Information on ground leases

Main target of new ground lease agreements created by Continuum Capital is the equivalence of the financability of ground leases and freehold properties.

This will be achieved by a long term, inflation-link according to market practice, zero or only minor requirements for consent and a fair compensation at a reversion at the end of the ground lease.

Continuum Capital structured new ground lease agreements secure that the building´s owner is not limited in his aim to actively manage the building. At the same time, the land owner has been lifted off the burden of maintaining and administering the property.

Basic concept

Ground leases are the rent for the long-term use of the land by a building’s owner. The right of use of a building via aground lease is registered first ranking in the land register. Ground rent contracts define the rights of the building’s owner to use the land for the duration of the contract. Buildings can thus be encumbered with mortgages, be divided, torn down and redeveloped, sold or inherited with the original ground rent contract remaining in place. Although the German legal framework for ground leases, the “Erbbaurechtsgesetz” has been established in year 1919, ground leases are less common in Germany, compared to e.g. the UK.

Seniority:

As the relation between the owners of land and buildings is of key importance, ground rent contracts are entered in the first rank of the land register in Germany by legal definition.

Inflation adjustment

With commercial properties market practice is to link ground rents to Eurozone CPI and 100% annual inflation adjustment. For residential contracts, ground rents are linked to the German CPI and are 100% adjusted every three years. Ground rents are not linked to rent levels or sqm so that higher rent levels or redevelopments have a positive net effect for the building’s owner.

Term

The typical duration of a ground lease contract is a minimum of 100 years, also terms of 200 years or 500 years are possible. At the end of the term the ground lease contract will either be extended, or the building being acquired by the owner of the ground.

Consent requirements / operational freedom

Unlike ground leases issued by churches or municipalities, the newly created ground leases by Continuum Capital do not contain restrictions in selling the buildings or have a consent requirement of the land owner.

An encumbrance of the ground lease with land charges of up to 75% LTV is also allowed for tin the ground lease agreement.

Operating costs

All costs associated with the operation of the building (CAPEX, OPEX etc.) are the obligation of the owner of the building.

Reversion right

In the event of an insolvency of owner of the building, or a non-payment of ground rent for at least 24 months, the reversion clauses will apply. In this context, the owner of the land has the right to buy back the building at a c. 15% discount to market value.