2026-10-10 11:29

Is it worth buying property on a heritable building right (Erbbaurecht)?

Yes — if the price reflects that you are buying a building without its land, and for a limited time: the value of a heritable building right (Erbbaurecht) melts away as its end approaches. Banks want the right to outlast the loan by far: a mortgage bank can include such a loan in its covered-bond cover pool only if scheduled repayment ends at least ten years before the right expires (§ 13(2) PfandBG). That is why most private investors prefer to own the land, and stores on a building right sell at a discount.

You buy a building and a time-limited right, not the land

A heritable building right is a transferable and inheritable right to have a building on someone else's land (§ 1(1) ErbbauRG). The building is an essential part of the right, not of the land (§ 12 ErbbauRG); the right has its own land-register folio, the Erbbaugrundbuch (§ 14 ErbbauRG), and can be created only in first rank (§ 10 ErbbauRG). The landowner — often a church, a municipality or a large institution — receives an annual ground rent (Erbbauzins). In our experience the right most often runs for 50–99 years (see Part 7 of the series German Prime Retail). For real estate transfer tax, the right is treated as land (§ 2(2) no. 1 GrEStG).

Three sets of contract terms determine the value

The contract decides how much you receive for the building at the end, whether the landowner must consent to a sale or a charge, and when the landowner can take the right back early.

Expiry. The building passes to the landowner, who must pay compensation — unless the contract limits or excludes it, which the law permits (§ 27(1) ErbbauRG). As the remaining term shrinks, the value of the right converges on that compensation.

Consent. Selling or charging the right often requires the landowner's consent (§ 5 ErbbauRG); until it is given, even the purchase agreement is ineffective (§ 6(1) ErbbauRG). Under the conditions of § 7 ErbbauRG consent can be demanded, and a court can replace an unjustified refusal.

Early reversion. The contract may allow the landowner to reclaim the right in specified cases (§ 2 no. 4 ErbbauRG); for late payment of the ground rent, only once the arrears reach two years' worth (§ 9(4) ErbbauRG).

The ground rent is a separate matter. The law caps its increases only for residential buildings (§ 9a ErbbauRG) and permits indexation for terms of 30 years or more (§ 4 PrKG), so for a store the ground rent can rise with prices.

Exhibit 1. A building right is cheaper to buy, but costlier to hold and harder to sell

	Full ownership	Heritable building right
What you buy	Land and building	Building and a right for a term
Annual payment for the land	None	Yes, possibly indexed
Value over time	Land does not wear out	Falls towards the compensation amount as the term ends
Sale and charging	Free	Often with the landowner's consent
Mortgage-bank loan	Standard terms	Repaid no later than 10 years before the right ends
Buyers on resale	Wide pool	Narrow: an unusual structure (Part 12)

The purchase makes sense when the remaining term comfortably outlasts your plans

A building right makes sense if the remaining term far exceeds the lease term, the loan term and your holding horizon, and if compensation for the building is neither excluded nor cut back. The discount to a comparable property in full ownership must cover both the annual ground rent and the narrower pool of buyers on resale. Simple arithmetic under § 13(2) PfandBG: with 30 years left on the right, a loan that a mortgage bank includes in its cover pool must be repaid within 20 years.

Implications for investors

1. Value the right by its remaining term and compensation, not by the building. As the term runs down, the value of the right converges on the compensation for the building, so the price depends on how many years remain and what the contract promises at the end.

2. Obtain the landowner's consent before signing. Until it is given, even the purchase agreement is ineffective, and the consent to a charge in favour of the bank must be in a form fit for registration.

3. Match the term of the right to the loan under the ten-year rule. With 30 years left on the right, a loan that a mortgage bank includes in its cover pool must be repaid within 20 years.

What to check:
• the remaining term of the right against the lease term, the loan term and your holding horizon;
• compensation for the building at expiry and on early reversion, and all grounds for reversion;
• the landowner's consent to your purchase and to a charge in favour of the bank — in a form fit for registration;
• the amount of the ground rent, the indexation formula and the review dates;
• a preferential right to renewal and the landowner's obligation to sell the land, if the contract provides for them (§ 2 nos. 6, 7 ErbbauRG).

Sources: ErbbauRG §§ 1, 2, 5, 6, 7, 9, 9a, 10, 12, 14, 27; PrKG § 4; GrEStG § 2; PfandBG § 13; German Prime Retail series, Parts 7 and 12; Gordon Real Estate Group transaction experience. Legal position as of October 2026.

Photo: Jan-Philipp Thiele / Unsplash

This page is general information and not investment, legal or tax advice.

Ilya Gordon