Do you own a piece of land and wonder whether renting or leasing is the better strategy? The answer depends entirely on your financial goals and planned use. This guide breaks down the key differences and shows you how to make the most profitable and secure choice.
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The topic briefly and concisely
The main difference is the 'usufruct': lease allows profit-making from the property (§ 581 BGB), rent only allows its pure use.
Leasehold contracts often have terms of 60-99 years, but they carry the risk of rising lease rents and the 'reversion' in case of payment default.
Tenants with leases have greater responsibility for maintenance than regular tenants; the specific obligations must be detailed in the contract.
The decision to provide a piece of land is more than a mere formality; it is a strategic decision for your assets. While the terms 'rent' and 'lease' are often used synonymously, they conceal fundamentally different legal and economic concepts. The crucial difference lies in the 'right of usufruct' – the ability to generate profits from the property. Incorrect assumptions can lead to financial disadvantages of over 10%. We analyse the critical factors for you, from contract duration to costs, and show you which path is right for your project.
The Foundation: Rent vs. Lease and the Factor of 'Fruit Extraction'
The fundamental difference between renting and leasing is clearly defined in the Bürgerliches Gesetzbuch (BGB - German Civil Code). In a rental contract, you permit use of your property solely for enjoyment purposes. For example, a tenant may spend their leisure time on it but may not gain any economic benefits. Leasing takes a crucial step further: it explicitly allows the lessee to 'derive profits,' meaning earning income from the property.
A simple example illustrates this:
Rent: A tenant may have a picnic in an orchard. However, they are not allowed to harvest and sell the apples.
Lease: A lessee may cultivate the same orchard, harvest the apples, and keep the profits. This applies to agriculture as well as running a restaurant or nursery.
This distinction has far-reaching implications for contractual arrangements and selecting the right contractual partner. For most private construction projects, a straightforward property rental is hardly an option. Leasing is a much more common model if active use is planned.
Contractual Terms: Duration, Termination, and Costs
Lease agreements are often designed for a significantly longer term than rental agreements. Particularly with what is known as hereditary lease, terms of 60 to 99 years are the norm to provide the lessee with planning security for construction projects. Rental agreements are more flexible and often have a shorter term. A lease agreement can generally only be terminated at the end of a lease year with a six-month notice period, although longer periods can be agreed upon.
The cost structure also differs fundamentally:
Rent: The rent is almost always a fixed monthly amount.
Lease rent: The lease rent can be fixed or revenue-based. Especially in commercial use, models are common where the lessor receives a percentage of the profit.
The average lease price for arable land in 2020 was around €518 per hectare, with significant regional differences. For lease agreements with a term of over two years, the written form is also legally required to provide legal certainty for both parties.
Rights and Responsibilities: Who Bears the Responsibility?
The distribution of responsibility and maintenance obligations is another critical point. In a rental agreement, the duty for major repairs and maintenance work typically remains with the landlord. The tenant is only responsible for using the property in accordance with the contract and for minor cosmetic repairs. In the case of a lease, this responsibility shifts significantly. The lessee often bears a greater burden in terms of maintenance and potential improvements to the property.
The lessor is legally obliged to hand over and maintain the property in a condition that allows proper management. Exactly what this means should be detailed in the lease agreement, to avoid conflicts later on. This also includes regulations on the assumption of operating costs such as property tax or waste disposal. Subletting is only permitted for the lessee with the express permission of the lessor.
Special Case of Leasehold: Building on Someone Else's Land
For many private developers, leasehold is the only type of lease that comes into consideration. The biggest advantage: You don't have to buy the land, thus saving on high initial investments. Given that the average price for building land in Germany is €247.18 per square meter (Q2 2024), this can mean a saving of over €150,000 for a typical plot. Additionally, you often gain access to attractive plots in locations where owners – often churches or municipalities – do not wish to sell.
However, there are significant risks. You will never own the land. After the contract expires (e.g., after 99 years), the land along with the property reverts to the owner, who must pay compensation – but this is often below the actual market value. Another risk is the 'reversion': if the leaseholder fails to pay the ground rent for more than two years, the contract can be prematurely terminated. Also, the ground rent can be adjusted to the market value every three years, which could result in increases of several hundred percent after decades.
Strategic Decision: When is renting worthwhile, when is leasing?
The choice between renting and leasing depends on the intended use. A clear analysis of your goals is the first step. Do you need a quick, data-driven assessment of your property's potential? The ImmoGPT chat by Auctoa can provide you with an initial assessment in under 60 seconds.
Here is a checklist to guide you:
Choose renting if: You are planning simple, non-commercial use. Examples include renting as a parking space for a motorhome, as storage space, or as a private garden without intensive cultivation. The contracts are more flexible, and the owner's responsibilities are more clearly defined.
Choose leasing if: You intend to reap benefits from it. This is the case in agriculture and forestry, operating solar parks, hospitality, or when a tiny house or a fully-fledged home (hereditary building right) is to be erected.
A crucial tip for lessors: Always agree on a pre-emption right in the contract. If the owner wants to sell the property, this gives you the opportunity to acquire it before third parties and secure your investments. A missing pre-emption clause is one of the most common mistakes in lease agreements.
Conclusion: With a clear strategy to optimal returns
The decision of whether to rent or lease your property is not one to be made on a whim. It requires a thorough analysis of the legal differences and a clear definition of your economic goals. While renting is a straightforward usage agreement, leasing opens up a wide range of economic opportunities through the right to profit, but it also brings more responsibility for the lessee. Especially leasehold can make the dream of homeownership possible, but it carries long-term risks that require professional assessment. A well-founded, AI-supported analysis, like the one offered by Auctoa, protects you from costly mistakes and secures the value of your property for decades. Make your decision based on data, not assumptions.
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Additional useful links
Wikipedia provides a comprehensive overview of the lease agreement in Germany.
The Federal Statistical Office (Destatis) offers a press release here with relevant price or economic data on land or property.
Tables on land purchase values can be found at the Federal Statistical Office (Destatis).
The Federal Ministry of Food and Agriculture (BMEL) provides statistics on lease prices and purchase values in agriculture.
The Land Lease Traffic Act (LPachtVG) is available on the "Laws in the Internet" platform of the Federal Ministry of Justice.
The Civil Code (BGB), relevant for contract law and leases, is also available via "Laws in the Internet".
The IHK Munich provides information on commercial rental and lease agreements.
FAQ
What contract durations are common in lease agreements?
The durations are very flexible. In agricultural leases, shorter, multi-year contracts are often common. For hereditary leases, which involve leasing land for construction, durations of 60 to 99 years are the norm, to provide long-term security to the builder.
Who pays the property tax on a leased plot?
Generally, operating costs, including property tax, can be passed on to the lessee. However, this must be explicitly agreed upon in the lease contract. Without such a clause, the owner remains liable for payment.
What does 'reversion' mean in the context of leasehold?
Reversion means that the property reverts to the owner ahead of schedule. Reasons for this include serious breaches of contract by the leaseholder, for example, if the ground rent is not paid for at least two years or if the property is used in a manner contrary to the contract.
Do I need a notary for a lease agreement?
A lease agreement does not necessarily require notarisation, but it must be concluded in writing if the term exceeds two years. An exception is the hereditary building right contract: As a real right equivalent to a property is established here, notarisation and registration in the land register are mandatory.
Can the rent be increased during the term?
Yes, that is possible. In leasehold agreements, the ground rent can be adjusted every three years to the development of the market value of the property. Often, owners refrain from doing this for years, which can then lead to sudden, drastic increases of several hundred percent.
What is a right of first refusal and why is it important?
A preemptive right contractually agreed upon gives the lessee the right to purchase the property should the owner wish to sell it to a third party. The lessee can then enter the purchase contract under the same conditions. This is an important safeguard for the lessee's investments.
