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benefits of leasing
Do you want to make the most of the benefits of leasing while saving on taxes? The complex nature of lease law and the associated tax aspects can quickly become pitfalls. Learn how to navigate these and maximise the potential of your leasing arrangements. Need personalised advice? Contact us for a non-binding analysis of your situation.
Leasing offers a flexible alternative to purchasing, especially for businesses and individuals who want to preserve their capital and diversify risks.
By optimising the contract design and carefully examining the leased property (Due Diligence), tax advantages can be realised and unexpected risks minimised, which can increase profitability by up to 15%.
Digitalisation and sustainability are shaping the leasehold industry, with innovative models such as leasing land for renewable energy and the use of online platforms enhancing efficiency and further increasing the attractiveness of leasing.
What Makes Leasing So Attractive
Leasing presents an attractive alternative to purchasing, especially when it comes to the use of real estate and land. But what exactly is behind the term leasing, and how does it differ from renting? At its core, leasing involves the granting of usage rights to items and rights in return for a fee. This can include a plot of land, a building, or even a farming operation. The main difference from renting lies in the fact that the leaseholder not only has the right to use the property but also to reap its benefits – for example, they may earn income from a leased field.
Definition and Distinction from Renting
Leasing is governed by the Civil Code (BGB) and involves handing over an item or right for use and the right to reap the benefits (§ 581 BGB). In contrast to renting, which focuses solely on usage, leasing allows the leaseholder to derive economic benefit from the item or right. This makes leasing particularly appealing for agriculture, gastronomy, and other commercial sectors where generating income is central. The line between leasing and renting is often not clearly defined and depends on the specific terms of the contract. A tax advisor can provide valuable support here.
Advantages of Leasing for Leaseholders
For leaseholders, leasing offers several advantages. One of the most significant is the lower capital requirement compared to purchasing. Instead of paying a large sum to acquire a property, the leaseholder pays only a regular leasing fee. This allows capital to be freed up for other investments or core business activities. Additionally, leasing provides high flexibility in the use and design of the leased property. Within contractual agreements, the leaseholder can adapt the property to their individual needs. Another advantage is risk diversification. As the leaseholder is not the owner of the property, they do not assume full risk in the event of depreciation or unforeseen circumstances. This enables a focus on core business and a reduction in entrepreneurial risk.
Advantages of Leasing for Lessors
Leasing also offers attractive advantages for lessors. The security of regular income through leasing fees is a key aspect. These regular payments can provide a stable financial foundation. Additionally, the leaseholder generally contributes to the maintenance of the leased property's value through usage. An empty property can deteriorate faster than one that is used and maintained regularly. Moreover, the lessor retains the option of later selling the property. Leasing thus represents a flexible form of capital investment that offers both short- and long-term benefits. Our page on leasing land offers further information.
Transfer Tax and Lease: What You Need to Know
The tax implications of leasing are varied and should be carefully considered by both lessee and lessor to make the most of financial advantages and avoid unexpected burdens. A key point is the transfer tax, which is applicable when purchasing properties. But how does it apply to lease agreements? Generally, pure leases do not incur transfer tax as there is no transfer of ownership. However, there are exceptions, particularly with long-term lease agreements or purchase options. If a lease agreement is structured to be economically similar to a purchase, the transfer tax may still apply. It is advisable to examine the contract structure carefully and seek legal advice if necessary.
Application of the Transfer Tax
When leasing land and properties, the question often arises as to whether and when the transfer tax is applicable. Typically, this is not the case with pure lease relationships, as no ownership transfer takes place. However, an exception is made for long-term lease agreements or arrangements with purchase options. If the lease duration, for instance, is so long that it resembles a purchase economically, or if the lessee has the right to acquire the property at a later date, the transfer tax may become relevant. The precise regulations are detailed in the Transfer Tax Act (GrEStG) and can be complex. It is recommended to consult a tax advisor to examine the specific tax implications. Further information on transfer tax can be found on Haufe.de.
Optimising Transfer Tax through Contract Design
There are various ways to optimise transfer tax through contract design. An important strategy is the separate disclosure of inventory and building value in the lease agreement. Since the transfer tax is only levied on the value of the land and building, separately itemising movable items such as fixtures or machinery can reduce the tax burden. Additionally, for new constructions, observing the so-called 'holding period' is relevant. If there is a significant time gap between acquiring the land and starting construction, it can result in tax advantages. It is advisable to consult with a tax advisor to explore all options for tax optimisation. Immobilienscout24 offers further information on this.
Income Tax Treatment of Lease Income and Expenses
The income tax treatment of lease income and expenses is another important aspect. Lease income is considered as income from renting and leasing and is taxed at the individual income tax rate. Conversely, lease expenses can be claimed as business expenses or advertising costs. This includes rent, as well as costs for maintenance and repairs. It is important to keep all relevant receipts carefully to justify expenditures to the tax office. Additionally, depreciation for wear and tear (AfA) can be taken into account to further reduce the tax burden. A tax advisor can help explore all opportunities for tax optimisation.
VAT Aspects of Leasing
VAT also plays a role in leasing. Generally, the leasing of land and buildings is subject to VAT if the lessor is an entrepreneur. The current standard tax rate of 19 percent applies, although in some cases a reduced rate of 7 percent may be applicable. An exception exists if the lessor is a small business under the VAT Act. In this case, VAT is not applicable. The lessee may have the opportunity for VAT deduction if they use the leased property for business purposes. However, certain conditions and limits must be observed. Correct documentation of all transactions is essential to claim the VAT deduction.
Der Pachtvertrag: The A and O for Tenants and Landlords
The lease agreement forms the legal basis for the lease relationship and should therefore be carefully crafted. It regulates the rights and obligations of both tenant and landlord and sets the framework conditions for the use of the leased property. The essential components of the contract include the leased object, the rent amount, and the lease term. Additionally, the usage rights and obligations of the tenant, as well as regulations regarding maintenance and repairs, should be clearly defined. Special clauses and agreements, such as those for rent adjustments or termination rights, can be sensible in individual cases. It is advisable to have the lease agreement reviewed by a lawyer to minimize legal risks.
Essential Components of the Contract
A well-crafted lease agreement is the foundation for a successful lease relationship. Indispensable elements include the precise designation of the leased object, the amount of rent, and the lease duration. Furthermore, the usage rights and obligations of the tenant should be described in detail. What can the tenant do with the object, and what restrictions are there? Regulations regarding maintenance and repairs are also of great importance. Who is responsible for which damages, and who bears the costs? Clear agreements on these points help prevent disputes. Our page on renting or leasing property offers further information.
Special Clauses and Agreements
In addition to the fundamental components of the contract, special clauses and agreements can be made in the lease agreement to meet the individual needs of the tenant and landlord. A common clause concerns the adjustment of the rent, for example through an indexed rent. This is where the rent is linked to the development of a specific price index in order to offset inflation effects. Termination rights and notice periods should also be clearly regulated in the contract. Under what conditions can the lease be terminated prematurely, and what notice periods must be observed? Another important clause is protection from competition, which may give the tenant the right to ensure that the landlord does not operate competing businesses near the leased property. It is advisable to seek legal advice when formulating such clauses.
Lease Duration and Termination
The lease duration and the termination modalities are essential aspects of the lease agreement. There are both fixed-term and open-ended leases. In the case of fixed-term contracts, the lease relationship automatically ends at the end of the agreed period, while open-ended contracts require termination. The legal regulations on lease duration are stipulated in the Civil Code (BGB). Unless extended, leases terminate but can be extended with the consent of both parties. The reasons and notice periods for termination are also governed by the BGB, distinguishing between ordinary and extraordinary termination. An ordinary termination must observe the statutory or contractually agreed notice periods, whereas an extraordinary termination is only possible for compelling reasons. The rights and obligations upon termination of the lease should be clearly defined in the contract to avoid disputes.
Liability and Warranty in Lease Relationships
Liability and warranty play an important role in lease relationships. The landlord is generally liable for material defects in the leased object that impair its intended use. The scope of the warranty obligation is regulated in the BGB. In the event of defects, the tenant has various rights, such as rent reduction or the right to claim damages. Conversely, the tenant is liable for damages to the leased object which they have caused culpably. They have the duty of care to handle the leased object carefully and protect it from damage. It is recommended to take out appropriate insurance to protect against liability risks.
Leasing of Agricultural Land: Specifics and Opportunities
The leasing of agricultural land is subject to special agricultural lease regulations. These include rent restrictions and lease duration. The agricultural lease law aims to ensure that farmers can plan and operate in the long term. As a result, lease durations are often longer than in other leasing arrangements. Additionally, the lessee may have a pre-emption right if the lessor wishes to sell the property. There are various subsidy programmes and grants that make leasing agricultural land attractive for farmers. These are offered by the EU as well as by national and regional authorities. It is advisable to inform yourself about current funding opportunities and to take them into account when planning.
Agricultural Lease Regulations
The leasing of agricultural land is particularly regulated by agricultural lease law. This serves to protect lessees and ensure long-term and sustainable management of the land. One of the key regulations includes rent restriction, to prevent excessive rental demands. In addition, lease durations are often longer than in other leasing arrangements to provide farmers with long-term planning security. Another important right of the lessee is the pre-emption right if the landowner wishes to sell the land. This allows the tenant to purchase the property themselves and continue their operations.
Subsidy Programmes and Grants for Farmers
To support agriculture, there are numerous subsidy programmes and grants available for farmers leasing agricultural land. These are offered by the EU as well as by national and regional authorities. The EU's agricultural subsidies are an important part of the Common Agricultural Policy (CAP) and include various measures to support agriculture. Additionally, there are numerous national and regional funding programmes that, for example, promote organic farming, business diversification, or investment in modern technologies. It is advisable for farmers to thoroughly inform themselves about current funding opportunities and to consider them when planning lease arrangements.
Leasing of Commercial Properties
Leasing commercial properties offers companies a flexible way to expand or relocate their business premises. Unlike renting, which focuses solely on the use of the premises, leasing allows the lessee to derive economic benefit from the property, such as operating a restaurant or hotel. The contractual arrangements are very individualised and should be tailored to the needs of the respective business. It is important that the lease agreement contains provisions for expansion and conversion measures, to allow the lessee to adapt the property to their specific requirements. Additionally, permits and regulations must be observed, such as building permits or fire safety regulations. Our page on commercial properties provides further information.
Leasing of Residential Properties
Leasing residential properties is a rather unusual form of leasing. Unlike renting, where the tenant only has the right to inhabit the property, leasing allows the lessee to derive economic benefit from the property, such as subletting to tourists. The distinction from renting is often difficult and depends on the specific agreements in the contract. It is important to consider the special legal aspects, particularly concerning tenant protection. Since the leasing of residential properties is rather uncommon, it is advisable to seek advice from a lawyer to minimise legal risks.
Due Diligence: Thoroughly Examine the Lease Object
To avoid errors in leasing, a thorough examination of the lease object is essential. This so-called Due Diligence involves both a technical and an economic analysis. The lessee should gain a comprehensive understanding of the condition of the lease object and identify potential risks and opportunities. This includes, for example, checking for contamination, building damage, or missing permits. The economic situation of the lease object should also be analysed, for example by examining turnover figures or customer frequencies. Additionally, it is important to check encumbrances and third-party rights, for example by inspecting the land register or the register of building encumbrances. A thorough due diligence helps to avoid unexpected surprises and to make an informed decision. Information about property transfer tax can be found here.
Technical and Economic Analysis
A comprehensive due diligence includes both a technical and an economic analysis of the lease object. The technical analysis involves assessing the condition of the lease object and identifying potential defects or damages. This includes, for example, examining the building fabric, building services, or energy efficiency. Contamination or environmental impacts should also be investigated. The economic analysis is about assessing the profitability of the lease object and identifying potential risks and opportunities. This includes, for example, examining turnover figures, customer frequencies, or the competitive situation. A careful technical and economic analysis helps to make an informed decision and avoid unexpected surprises.
Checking Encumbrances and Third-Party Rights
An important part of due diligence is checking the encumbrances and third-party rights on the lease object. This includes inspecting the land register to check whether the property is encumbered with mortgages, land charges, or other burdens. The register of building encumbrances should also be inspected to check whether building encumbrances are registered on the property that could restrict its use. Additionally, it is important to check easements and rights of way granted to third parties, allowing them to use or access the property. A thorough check of these aspects helps to minimise legal risks and make an informed decision.
Seek Expert Advice
Seeking expert advice is an important step to avoid errors in leasing. A tax advisor can help optimise the tax structure and advise on matters of VAT, income tax, and property transfer tax. A lawyer can review and draft the lease agreement and advise on legal risks and opportunities. An expert can assess the lease object and identify defects and damages. Working with experts helps to make an informed decision and minimise risks.
Using AI for Cost Reduction in Legal Advice
The use of AI for cost reduction in legal advice offers potential, but also bears risks. AI-based tools can support contract review or the research of legal information. However, they cannot fully replace the expert advice of a lawyer, especially in complex tax issues. It is important to recognise the potential and limitations of AI and use it as a supplement, not a replacement for expert advice. Particular caution is required with complex tax issues, as individual advice and expertise are essential.
Sustainability: Utilising Leasehold Areas for Renewable Energies
Sustainability and ecological considerations are becoming increasingly important in leasehold practices. A significant trend is the leasing of areas for renewable energies, such as for photovoltaic or wind power facilities. This enables contributions to the energy transition while also generating attractive lease income. The sustainable management of leasehold areas is also playing a growing role, focusing on activities like organic farming or biodiversity conservation. Lessors can make a positive environmental contribution by promoting sustainable management practices, thereby enhancing the value of their land.
Leasing Areas for Renewable Energies
Leasing areas for renewable energies, particularly for photovoltaic and wind power facilities, is a growing trend in the leasing sector. This offers attractive benefits for both lessors and lessees. Lessors can achieve attractive lease income by leasing their lands to operators of renewable energy facilities while contributing to the promotion of the energy transition. Lessees benefit from the opportunity to produce and utilise renewable energies, which can be both ecologically and economically beneficial. It is important to carefully examine legal and technical conditions and seek advice from experts.
Sustainable Management of Leasehold Areas
The sustainable management of leasehold areas is becoming increasingly significant. It involves managing the lands in a way that conserves natural resources and minimizes environmental impact. This can be achieved through organic farming, reducing pesticide use, or promoting the conservation of biodiversity. Lessors can contribute positively to environmental protection and enhance the image of their lands by promoting sustainable management practices. Lessees also benefit from sustainable management as it helps maintain soil fertility over the long term and reduces dependency on external resources.
Digitalisation in Leasehold Practices
Digitalisation is also entering the realm of leasehold practices. Online platforms for lease mediation simplify the search for suitable lease objects and offer transparent information. Digital lease contracts and management enable process automation and secure data storage. Thus, digitalisation provides potential for increased efficiency and cost reduction in leasehold practices.
Agriculture: Direct Marketing and Cooperatives as Success Factors
In agriculture, there are numerous successful leasing models that focus on direct marketing and farm shops. They enable the generation of regional value creation and the development of strong customer relationships. Cooperations and networks also play a crucial role, for instance by sharing resources or exchanging experiences. These models demonstrate that leasing in agriculture is not only a means of utilising land but can also contribute to the development of innovative business models.
Direct Marketing and Farm Shops
Direct marketing and farm shops are successful leasing models in agriculture. They allow farmers to sell their products directly to consumers, thereby achieving higher added value. Through direct contact with customers, farmers can better showcase their products and develop strong customer loyalty. This strengthens regional value creation and promotes agricultural sustainability. Leasing land for direct marketing and farm shops thus offers an attractive way to develop innovative business models in agriculture.
Cooperations and Networks
Cooperations and networks are vital for the success of leasing models in agriculture. By sharing resources, such as equipment or storage facilities, costs can be reduced and efficiency increased. Additionally, sharing experiences with other farmers can provide valuable insights for developing one's own business. Cooperations and networks enable farmers to support each other and collectively develop innovative solutions. Leasing land within the framework of cooperations and networks offers an attractive way to enhance the competitiveness of agriculture.
Commerce: Coworking Spaces and Pop-up Stores as Innovative Concepts
In the commercial sector, there are innovative leasing concepts like coworking spaces and flexible office solutions that cater to the needs of start-ups and freelancers. Pop-up stores and temporary usage concepts also provide flexibility and creativity, contributing to the revitalisation of city centres. These models indicate that leasing can be an attractive alternative to purchasing in the commercial sector, enabling innovative business models.
Lease: Flexibility, Low Capital Commitment, Risk Diversification
The lease offers an attractive alternative to purchasing, especially for companies and individuals who wish to remain flexible and conserve their capital. The benefits of leasing lie in flexibility, low capital commitment, and risk diversification. Lessors benefit from securing regular income and the opportunity to make long-term use of their properties. Therefore, leasing is a smart alternative to buying, providing attractive advantages for both lessees and lessors.
Summary of the Benefits of Leasing
Leasing offers a multitude of benefits compared to buying, for both lessees and lessors. For lessees, flexibility, low capital commitment, and risk diversification are of particular importance. They can adapt the leased asset to their individual needs without needing to make significant investments. Additionally, they do not bear the full risk of depreciation or unforeseen events. For lessors, leasing provides the opportunity to secure ongoing income and to make long-term use of the leased asset. Consequently, leasing is an attractive alternative to buying, offering both short- and long-term benefits.
Outlook on the Future of Leasing
The significance of leasing will continue to increase in a changing economy. The potential for innovative leasing models is diverse, for instance, in the area of renewable energy or the sharing economy. Leasing offers companies and individuals the ability to respond flexibly to changes and to develop new business models. Digitalisation will also further transform the leasing sector, for instance through the automation of processes or the development of online platforms for lease mediation.
Recommendations for Lessees and Lessors
To make the most of the benefits of leasing, careful planning and consultation are essential. Lessees should carefully examine the leased asset and inform themselves about the legal and tax aspects. Lessors should tailor the lease agreement individually and accommodate the needs of the lessee. A careful planning and consultation along with an individual contract design are the foundation for a successful lease relationship.
Do you want to make the most of the benefits of leasing and avoid costly mistakes? Our experts at Auctoa are happy to assist you in evaluating and selecting the appropriate leased asset. Contact us today to optimise your individual leasing strategy.
Leasing offers you numerous advantages, from reducing capital requirements to providing flexibility in adapting to market changes. However, careful planning and consideration of legal and tax aspects are crucial to fully capitalise on the leasing benefits. Whether in agriculture, business, or other sectors – leasing can be an attractive alternative to purchasing and help you achieve your financial goals.
The decision for or against leasing depends on your individual situation and strategic goals. A comprehensive consultation with experts is therefore essential to weigh the advantages and disadvantages and find the optimal solution for your business. Take advantage of the opportunities leasing provides and shape your future successfully!
Are you ready to discover the benefits of leasing for your business? We at Auctoa are ready to help you secure the best conditions and avoid costly mistakes. Our experts offer you comprehensive advice and tailored solutions.
Contact us today to start your personalised consultation and maximise the leasing benefits. Sign up for free and receive an immediate first assessment for your leasing projects!
On Haufe.de you will find detailed information about the property transfer tax and its application in various cases.
Kanzlei Herfurtner provides information about the property transfer tax in connection with land exchange.
What is the main difference between leasing and renting?
The main difference is that a lessee not only has the right to use, but also the right to derive income. For example, they can earn income from a leased field, whereas a tenant only has the right to use it.
Is land transfer tax applicable to leasing?
In principle, no land transfer tax is due on a pure lease, as no transfer of ownership takes place. Exceptions apply in the case of long-term lease agreements or purchase options that economically amount to a purchase.
What advantages does leasing offer to farmers?
Leasing agricultural land enables farmers to have lower capital commitment, flexibility in land use, and access to funding programmes and subsidies.
How can lessees optimise land transfer tax?
By separately identifying inventory and building value in the lease agreement, land transfer tax can be optimised, as the tax is only levied on the value of the land and the building.
What role does due diligence play in leasing?
A thorough due diligence includes a technical and economic analysis of the leased object, as well as the review of encumbrances and third-party rights, to avoid unexpected risks.
What significance does digitisation have in leasing?
Digitisation facilitates the search for suitable lease objects through online platforms and enables the automation of processes through digital lease agreements and management.
What benefits does leasing land for renewable energy offer?
Leasing land for photovoltaic or wind power plants allows one to contribute to the energy transition while generating attractive lease income.
How can lessees and lessors ensure that the lease agreement is legally secure?
It is advisable to have the lease agreement reviewed by a lawyer to minimise legal risks and ensure that all essential contractual elements are clearly defined.
