The emphyteutic lease

As the property crisis persists, a new trend is emerging: becoming the owner of your own home... while leasing the land via an emphyteutic lease. It remains to be fully understood what this system means, which until now has been the preserve of local authorities and professionals.

Are you discouraged by the persistently high property prices in the Grand Duchy, while dreaming of finally owning the "cosy nest" that will make your family happy? The alternative of an emphyteutic lease could prove to be a good solution.

This is a very long-term lease (from 27 to 99 years in the Grand Duchy) that allows you to enjoy the property (land or home) "fully" without owning it "fully". In practice, if you take out this type of lease, you have the right to build and/or maintain a property on land owned by a third party. This third party may be a private individual, a developer or a public body.

An agreement (otherwise known as a contract) provides the framework for this lease and may include certain specific provisions to guarantee the rights of each party.

For a family that has been renting its own flat or house until now, this is an attractive option, as the annual fee paid to the landlord is almost symbolic, saving them the cost of rent.

However, you continue to pay tax on the property, including property tax.

But the main advantage of this form of access to housing is that it "separates" the land (i.e. the land itself) from the home that is built on it. In a conventional purchase, especially in a region where demand is strong, the overall price includes both. In Luxembourg, this means that the value of the land can be as much as half the purchase price of the house or flat.

Choosing to acquire a property via an emphyteutic lease, including by buying out an existing contract, is a great way to save money! Even more so if there is a clause stating that, at the end of the lease, the "lessee" (in legal jargon, this is known as the emphyteutic lessee) automatically becomes the full owner. This provision is often chosen by social or affordable housing organisations.

Apart from speculating on possible capital gains, including on land, the long lease offers real advantages, and new players in this segment have even come up with additional guarantees: in many cases, the lessee is now guaranteed a takeover (or repurchase) price on leaving or at the end of the lease.

One final point, which is not insignificant given the long-term commitments involved: in the event of inheritance, the long lease is included in the assets passed on to the heirs.

For some, it's a way of changing home for less, for others it's a way of selling off flats that are no longer being taken up because of the crisis in the property market, and for local authorities it's a way of encouraging access to decent housing. What if the long lease was the formula you'd been waiting for to turn over a new leaf?

Do you have a question? On long leases as on all your real estate projects, don't hesitate to contact seasoned professionals. Contact us!

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