The need for compensation payments for buildings when hereditary building rights expire is low in practice. This is evident from the latest Hereditary Building Rights Monitor of the German Hereditary Building Rights Association. The association largely attributes this development to the fact that contracting parties often agree on an extension or renewal of the agreement before the regular term ends.
For the survey, 138 hereditary building rights grantors from across Germany were interviewed. The sample predominantly included municipalities, churches, and ecclesiastical foundations. The results of the survey prove that 70 percent of the involved hereditary building rights grantors registered not a single compensation case in the past year. Another 20 percent reported between one and five such cases. Seven percent of the institutions recorded six to ten buildings for which compensation had to be paid. Only three percent stated that they had more than ten compensated structures at the end of the contract.
Legal foundations and contractual arrangements
The Hereditary Building Rights Act (ErbbauRG) regulates the case of a regular expiry of a hereditary building right. Upon the extinction of the right, the structure falls to the landowner. According to § 27 Para. 1 ErbbauRG, the owner is fundamentally obliged to pay compensation to the hereditary building right holder for the structure. However, it is possible to make alternative agreements in the hereditary building rights contract regarding the amount and type of payment, as well as a potential exclusion of compensation.
If the hereditary building right is explicitly established to satisfy the housing needs of low-income population groups, the compensation must amount to at least two-thirds of the common value of the structure at the time the hereditary building right expires. This legal requirement is reflected in actual contractual practice: 74 percent of hereditary building rights grantors provide for compensation amounting to two-thirds of the building value in their contracts. Eleven percent of contracts even guarantee compensation of 100 percent of the building value. Thirteen percent of institutions use other arrangements, while only two percent have implemented no compensation regulation at all in their contracts.
Stability of the hereditary building rights instrument
Ingo Strugalla, President of the German Hereditary Building Rights Association, notes that in the association's work, there is a growing tendency to agree on 100 percent compensation. The low number of actual compensation cases upon expiry of hereditary building rights, in his estimation, underscores the stability and long-term nature of this real estate instrument. In practice, neither the hereditary building rights grantor nor the hereditary building rights holder has a majority interest in letting the contract expire. Instead, in many cases, the parties seek dialogue years before the contract ends to agree on an extension or a new agreement.
