interpreting the contract stays with a lawyer or the notary, and tax with your Steuerberater.

Before you offer on an Erbbaurecht apartment, put the contract's remaining term, ground rent clause and consent terms next to a freehold alternative. Discuss your first rental property with Alpha Minoris.