You need to be extremely careful when purchasing a home with a ground lease. And you should pay particular attention to the type of ground lease arrangement that applies. We’ll explain how it works here.
The current canon—and especially the future canon
The ground rent is the fee you pay for the right to a leasehold. The amount is almost always listed in the Funda listing. But what’s usually not clear is how and when that ground rent can be increased. We’re not talking about indexation (inflation-based increases) here, but rather what’s known as a “review.”
A large portion of leasehold rights involves what is known as a “perpetual lease.” Such a lease is valid for a specific period, such as 50 years. After that period, the ground rent is reassessed, and as a homeowner, you may be faced with some very unpleasant surprises. You might suddenly find yourself paying a few thousand euros a year in ground rent instead of just a few hundred euros a year.
So, tip #1:
When buying a home subject to a perpetual ground lease, always try to find out first how much the ground rent will be after the current term ends. Even better: hire a good real estate agent who can check this for you.
Leasehold Regimes
We’re now going to take you on a tour of two real homes.
Property 1 – BURGERSDIJKSTRAAT 23 AMSTERDAM
For this property , the annual ground rent is €75.78, and the current term runs through August 15, 2030.
The keys to this home were handed over at the notary’s office on May 2, 2024, for a purchase price of €555,000.
Residence 2 – 12 Emanuel van Meterenstraat, Amsterdam
For this property , the annual ground rent is €75.78, and the current term runs through May 1, 2030.
The keys to this home were handed over at the notary’s office on May 3, 2024 , for a purchase price of €520,000.
Both homes are quite comparable in terms of location, finish, lot size, living area, and ground rent. They were sold during the same period. Home 2 was therefore sold for €35,000 less than Home 1.
It’s a good deal, isn’t it?
But let’s now take a look at the ground lease arrangements for both homes.
House 1
For Property 1, a favorable transition arrangement was applied, as a result of which the ground rent will amount to €377.19 per year as of August 16, 2030. This amount will only be increased each year by an annual inflation adjustment. See here.
And now it gets even more interesting: we’ve found in a different source that the one-time payment to buy out the ground lease in full is only €15,243. So for that amount, you’ll never have to pay ground rent again. See here.
House 2
Now let’s see how that works for Property 2. For Property 2, no use was made of a favorable transition arrangement. The ground lease statement unfortunately does not show us what the ground rent will be as of May 1, 2030. If we dig a little deeper, we find in another source that (note!) the ground rent as of May 1, 2030, will amount to: €3,466.57 per year, plus annual indexation. See here.
Worse still: the total amount required to buy out the ground lease here is €133,295!
Try to make sense of that! If we were to subtract the total buyout amount for Property 1 (€15,243) along with the lower purchase price of €35,000 from the total ground lease buyout amount for Property 2 (€133,295), the result would be: €83,052.
In fact, you could say that they probably overpaid by €83,000 for House 2!
The moral of the story
When buying a home subject to a ground lease, you need to be very sure of what you’re doing. In our appraisals, we regularly see significant differences in the financial implications of various ground lease arrangements. So, when buying a home subject to a ground lease, be sure to hire a good real estate agent. Is that expensive? Not at all— just take a look here.