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With a house with ground lease, you do not fully own the house and the surrounding land. You use an owner’s house and land. You pay canon on the use of the house and land. Canon is a kind of rent.

Buying a house with ground lease can be difficult. In fact, you have to take into account several variables during this process.

Who is the leaseholder? Can I buy off the leasehold? If so for how long? What is the canon and how often do I have to pay it?

Generally, the ground lease does buy off for 50 to 75 years by the users of the land. However, there can always be other agreements about the piece of land you want to live on.

leasehold

Tip 1: Look carefully at the duration of the leasehold period

As mentioned above, a ground lease often has time periods of 50 or 75 years. At the end of a period, the ground rent must be redefined. This is something that lenders can get nervous about.

And that’s what happens when this time period expires as early as the first half of the mortgage term. This can then be a hindrance for the lender with the result that the buyers cannot get the mortgage done or it is a lot harder to get it done.

Example 1:

The leasehold term of your house expires in 10 years. You sell your house to someone who wants to mortgage it for 30 years. That buyer included a full financial caveat.

The ground rent expires after only 10 years and the mortgage is taken out for 30 years. Then the leasehold period already expires in thefirst half (the first 15 years) of the 30-year mortgage. This could become a dealbreaker in the funding application.

Example 2:

The leasehold term of your house expires in 20 years. You sell your house to someone who wants to mortgage it for 30 years. That buyer included a full financial caveat.

The ground rent only expires after 20 years in a mortgage taken out for 30 years. The leasehold period thus already expires in thesecond half (the second 15 years) of the 30-year mortgage. This should not be a dealbreaker for the funding application.

Many financing requests are made for 20 or 30 years. Therefore, the period of your ground lease expires within 15 years and you have several bids?

Then it may be wise to choose an unreserved bid instead. What you can also do is ask the highest bidder (who has a financial reservation) if your selling broker can make a call to his financial advisor to find out if the expiring ground lease period could become a dealbreaker in obtaining financing.

Tip 2: Offer to commute

Very important: have you received or already accepted an offer to buy out the ground lease? Then make sure you have a copy of the certificate of redemption of the right of inheritance to give to your selling agent.

This is very important, because a property with a valid possibility of surrender or a pending application to surrender the ground lease can be very of positive value for your property. However, the selling broker must be aware of the fact that there is the possibility of buying off the ground lease.

Tip 3: Private ground lease

It is rare, but if your house is on private leasehold land, keep in mind that it is very difficult to get private leasehold financed. Here, it might be wise to choose a “cash buyer” (Cash Buyer: buyer who pays for a property entirely from their own funds).

What you can also do as preparation is to ask a notary for a so-called ‘leasehold opinion’/’erfpachtopinie’. A leasehold opinion defines the criteria against which the value of a leasehold property can be assessed. Thereby 3 scores apply:

Red: almost impossible to finance
Orange: financing is possible, but difficult
Green: there are possibilities to finance

If you, as a seller, figure this out yourself in advance, then you have already done a very good job of preparing prospect buyers which increases the chances of a better sale.

Tip 4: Check the borrowing capacity of prospective buyers

Did the prospective buyers include a full financial caveat in their bid? And has the ground rent not been paid off? Then it may be wise to first ask what the maximum borrowing capacity of prospective buyers is.

The reason is that you can borrow less than your borrowing capacity if there is ground rent to be paid. And this in turn can result in people not getting the financing. Suppose you sell your house with leasehold for €350,000 and this is also the maximum borrowing capacity of the buyer, then there is a good chance that the financing will not succeed.

Roughly speaking, people can get about 20 times the annual ground rent less in loans. So if the ground rent is €1000 per year, you can borrow approximately €20,000 less than you assumed. This can become an unpleasant bummer.

Do you want to sell your house with leasehold right?

There are then a number of things to look out for. This is because the conditions are not the same for all leasehold agreements. Therefore, you should ask the following questions before you can sell your house with leasehold:

  • Does a private individual or the local government own the land?
  • Have you exercised the option to redeem the ground lease? If so, for how long? Or is that option still there?
  • What kind of ground lease applies to my house?
  • How high is the canon and over what period do you pay?

After answering these questions, are you still left with question marks? Then read our blog on selling a house with a ground lease or contact us at.