Leasehold; Information on Granting by the Municipality

From the landowner’s perspective, the hereditary building right is a limited real right that encumbers the landowner’s property. The leasehold interest is generally treated as if it were a parcel of land (a so-called “right equivalent to land”). A structure erected under a leasehold interest is therefore considered an integral part of the leasehold interest and not of the land itself. The owner of the structure is therefore the holder of the hereditary building right and not the landowner. The hereditary building right is generally granted for a specific period, often 99 years. When the hereditary building right expires, ownership of the land and the structure are reunited.

The leasehold right promotes housing construction and prevents land speculation. In practice, the leasehold right is used as a tool for marketing larger tracts of land. Landowners (often municipalities or church-affiliated entities) create the opportunity to erect structures, buildings, and houses by granting leasehold rights. This benefits both the developer and the landowner. On the one hand, the developer avoids the acquisition costs of the building site; on the other hand, the property remains in the ownership of the municipal or church-affiliated entity and, upon expiration of the leasehold right—known as “reversion”—can be put to another use, including the structure standing on it. Furthermore, the landowner receives the ground rent for the duration of the leasehold.

The granting of a leasehold interest is based on a contractual transaction in which the leaseholder undertakes to pay ground rent in exchange for the right to use the property. The leasehold agreement governs the relationship between the landowner and the leaseholder and defines the terms of the leasehold interest. The leasehold interest is established upon registration in the land register.

The hereditary building right is documented in two land registers: as an encumbrance on the property in the real property register and as an independent right in the hereditary building rights register. In the Real Property Register, the leasehold right is entered in the second section. It can be established exclusively as a first-ranking lien. The ranking cannot be changed. This ensures that the leasehold right continues to exist in the event of a forced sale of the property.

Finally, the leasehold right can be sold, inherited, and encumbered in the same way as a parcel of land, for example, with real property liens (land charges and mortgages).

In exchange for making the land available, the landowner generally receives a recurring payment from the leaseholder—known as the ground rent—to which the provisions of the Civil Code regarding real encumbrances apply mutatis mutandis. Generally, the ground rent consists of a recurring monetary payment determined as a percentage of the land value at the beginning of the term. It usually amounts to between three and five percent of the property value annually and is adjusted at contractually agreed intervals—for example, based on the cost-of-living index determined by the Federal Statistical Office. At the end of the agreed term, ownership of the building reverts to the grantor of the hereditary building right. If the leasehold right expires due to the passage of time, the terms contractually agreed upon between the parties apply, whereby the transfer of ownership of the building to the landowner generally gives rise to claims for compensation by the leaseholder.