Germans say Erbpacht; the correct legal term is Erbbaurecht — heritable building right, or leasehold. You buy the building and the time-limited right to use someone else's land, but not the land itself. For that you pay an annual ground rent.
In Berlin you encounter it more often than you would expect. Church parishes, foundations and the State of Berlin itself have granted plots on this basis for decades. The market share is small but concentrated in certain locations.
The common view is that leasehold depresses the price. Sometimes it does so sharply, sometimes barely — and the difference rests almost entirely on a single number.
The one number that matters
That number is the remaining term. Not the original contract length, not the level of ground rent, not the condition of the building — the remaining term.
The reason lies with the banks. Under § 13(2) of the German Pfandbrief Act, a mortgage on a heritable building right must end at least ten years before the right itself expires. From that rule follows the standard applied by every lending department: the remaining term must exceed the loan term by at least ten to fifteen years. For a 30-year loan that means 40 to 45 years remaining — and 40 years is the usual minimum banks apply.
That is the actual mechanism behind the price discount. It is not a matter of taste but of financeability. Someone who cannot finance does not bid.
The effect on value
| Remaining term | Effect on value and saleability |
|---|---|
| 70 years or more | Value approaches freehold. Financing unproblematic. |
| 50 to 70 years | Moderate discount. Banks lend but look closely. |
| 40 to 50 years | Noticeable discount. Higher equity ratio becomes normal. |
| Under 40 years | Substantial discount. The pool of buyers narrows sharply. |
| Under 25 years | Economically a time-limited ownership. Resale becomes hard. |
Simplified, the value equals the income value of the building less the present value of all future ground rent payments. Formal valuation follows the German property valuation ordinance and takes the remaining term expressly into account.
What the bank actually calculates
This gets more concrete than most sellers expect. The capitalised ground rent enters the lending value assessment as a prior encumbrance and reduces the security available to the bank. On top of that, many leasehold contracts limit borrowing directly — often to 60 to 70 percent of the building's market value.
Lending value of the rent-free heritable building right: €250,000.
Capitalised ground rent as prior encumbrance: €100,000.
At 60 percent Pfandbrief coverage, the eligible amount is €50,000.
€250,000 becomes €50,000. That is why leasehold properties routinely require a higher equity contribution than comparable freehold ones.
Ground rent and its adjustment
Ground rent is set as a percentage of land value, typically between two and seven percent depending on the grantor and the year of contract. On a land value of €200,000 at four percent that is €8,000 a year — arithmetically about the same as interest on a loan of the same size. The difference: a loan is eventually repaid. Ground rent is paid until the contract ends.
Almost every contract contains an adjustment clause. For State of Berlin plots the rent is adjusted every five years by the consumer price index, with land price movements expressly disregarded. Other grantors index directly to land value — considerably riskier for the leaseholder, since Berlin land values have risen faster than consumer prices.
The adjustment clause is the most important page of the contract. It decides whether the burden stays predictable or becomes a different asset in ten years.
What happens at the end
When the right expires, the building passes to the landowner. The leaseholder receives compensation, frequently fixed at two thirds of market value. That figure sounds reassuring and is only partly so: the market discounts short remaining terms long before the end arrives.
Alongside sits Heimfall — the landowner's right to reclaim the leasehold early, for instance on payment default or breach of contract. The conditions are in the contract and need reading.
Extension is common but neither guaranteed nor usually on the old terms.
The side that is rarely mentioned
- Ground rent is fully deductible against rental income. Not for owner-occupiers.
- There is no classic land component excluded from depreciation. The purchase price splits between building value and the leasehold — and the building share is often higher than under freehold.
- A higher depreciation rate may apply where the remaining term is short.
- Grant and transfer attract real estate transfer tax, not VAT.
For a letting investor the arithmetic can therefore look quite different from an owner-occupier's. For the owner-occupier, ground rent is pure cost. For the investor it reduces the tax on rental income.
A Berlin particularity
In 2018 the Senate resolved a temporary reduction of ground rent rates on state-owned plots — 50 percent of the standard rate, valid for twenty years from the date of contract. Anyone holding such a contract should know when that reduction ends. The date is in the contract and it changes running costs noticeably.
What belongs on the table before buying or selling
- Remaining term in years — exact, not rounded
- Ground rent in euros per year and as a percentage of land value
- Adjustment clause — index or land value, frequency, last adjustment
- Compensation at the end of the term
- Heimfall grounds
- Borrowing restrictions in the contract
- Extension option, if any
State the remaining term in the listing, not on request. A buyer who learns it at the notary renegotiates or walks. A buyer who knows from the start prices it in — and the deals that fail on it would not have worked anyway.
Leasehold is neither a trap nor a bargain. It is a contract with a clock. Those who know what time it is can do the maths. Those who do not are buying a risk they have not priced.
This article describes the legal and market position as we understand it in July 2026 and is not legal or tax advice. Lending practice differs between institutions; the figures given are industry norms, not commitments.
Back to the journal