Do you own a plot of land and wonder how to make the best use of it? Renting or leasing provides an attractive way to generate regular income, often with less than 5% administrative effort. This article explores when it is worthwhile to rent out land and which aspects you need to consider.
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The topic briefly and concisely
Leasing of land refers to the granting of land for use, while rent additionally allows the generation of income (usufruct), which can often lead to 15-25% higher revenue.
For private individuals, renting for house construction is often unsuitable; leasing (especially hereditary leaseholds with terms up to 99 years) can be an alternative with lower equity.
Commercial tenants benefit from flexibility and lower capital commitment (up to 80% less immediate investment), while leasing is ideal for farmers (75% of the land) and profit-oriented businesses.
The decision to rent or lease a property raises many questions. Is renting or leasing the right path for your goals? For instance, undeveloped land often requires less than 2 hours of administrative work per month. This article analyses the different options, highlights the financial benefits of up to 6% returns, and explains the legal basics so you can make an informed decision about your real estate assets. Learn how to increase the value of your land through leasing.
Grundstück mieten vs. pachten: Understanding the Difference and Recognising Potential
The terms rent and lease are often used synonymously, but there is a crucial difference of over 80% in usage rights. In the case of land rental, the owner allows the use of the land purely for utilization purposes, for example, for a garden or as a temporary storage area. The tenant pays a fixed rent, usually monthly. The rental period can be flexible, often starting from 12 months.
In contrast, a land lease allows the leaseholder not only to use the land but also to benefit from what is known as the ‘right of usufruct’. This means the leaseholder can generate income from the land, for instance, through agriculture or running a business. The lease payment can be fixed or based on income, which can mean a profit share of up to 10% for the lessor. Leases often have longer durations, frequently exceeding 10 years. Understanding these differences is the first step towards maximizing your land yield.
Pros and Cons of Leasing Land for Private Users
For individuals, renting a plot of land, particularly for building a house, is rather uncommon. One reason for this is the landlord's right to terminate for personal needs, which can mean long-term planning security of less than 5 years. Additionally, the plot often has to be returned to its original state at the end of the lease, which could entail dismantling a house at a cost of over 20,000 euros.
Nevertheless, there are scenarios where renting is sensible. Already developed areas like allotments can often be rented for less than 100 euros per month and offer flexibility. The advantage here lies in the lower initial investments compared to buying, and often shorter contract terms of just 1-3 years. Before making a decision, carefully examine the contract details to avoid future surprises. An analysis of the lease benefits can be enlightening here.
Commercial land leasing: Flexibility as a competitive advantage
Companies often benefit from the flexibility that renting commercial properties offers. Instead of tying up capital in a purchase that can quickly exceed 500,000 euros, renting allows for adaptation to market changes. For example, warehouse or production facilities can be rented as needed for periods starting from 24 months. This significantly reduces the investment risk.
Often a property developer intervenes between the owner and the renting company. This developer acts as the landlord and often takes on the responsibility for the building and any potential deconstruction, which can reduce the costs for the end tenant by up to 15%. Therefore, renting a property is a strategic decision for many companies to remain liquid and respond quickly to new requirements. The exact rental contract conditions are crucial.
Leasing a Plot: Options for Private Builders and Farmers
Leasing a plot of land can be an alternative for private builders when personal capital isn’t sufficient for a purchase that often exceeds €150,000. Unlike a loan-financed purchase, there’s no interest burden, which can amount to 3-5% annually. Agreements such as a pre-emption right or crediting lease payments towards a future purchase price can be made with the lessor, potentially accounting for up to 20% of the purchase amount.
For agricultural enterprises, leasing has been an established model for decades; around 75% of all agricultural land in Germany is leased. It allows flexibility to respond to production peaks by leasing additional land for periods of 5-12 years. Leasing offers an adaptable solution for different needs. You can also learn about important aspects of the lease agreement.
Important points when leasing include:
Lease terms can last up to 99 years (hereditary lease).
The lease payment can be linked to yield, enabling a fair distribution of risks and opportunities.
Tenant's investments in the property may be compensated at the end of the contract under certain circumstances.
The Federal Allotment Gardens Act (BKleingG) regulates lease agreements for allotment gardens and sets clear conditions for use and lease payments, which often range from €0.10 to €0.50 per square metre.
Leasehold: Building on Others’ Land – A Long-term Perspective
Leasehold, also known as hereditary building right, is a special form of land lease. In this arrangement, the developer leases a plot of land for a very long period, typically 60 to 99 years, and constructs their own home on it. The building belongs to the leaseholder, while the land remains the property of the lessor. This significantly reduces the initial investment costs, as the often six-figure land price is avoided.
The annual ground rent typically amounts to 3-6% of the land value. Municipalities, churches, or foundations are common providers of leasehold land. Leasehold enables house building even with lower equity. A sale of the leasehold during the term is possible, but usually requires the consent of the landowner. Weigh the risks and opportunities of leasehold carefully.
Costs and Contract Design: What You Should Consider When Renting a Plot
Regardless of whether you rent or lease a plot, costs and the contract are essential components. The rental price or lease fee is determined by location, size, level of development, and potential uses. For a 500 sqm garden plot, costs can vary between 50 and 300 euros per month. For commercial plots in prime locations, it can be several thousand euros.
A written contract is indispensable and should at least cover the following points:
Contracting Parties: Clear designation of tenant/lessee and landlord/lessor.
Rental/Lease Object: Precise description of the property, including plot number and size (e.g., 1,200 sqm).
Term: Established duration (e.g., 5 years) or indefinite.
Rental/Lease Fee: Amount (e.g., 500 euros/month) and payment terms.
Additional Costs: Arrangement for the assumption of operating expenses such as property tax (often 100-500 euros/year).
Type of Use: Permitted use (e.g., only private garden use or commercial storage space).
Termination Conditions: Periods (often 3-6 months) and reasons.
For lease agreements over two years, the written form is legally required to ensure legal clarity. A thorough contract review protects against future conflicts and secures your interests. For a detailed cost overview, consult our analysis of purchase or lease costs.
grundstuck-mieten-darunter-alles-zur-miete
Tiny Houses are growing in popularity, yet choosing a location often poses a challenge. Renting or leasing a plot of land can be a flexible solution, often from as little as 150 euros per month. It's important to clarify the planning permission; not every plot is allowed to have a Tiny House built or placed on it. An initial building inquiry with the local council usually costs between 50 and 200 euros.
Rental or lease agreements should take into account the specific requirements of a Tiny House, such as electricity and water supply, as well as sewage disposal. Contract durations of 1 to 5 years are common. The development costs can amount to up to 5,000 euros if new connections need to be installed. Clarify these aspects beforehand to successfully realize your Tiny House project. Further information on Tiny Houses on leased land can be found here.
Auctoa: Your partner for data-driven decisions around property
What is more sensible: renting or leasing land?
This depends on your intended use. If you only want to use the land (e.g., as a garden), a rental with more flexible terms starting from 1 year is often sufficient. If you plan to generate income (agriculture, business), leasing is necessary, which often involves long-term contracts over 10+ years.
How is the lease rent for a property determined?
The lease rent can be freely negotiated. It often depends on the potential yield (e.g., 5-10% of the yield), location, and type of use. For hereditary lease, it usually amounts to 3-6% of the property's value per year. There are fixed and variable models.
What documents do I need to rent or lease a property?
Important documents include a detailed rental or lease agreement that regulates all rights and obligations. A self-disclosure, credit checks (e.g., SCHUFA), and a usage concept for commercial use are often required. An excerpt from the land register can provide clarity about ownership and encumbrances (e.g., rights of way).
Can I terminate a lease agreement early?
A fixed-term lease agreement ends regularly at the end of the agreed period (e.g., after 10 years). Ordinary termination is usually not possible during the contract term. Extraordinary cancellations are only possible in cases of serious breaches of contract. Indefinite contracts can be terminated with statutory or contractually agreed notice periods (often 6 months before the end of the lease year).
What happens to my lease agreement if the property is sold?
As a rule, the principle "purchase does not break lease" applies. This means the lease agreement remains in place and continues with the new owner. Exceptions may exist if specific regulations are made in the lease for the event of a sale, but this is rare (less than 5% of contracts).
Who bears the maintenance costs for a rented or leased property?
For undeveloped land, the landlord/lessor incurs hardly any maintenance costs. The obligation to care for and, if necessary, make minor repairs (e.g., fencing) often falls to the tenant/lessee, and this should be clearly regulated in the contract. In hereditary lease agreements, the leaseholder is fully responsible for the maintenance of their building.
Additional useful links
The Federal Statistical Office provides tables on residential property price indices that are relevant for assessing rent and lease rates.
The German Bundestag offers information on land valuation, often in the form of scholarly services that highlight legal and economic aspects.
The IHK Munich provides comprehensive information on the design of commercial rental and lease contracts and gives practical advice for businesses.
The Federal Ministry of Justice provides the full text of the Civil Code (BGB), which contains fundamental regulations for rental and lease agreements.
The Federal Ministry of Justice offers access to the Land Lease Traffic Act, which contains specific regulations for agricultural lease agreements.
The Federal Statistical Office publishes a special analysis on purchase values for agricultural and forestry land, offering insights into the agricultural market.
The Federal Ministry of Finance offers an application for the allocation of purchase prices for land, which is relevant for tax aspects of acquisition and sale.
FAQ
Which is more sensible: renting or leasing land?
That depends on your intended use. If you only want to use the plot (e.g., as a garden), renting with more flexible terms starting from 1 year is often sufficient. If you plan to generate income (agriculture, business), leasing is necessary, which often involves long-term contracts of over 10 years.
How is the lease rent for a property determined?
The lease rent can be freely negotiated. It is often based on the potential yield (e.g., 5-10% of the yield), location, and type of use. In the case of a hereditary lease, it usually amounts to 3-6% of the property's value per year. There are fixed and variable models.
What documents do I need to rent or lease a plot of land?
A detailed lease or tenancy agreement that outlines all rights and obligations is important. Tenant information, credit reports (e.g., SCHUFA), and a usage concept for commercial use are often required. An excerpt from the land register can provide clarity about ownership and encumbrances (e.g., rights of way).
Can I terminate a lease early?
A fixed-term lease contract typically expires at the end of the agreed period (e.g., after 10 years). Regular termination is usually not possible during the term. Extraordinary terminations are only possible in cases of serious breaches of contract. Open-ended contracts can be terminated with statutory or contractually agreed notice periods (often 6 months to the end of the lease year).
What happens to my lease if the land is sold?
As a rule, the principle 'purchase does not break lease' applies. This means that the lease agreement remains in place and is continued with the new owner. Exceptions may exist if specific arrangements for the sale have been made in the lease contract, which is rare (less than 5% of contracts).
Who bears the maintenance costs for a rented or leased property?
For an undeveloped plot, the landlord/lessor incurs minimal maintenance costs. The responsibility for upkeep and potentially minor repairs (e.g., fence) often lies with the tenant/lessee, and this should be clearly outlined in the contract. In the case of hereditary lease, the hereditary leaseholder is fully responsible for the maintenance of their building.
