Leasehold is something that, as a buying agent myself, I prefer to keep my hands off. Except when the ground rent has been bought off in perpetuity. In that case it is in fact the same as full ownership. Leasehold and full ownership are often sold for the same price. Strangely enough, I often see homes without ground lease regularly sold for the same price as homes encumbered with ground lease. Sometimes it is really hard to understand why the market has apparently decided to pay €700,000 for a leasehold property, while exactly the same property WITHOUT a leasehold property a block away has also sold for that amount. The only explanation I can give is that those buyers were represented by an amateurish buying agent or no buying agent at all.
What is the value of the ground lease?
The question then, of course, is: what is the value of the ground lease? That value of the ground lease is very difficult to find out in Amsterdam. The municipality has the “Rekentool Erfpacht” (just google that). This is basically a great tool that allows you to look up any property encumbered with municipal ground lease in Amsterdam to see what the indicative costs are for commutation of the current period and/or perpetual commutation. The idea is very good, were it not for the fact that for a large proportion of properties the indicative value cannot be displayed. You will see then this. You simply don’t know what the indicative cost is going to be for redemption of the ground lease. You, your real estate agent and your appraiser can only guess what the redemption price will be.
The ransom at the neighbors says nothing at all!
We often see that a period expires within 10 years and nothing has yet been arranged by the current or previous owners for a transfer. The selling broker says that the redemption at the neighbor’s house last year was only €15,000 and at 3 houses down the road as well. But nowhere can the selling broker give you proof that the municipality of Amsterdam will make you the same redemption offer. The erfpacht tool again gives a message that it cannot be calculated.. So I contacted the municipality. They do not have an immediate answer. After a week of pushing and pulling you find out that the redemption of the ground lease will not cost €15,000, but about €120,000. The above is a true story. The upshot: I advised the buying agent who sought my advice to immediately withdraw the deal and he did.
Important things to do when buying a property with a long lease
Ideally, always get your hands on a document somewhere that tells you what you can expect for the ground rent costs in the future. It may be that the ground rent as of date X is fixed in perpetuity for a fixed amount of €1000 per year + inflation. That’s fine. Then you know there won’t be any surprises. It may be that the current term will expire in 30 years and then after that the ground rent has been bought off in perpetuity. That’s fine, too. But it could also be that – as can be read in the previous paragraph – there is no clarity as to what the cost will be after the current period expires. In that case, the advice is to get clarity on this first. How can you do that? By putting the selling broker to work. Let him/her make that query in writing to the municipality. That won’t be easy. No clarity? Then just look further.
Leasehold, dear people, is in many cases a time bomb. You may be OK now, but as time goes by, a disadvantageous ground rent regime can depress the value of your house and, if you continue to live there for a long time, even cause you to pay a very high ground rent. And there is nothing you can do about it!
Other leasehold dealbreakers
Stay far away from private ground leases. The terms are often less transparent and can be very detrimental in terms of canon increases. Also stay far away from temporary ground leases. Temporary ground lease is literally what it says it is. It is temporary. The land your home is on is not yours and you may only “use” that land temporarily for X term. What will happen after that X term is a question mark.
What can you do?
Get a really good buying agent. There are really a lot of fast guys in Amsterdam who are too focused on closing a deal and not on what is best for you. I recently helped a client in Amsterdam. Costs: over €9000,- commission. Do you think that’s a lot? I can tell you that I saved a fortune for her by taking dozens of homes off the table, picking out the gems and (also wearing appraiser’s glasses) making the right calculations of value. The result: a house purchased without ground lease for €60,000 below the appraised value. Need a buying agent in Amsterdam specialized in ground lease? Feel free to contact Floris.