Heritable building rights in property valuation – what are the house and land really worth?

What is a heritable building right?

With normal land ownership, the land and the house generally belong to the same owner. With a heritable building right (Erbbaurecht), this is different: land and building are separated economically and legally.

Put simply, the landowner makes the land available to someone else for a contractually agreed period and grants them the right to build and use a building on this land. In return, the holder of the heritable building right generally pays a ground rent (Erbbauzins).

The landowner remains the owner of the land. The holder of the right, on the other hand, receives an independent right equivalent to land, which is entered in a separate heritable building right register and can in principle be sold, inherited and mortgaged.

Two different subjects of valuation

There are therefore two assets: the heritable building right of the holder, including the building, and the encumbered land (Erbbaugrundstück) of the landowner. The ImmoWertV expressly treats them separately. The first step in a valuation is therefore to clarify which value is being sought.

Starting point: notional freehold ownership

An important starting figure is the value of notional freehold ownership: what would the property be worth if the land and building were not separated by the heritable building right? Depending on the property, this value can be determined using the sales comparison, income or cost approach. The particular features of the heritable building right are then taken into account separately.

Ground rent and remaining term

Relevant to the valuation are the level of the ground rent and how it can be adjusted, a market ground rent and the remaining term of the contract. An old contract with a low ground rent can be economically advantageous; a high ground rent or one that can be adjusted significantly can be a burden. It also makes a considerable difference whether a right still has 70 years or only 15 years to run.

What happens at the end of the term?

Particular points to check include compensation provisions for buildings, reversion (Heimfall), consent requirements, options to extend or renew and other rights and obligations. The statement that the building is simply “gone” at the end of the contract is just as sweeping as the assumption that the building owner will automatically be compensated for the full market value.

Market adjustment

A purely financial-mathematical analysis does not necessarily reflect the property market in full. The ImmoWertV therefore provides for heritable building right factors and coefficients, which can be derived from suitable sale prices. However, such data is not available everywhere in sufficient quality.

Is a heritable building right always worth less?

There is no general answer. A long-term heritable building right with a low ground rent and favourable contract terms can be something completely different economically from a contract with a short remaining term, a high ground rent and unfavourable provisions at the end of the term.

Which documents are needed?

The documents particularly required are the heritable building right contract including all addenda, land register documents and details of the current ground rent. In addition, the usual plot and building data, floor areas, year of construction, modernisation, condition and any tenancies are needed.

Conclusion

The heritable building right and the encumbered land are separate subjects of valuation. Only the property value, land value, ground rent, remaining term, contract terms and conditions in the local property market together allow the effect on value to be assessed properly.

Professional basis: in particular §§ 22, 23 and 48–52 ImmoWertV and the ImmoWertA.

Because the contract, remaining term and ground rent have to be examined in detail, a full market value report is often the appropriate form of valuation for heritable building rights.