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Do you own land and are considering leasing it? A wise decision! Leasing can be a lucrative source of income. But before you start, there are some important things to consider. Discover everything you need to know in this article, from contract structuring to maximizing returns. Need support in optimally marketing your property? Contact us now for a non-binding consultation!
The leasing of a property offers an attractive opportunity to generate additional income, especially through the use of conversion areas for solar parks.
A written lease agreement is essential to clearly regulate the rights and obligations of both parties and to avoid legal disputes. Adherence to the written form is particularly important for long-term contracts.
In the case of a sale of leased land, the principle "sale does not break lease" applies. The buyer enters into the existing lease agreement, which can influence the sale price. Open communication with both the lessee and the buyer is crucial.
Do you want to optimise the use of your property and achieve attractive lease income? Leasing land offers an excellent opportunity to transform unused land into a reliable source of income. It is important to understand the various aspects of leasing to maximise the value of your land and avoid legal pitfalls. In this guide, you will learn how to increase your return by leasing your land and which legal aspects you need to consider.
What does leasing mean and why is it relevant?
Leasing differs from renting mainly through the right of fruit enjoyment. This means that the lessee has the right to derive economic benefit from the land, for example, through the cultivation of crops or animal husbandry. In contrast, renting is merely the provision of land for use. Leasing is particularly relevant because it allows landowners to generate income without having to give up ownership. This is especially attractive in times of rising land prices and the need to use areas efficiently.
The relevance of leasing lies also in its versatility. It can be used for both agricultural purposes and commercial projects such as solar farms or storage facilities. Leasing can bring conversion areas, which would otherwise be difficult to utilise, to a sensible use. This not only contributes to an increase in the land's value but also to the promotion of sustainable projects and the creation of new jobs. Therefore, leasing offers a win-win situation for both landowners and lessees.
Overview of the different types of leasing
There are various types of leasing, which differ according to the type of land use. The most common form is the leasing of agricultural land, where the lessee uses the land for cultivating crops or raising livestock. Another significant form is commercial leasing, for example, for solar farms, warehouses, or industrial estates. The leasing of conversion areas, such as former industrial sites, is also gaining importance. These areas can often only be put to sensible use through special utilisation, like establishing a solar farm.
The leasing for solar farms is particularly attractive as it provides a long-term and stable income source. Solar farms generally require a minimum area of 10,000 m² and should have minimal shading. Lease agreements for solar farms are often long-term and offer the landowner a reliable return over many years. Furthermore, leasing for solar farms contributes to the energy transition and supports the expansion of renewable energies. For more information on commercial properties, you can read our article 'Commercial Properties: Purchase and Usage Overview'.
The legal foundations of land leasing are complex and require careful attention. A central aspect is freedom of contract, which allows the contracting parties to largely freely design the terms of the lease agreement. However, there are also limits to freedom of contract, especially in long-term lease agreements. It is important to be informed about the applicable laws and regulations to avoid legal pitfalls and to ensure a long-term and successful lease.
Freedom of contract and its limits
Freedom of contract enables you to individually agree on the terms of the lease agreement. However, there are certain legal regulations that must be observed. In particular, for agricultural and forestry leases with a term of more than two years, the written form is mandatory. This means that the lease agreement must be concluded in writing to be valid. Oral agreements are not sufficient in this case and can lead to the invalidity of the contract. The legal aspects of leasehold properties should therefore be examined carefully.
The written form requirement protects both contracting parties. It ensures that all essential contractual terms are recorded in writing and can be proven in the event of a dispute. Additionally, the written form provides greater legal certainty and helps to avoid misunderstandings. It is therefore advisable to choose the written form even for shorter lease agreements to avoid future disputes. Compliance with the written form is an important step to ensure a successful and legally secure lease.
Contents of a lease agreement
A lease agreement should contain certain minimum information to clearly regulate the rights and obligations of both parties. These include the term and notice periods, the lease payment and payment terms, the usage rights and restrictions, as well as the maintenance obligations and duty of care. Precise wording of these points is crucial to avoiding disputes and ensuring a smooth lease.
The term can be fixed or indefinite. For indefinite contracts, there is a statutory notice period of one year, which may be extended to two years in certain circumstances. The lease payment can be agreed as either a fixed amount or a turnover-based amount. The usage rights should be precisely defined to ensure that the tenant uses the property only for the agreed purposes. The maintenance obligations govern who is responsible for the maintenance of the property, while the duty of care ensures that the property is safe and poses no hazards to third parties. Further information on the lease agreement provisions can be found online.
Special regulations for agricultural land (LPachtG)
Special regulations apply to the leasing of agricultural land, which are set out in the Agricultural Lease Act (LPachtG). This law contains specific provisions on notice periods and lease payments as well as the protection of the tenant. The notice limits are often stricter than for other leases, and the tenant enjoys special protection against termination. It is therefore important to become familiar with the provisions of the LPachtG before leasing agricultural land to avoid legal problems. Our article on the advantages of leasing provides further insights into this topic.
The LPachtG is intended to ensure that agricultural land is managed long-term and the livelihood of farmers is secured. It therefore contains regulations that protect the tenant from arbitrary termination and offer them a long-term perspective. The amount of the lease payment is also regulated in the LPachtG to ensure appropriate compensation for the lessor without overburdening the tenant. Compliance with the provisions of the LPachtG is crucial for a successful and legally secure lease of agricultural land.
The lease payment is a crucial factor for the profitability of leasing land. Therefore, a careful determination of the lease payment is essential to achieve adequate compensation for the lessor while not overburdening the lessee. Various factors play a role in this, such as the location, size, and use of the land as well as the market-standard lease prices in the region. The tax treatment of the lease payment is also an important aspect that should be taken into account when setting it.
Determining an appropriate lease payment
To determine an appropriate lease payment, it is important to research the market-standard lease prices in the region. This can be done, for example, by consulting lease price indexes or by seeking advice from local experts. The location, size, and use of the land also play a significant role. Generally, land in a good location or with special usage potential achieves higher lease prices than less attractive land. The differences between rent and lease should be noted here.
The size of the land affects the lease payment in that larger plots often achieve a lower lease payment per square metre than smaller plots. The use of the land is also an important factor. For example, land that is suitable for the construction of solar parks often achieves higher lease prices than agricultural land. It is therefore important to consider all relevant factors to determine a fair and market-appropriate lease payment.
Tax treatment of the lease payment
The lease payment is subject to tax. For you as the lessor, the lease payment is taxable income, which you must declare in your income tax return. However, you can deduct certain advertising costs from your lease income to reduce your tax burden. These include, for example, maintenance costs, property tax, and interest on loans. For the lessee, the lease payment is a business expense that can be deducted from their profit.
The tax treatment of the lease payment is a complex issue that depends on various factors. It is therefore advisable to seek advice from a tax consultant to take advantage of all tax benefits and avoid mistakes. Careful planning and documentation of income and expenses is crucial to optimise your tax burden and provide a correct tax return. The tax aspects should therefore be examined carefully.
Leasing land for photovoltaic systems offers an attractive opportunity to generate long-term income while contributing to the energy transition. In particular, conversion areas and disadvantaged regions are well suited for establishing solar farms. Certain factors must be considered, such as the minimum size and shading of the land, as well as the contractual specifics of solar lease agreements.
Benefits of Leasing for Solar Farms
Leasing for solar farms offers several benefits to you as a landowner. Firstly, it provides a long-term source of income since lease agreements often extend over many years. Additionally, you contribute to the energy transition by supporting renewable energy generation. Furthermore, conversion areas, which might be difficult to utilize otherwise, can be put to meaningful use. The benefits of leasing are diverse.
The long-term source of income is particularly attractive as it offers stable and predictable returns. Solar farm lease agreements are often set for 20 years or more, providing high planning security. The contribution to the energy transition is another important advantage. By leasing your land for a solar farm, you help reduce greenhouse gas emissions and decrease reliance on fossil fuels. This is a crucial step in reaching climate goals and ensuring a sustainable energy supply.
Suitable Areas for Solar Farms
Not every plot of land is suitable for establishing a solar farm. Conversion areas and disadvantaged regions, which are often difficult to use otherwise, are particularly suitable. The minimum size and shading of the land also play a significant role. Solar farms generally require a minimum area of 10,000 m² with as little shading as possible to achieve high energy yield.
Conversion areas include former industrial sites, landfills or brownfield sites, for example. These areas are often affected by contamination or other environmental challenges, making them difficult to use for other purposes. Establishing a solar farm offers an opportunity to put these areas to meaningful use and contribute to the energy transition. The suitability of areas for solar farms is an important factor.
Contractual Specifics of Solar Lease Agreements
There are several contractual specifics to consider in solar lease agreements. These include the duration and decommissioning obligations, as well as the lease payment models. The duration of the contracts is often very long to amortise the high investment costs of solar farms. The contract should specify who is responsible for the decommissioning of the facility after the contract term ends. In terms of lease payments, there are various models, such as a fixed lease payment or a revenue-based lease payment.
The duration of solar lease agreements is often 20 years or longer. This is necessary to amortise the high investment costs of solar farms and ensure a sufficient return. The decommissioning obligations should be clearly stipulated in the contract to ensure the land is restored to its original condition after the contract term. For the lease payment, there are various models, such as a fixed lease payment or a revenue-based lease payment. A revenue-based lease payment might be more attractive to you as a landowner, as you benefit from the solar farm's profits. The contractual specifics are important to consider.
Even if your land is leased, you can generally sell it. However, the principle of "purchase does not break lease" applies, meaning that the buyer enters into the existing lease agreement and assumes all rights and obligations of the landlord. This can affect the sale price and sales modalities. It is therefore important to be fully informed before selling and to know the rights and obligations of both landlord and tenant.
"Purchase does not break lease" – Effects on the Sale
The principle of "purchase does not break lease" means that the buyer of leased land automatically enters into the existing lease agreement. He assumes all rights and obligations of the landlord, including the obligation to pay rent and comply with contractual agreements. This can affect the sale price, as leased land is often worth less than unleased land. The effects on the sale are varied.
The assumption of the lease agreement by the buyer means that he must adhere to the agreed term, notice periods, and usage rights. He cannot simply terminate the lease or change its conditions. This can be disadvantageous for the buyer if he wishes to use the land for other purposes or disagrees with the lease terms. It is therefore important to carefully review the lease agreement before purchasing and to know the rights and obligations of both landlord and tenant.
Depreciation Due to Existing Lease Agreement
An existing lease agreement can lead to a depreciation of the land. The degree of depreciation depends on various factors, such as the remaining term of the lease and the rent. The longer the remaining term and the higher the rent, the greater the depreciation usually is. The type of use of the land can also play a role. For instance, land leased for a solar park may be worth less than land leased for agricultural purposes.
The remaining term of the lease is an important factor as it limits the buyer's flexibility. The longer the term, the fewer opportunities the buyer has to use the land for other purposes or to change the lease agreement. The rent also plays a role, as it affects the return on the land. A high rent can shrink the return on the land, thus reducing its value. The depreciation is an important factor.
Tenant's Right of First Refusal
In some cases, the tenant has a right of first refusal for the leased land. This means that the tenant has the right to purchase the land under the same conditions as another buyer. Whether a right of first refusal exists depends on the provisions of the lease agreement. It is therefore important to carefully review the lease agreement before selling to determine whether a right of first refusal exists.
The review of the lease agreement for rights of first refusal is an important step to avoid legal issues. If a right of first refusal exists, the tenant must be informed of the sale and given the opportunity to exercise this right. If the tenant exercises their right of first refusal, the purchase contract is concluded with them. If the tenant does not exercise this right, the land can be sold to another buyer. The legal aspects must be considered.
Communication with Tenant and Buyer
Open and transparent communication with the tenant and the buyer is crucial for a successful sale. The tenant should be informed early about the planned sale to avoid misunderstandings. The buyer should also be informed of all relevant aspects of the lease agreement to enable an informed decision. The communication is a key factor.
The information of the tenant about the planned sale should occur as early as possible. This allows the tenant to adjust to the new situation and, if necessary, exercise their right of first refusal. Informing the buyer about all relevant aspects of the lease agreement is also important, including the term, notice periods, usage rights, and rent. Open and transparent communication helps to strengthen trust between the parties and ensure a smooth sales process.
When leasing land, there are several pitfalls you should avoid. These include open-ended lease agreements, verbal agreements, and failing to check the tenant's creditworthiness. Seeking legal advice is also advisable to avoid errors and protect your interests.
Open-ended Lease Agreements
Open-ended lease agreements can pose a risk as they often prove difficult to terminate. It is therefore advisable to enter into fixed-term leases to ensure greater flexibility. Open-ended contracts often have long notice periods, making it challenging to use the land for other purposes at short notice. It's important to consider the risks of open-ended contracts.
The cancellation options for open-ended contracts are often limited. Therefore, it’s crucial to familiarize yourself with the applicable notice periods and conditions before signing an open-ended lease. In some cases, it may be difficult to terminate an open-ended lease early, even if the tenant does not fulfill their contractual obligations. Hence, it's advisable to carefully weigh the pros and cons of fixed-term versus open-ended leases and make an informed decision.
Verbal Agreements
Verbal agreements are off-limits when leasing land. All agreements should be documented in writing to avoid misunderstandings and disputes. A written lease agreement provides legal certainty and serves as evidence in the event of a dispute. The significance of a written lease cannot be underestimated.
The advantages of a written lease agreement are clear. It ensures that all essential contract terms are documented and can be proven in case of a dispute. Furthermore, a written lease provides higher legal security and helps avoid misunderstandings. It is therefore advisable to choose the written form even for shorter leases to prevent future conflicts. Adhering to the written form is a crucial step in ensuring successful and legally secure leasing.
Checking the Tenant's Creditworthiness
Before signing a lease, you should check the tenant's creditworthiness to ensure they are solvent. A credit check can be conducted, for example, by obtaining a credit report or requesting references. Ensuring the tenant's solvency is crucial.
Checking the creditworthiness of the tenant is a vital step to avoid financial losses. If the tenant is insolvent, it can be difficult to collect the lease payments. In the worst-case scenario, it might even lead to a legal dispute, incurring significant costs. Therefore, it is advisable to conduct a credit check before signing a lease and confirm the tenant's solvency.
Seeking Legal Advice
It is advisable to seek legal advice before signing a lease to avoid mistakes and protect your interests. A lawyer can review the lease agreement and inform you about your rights and obligations. The review of the contract by a lawyer is recommended.
The benefits of legal advice are clear. A lawyer can examine the lease for legal pitfalls and inform you about your rights and duties. They can also help negotiate the lease and enforce your interests. While seeking legal advice comes with costs, it can pay off in the long run by helping to avoid legal problems and protect your interests.
Finding the right tenant is crucial for a successful land lease. There are various ways to find potential tenants, such as regional networks and agricultural chambers, as well as online platforms and property portals. The selection of the tenant should also be done carefully to ensure they are reliable and solvent.
Where can I find potential tenants?
There are several ways to find potential tenants. One way is using regional networks and agricultural chambers. These organisations often have contacts with farmers and other interested parties looking for lease land. Another option is the use of online platforms and property portals that specialise in the brokerage of lease land. The search for tenants can be diverse.
The regional networks and agricultural chambers offer the advantage of having local knowledge and contacts. They can help you find suitable tenants in your area and support you in negotiating the lease contract. The online platforms and property portals offer the advantage of a wide reach and give you access to a large pool of potential tenants. It is therefore advisable to use various channels to find the best tenants.
What should be considered when selecting a tenant?
When choosing a tenant, you should consider several factors. These include the tenant's experience and references, their financial stability and creditworthiness, as well as their suitable usage concepts. It is important to find a tenant who is reliable, solvent, and capable of properly managing the land. The selection of the tenant should be done carefully.
The tenant's experience and references provide insight into their capabilities and reliability. You should inquire about their previous projects and obtain references to ensure they can successfully manage the land. The tenant's financial stability and creditworthiness are also important to ensure they can pay the lease regularly and on time. The tenant's suitable usage concepts should align with your ideas and ensure that the land is managed properly and sustainably.
Leasing your land offers you an attractive way to optimally utilise your property and achieve appealing rental income. However, it's important to understand the various aspects of leasing and to adhere to the legal frameworks. With careful planning and preparation, you can leverage the opportunities of leasing and optimise your return.
Summary of Key Points
The key points in leasing land are setting an appropriate lease rate, complying with legal frameworks, checking the tenant's creditworthiness, and carefully selecting the tenant. Seeking legal advice is also advisable to avoid mistakes and protect your interests. The property's transport links can also be an important factor.
Setting an appropriate lease rate is crucial for the profitability of the lease. Compliance with legal frameworks is important to avoid legal issues. Checking the tenant's creditworthiness ensures they are financially reliable. Carefully selecting the tenant guarantees that the property is properly managed. Seeking legal advice protects your interests and helps avoid mistakes.
Trends and Developments in Land Leasing
There are various trends and developments in land leasing. These include the increasing importance of solar parks, rising demand for conversion areas, and the digitisation of lease agreements. Sustainability is also playing an ever-greater role in land leasing. It is important to consider the current trends.
The increasing importance of solar parks is due to the energy transition and the expansion of renewable energies. The rising demand for conversion areas stems from the necessity to put unused areas to good use. The digitisation of lease agreements simplifies the management and conclusion of leases. Sustainability is playing a growing role as more and more tenants value environmentally friendly land management.
The Future of Leasing – Opportunities and Challenges
The future of leasing presents both opportunities and challenges. The opportunities lie in the growing demand for leased land, the increasing importance of solar parks, and the digitisation of lease agreements. The challenges lie in the increasing requirements for sustainability, the complex legal frameworks, and the necessity of determining a market-appropriate lease rate. The future of leasing is promising.
The growing demand for leased land is due to population growth and increasing urbanisation. The increasing importance of solar parks is due to the energy transition and the expansion of renewable energies. The digitisation of lease agreements simplifies the management and conclusion of leases. The increasing requirements for sustainability demand environmentally friendly land management. The complex legal frameworks require careful planning and preparation. The necessity of determining a market-appropriate lease rate requires thorough analysis of the market and the individual circumstances. Do you want to optimally utilise your land and achieve attractive lease income? Contact us today for individual advice and let us find the best options for your property together. Contact us here.
Conclusion and Outlook
Leasing land is an attractive opportunity for owners to generate passive income and make optimal use of their land. Careful planning, transparent communication, and a well-drafted lease agreement are crucial for successful leasing. What trends will shape the future of land leasing, and what opportunities and challenges will arise from them? The importance of careful planning is crucial. A proactive adaptation to changing conditions can help you succeed in the long term.
The Importance of Careful Planning and Contract Design
Careful planning and contract design are essential for successful leasing. Take the necessary time to define your goals and expectations, select the right tenant, and draft a lease agreement that clearly and unambiguously covers all important points. Professional advice can help you consider all aspects and develop the optimal strategy for your individual situation. Good preparation is half the battle.
Future Trends in Land Leasing
The future of land leasing will be shaped by various trends. These include the increasing importance of renewable energies, the growing demand for organically managed land, and the digitisation of agriculture. The flexibility and adaptability of lease agreements will also play an ever-increasing role in meeting the changing needs of lessors and lessees. Proactively adapting to these trends can help you succeed in the long term and make the most of leasing opportunities.
Do you want to make optimal use of your land and generate attractive lease income? Auctoa supports you in accurately determining the value of your property and finding the ideal leasing solution. Contact us today for a non-binding consultation and maximise your return! Get in touch now!
The Juraforum offers a glossary on the legal aspects of leased land.
Milk the Sun provides information on leasing land, particularly for solar parks.
Solar Direktinvest explains the benefits of leasing open spaces for photovoltaics and the specifics of lease agreements.
Kanzlei Herfurtner highlights the legal aspects of selling a leased property.
Handelsblatt discusses current legal aspects of land leasing.
What is the difference between lease and rent for a plot of land?
The main difference lies in the right to derive profits. In a lease, the lessee can derive economic benefit from the land (e.g., through cultivation), while rent only allows for usage.
What factors influence the amount of lease rent?
The amount of lease rent depends on the location, size, condition, and usability of the land. The market standard lease prices in the region also play a role.
What is the minimum area required for leasing a plot for a solar park?
A minimum area of 10,000 m² is usually recommended for a solar park to ensure economic viability.
What should be considered when terminating a lease agreement?
The notice periods vary depending on the type of lease agreement. For agricultural land, the period is often six months to the end of the lease year.
Which tax aspects should be considered when leasing out a plot of land?
The lease rent is a taxable income for the lessor. However, they can deduct advertising expenses such as maintenance costs. For the lessee, the lease rent is a business expense.
What does the principle "sale does not break lease" mean?
This principle means that a purchase of the plot does not terminate the existing lease agreement. The buyer assumes the lease agreement and takes over all the rights and obligations of the lessor.
What are the risks associated with unlimited lease agreements?
Unlimited lease agreements can be difficult to terminate and might restrict the landowner's flexibility. It is advisable to enter into fixed-term contracts.
How can I find a suitable lessee for my plot of land?
You can use regional networks, agricultural chambers, and online platforms to find potential lessees. Pay attention to the creditworthiness and experience of the lessee.
