The particularities of lease and leasehold agreements

Lease agreements generally provide for the transfer of leased property for a fixed or indefinite period of time. In this type of contract there is a user, the lessee, who pays a fee, in this case called "rent", to the lessor. The contractual relationship is similar in structure to a rental agreement. However, a rental agreement only allows the tenant to use the rented property, while a lease agreement also authorises the lessee to "extract the fruits of the land".

This also contractually regulates the retention of income. If the leased object is an agricultural property or a farm, this can be actual fruit, but the term "extraction of the fruits of the land" goes back to the Latin term for property rights (usus fructus) and stands for all possible yields.

“Extraction of the fruits of the land” is also possible for leased rights, for example fishing rights.

To make the difference between rent and lease easy to understand, an orchard is often used as an example. A tenant may use it for recreational purposes, but may not harvest and/or sell the fruit to make a profit. This right remains with the owner and landlord of the garden.

Hamburg - What are the particularities of leases? Learn more about leases and leaseholds in our latest blog post!

A lease in the real estate industry

In the real estate industry, lease agreements are usually concluded for land, real estate in terms of building structures or businesses.

Lease agreements for land must be in writing if they are concluded for a lease of more than one year. If the land is used for agricultural purposes, this regulation applies for a period of more than two years. If the written form is not complied with, the lease agreement runs for an indefinite period under the law. The general recommendation for all forms of lease can only be to put everything in writing from the outset and to have all agreements made signed by both parties.

Obligations of the lessor

The lessor is legally obliged to provide the lessee with the leased property in such a way that the contractually agreed use and enjoyment of the property is possible. If inventory is also leased, which is quite common in a catering business or an agricultural business, and if one of the inventory items becomes unusable through no fault of the lessee, the lessee must replace it. Excluded from this regulation are animals that serve to generate a profit.

Obligations of the lessee

A lease is intended to allow a lessee to use the leased property in an entrepreneurial manner. He is thus also obliged to do so properly and with the diligence of a prudent businessman. Leased items that have been used must be repaired or replaced if they are subject to wear and tear. Upon termination or cancellation of a lease, the lessee, for his part, is obliged to return the leased property in the same condition as he took it over. 

Termination of the lease by notice of termination

In the absence of any contractual agreement to the contrary, a lease may be terminated with six months' notice to the end of a lease year.

Important to know: Unlike a tenancy, a lease does not end with the death of the lessee, but the obligations pass to the respective heirs.

Particularities and interesting facts about the lease

The essence of the lease agreement is that it is intended to be concluded for a longer period of time. It is therefore worthwhile to know and consider any advantages and disadvantages in detail before concluding the contract.

The legal basis for a rental agreement is the Tenancy Act. It protects the tenant. No such protection exists for lessees. The lease agreement is governed by the General Civil Code and can be freely drafted by both parties. Therefore, the advice of a legal expert should always be sought for the drafting of the contract in order not to overlook any loopholes or stumbling blocks that may have a detrimental effect later on.

The more detailed and comprehensive the contract, the better it can protect against possible disputes. All particulars of the subject matter of the lease should be recorded in minute detail. This also includes payment modalities and notice periods.

Leasehold - the leasing alternative to buying land

Hereditary leasehold is a special form of tenure. It is commonly referred to simply as leasehold. The dream of building your own home often fails due to financial constraints. This is because plots of land with building permission are both scarce and expensive. Especially in attractive locations or conurbations.

A hereditary leasehold makes it possible to build on a plot of land that is not owned by the builder. For the use, the owner and holder of the leasehold property is regularly paid ground rent. Usual terms of such contracts are between sixty and ninety-nine years.

After expiry of the leasehold contract, the land owner and the leaseholder have a mutual right of first refusal. If this is not exercised, the house passes to the landowner. In the event of an agreement to extend the contract, the leaseholder has the first right of refusal.

If the property passes to the landowner, the landowner must pay compensation to the leaseholder. This is usually at least two thirds of the current market value to be determined. The legal basis for leaseholds can be found in leasehold law.

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