Ground lease (erfpacht) means that you buy a home, but the land it sits on remains the property of another party, such as a municipality or a private landowner. You pay a periodic fee for the use of that land, known as the ground lease canon. This has a direct impact on the sale price of the property: ground lease homes are generally cheaper to purchase, but come with ongoing costs. In this article, we answer the most frequently asked questions about ground leases, so you can go in fully prepared.
How does a ground lease affect the price of a home?
A ground lease lowers the sale price of a home, because buyers do not own the land — they only hold the right to use it. As a result, the purchase price is typically lower than that of a comparable home on freehold land. Exactly how much lower depends on the level of the canon, the remaining term, and the conditions of the ground lease agreement.
Buyers factor future canon obligations into their offers. A high canon, or one due for revision soon, makes a property less attractive, pushing the price down further. Conversely, a low canon that is fixed for a long period can keep the price gap with freehold properties relatively small. The Amsterdam market has many ground lease properties, and experienced buyers know that total housing costs — purchase price plus canon — are the true measure of a property’s value.
Are you selling a home on a ground lease? Then an accurate valuation is even more important than with freehold property, because buyers will factor the canon obligations into their offer.
What is a ground lease canon and how is it calculated?
The ground lease canon is the periodic fee you pay as a leaseholder to the landowner for the use of the land. The amount is calculated based on the land value and an agreed interest rate. The higher the land value and interest rate, the higher the annual canon you pay.
With municipal ground leases, such as those in Amsterdam, the land value is periodically reassessed — a process known as canon revision. This can occur every 10, 25, or 50 years, depending on the terms of the ground lease. After such a revision, the canon can rise significantly if land values have increased in the interim. Private ground leases operate on similar principles, but the terms vary considerably from contract to contract.
Some leaseholders choose to buy out the canon for an extended period, eliminating annual payments. This reduces monthly housing costs but requires a substantial one-time payment. Whether buying out the canon makes financial sense depends on the amount involved and your personal financial situation.
What are the risks of buying a home on a ground lease?
The biggest risks of a ground lease are an unexpectedly large canon revision, limited influence over the lease terms, and potential difficulties when reselling. Buyers who do not read the ground lease contract carefully may be caught off guard when the canon rises sharply after a revision.
Specific risks to be aware of:
- Canon revision: After the revision date, the canon can increase substantially, significantly raising your monthly housing costs.
- Limited control: The landowner sets the ground lease terms. If these change, you as the leaseholder have little negotiating power.
- Harder to resell: Buyers are sometimes hesitant about ground lease properties, which can limit their saleability.
- Lease term: With a fixed-term ground lease, the right expires on a specific date, which can cause the property’s value to drop sharply as that date approaches.
Always have a specialist solicitor or buying agent review the ground lease contract before making an offer. The fine print largely determines whether the purchase is a sound decision.
Can you get a mortgage on a ground lease property?
Yes, you can get a mortgage on a ground lease property, but lenders do impose additional requirements. Most banks will only finance ground lease properties if the remaining term of the lease is long enough — typically at least the mortgage term plus an additional buffer of 10 to 20 years.
Banks also assess the ground lease terms themselves. A contract with favorable and transparent revision provisions is more likely to be accepted than one with unclear or unfavorable clauses. Some lenders refuse to finance certain types of ground lease entirely — for example, if the landowner is not a recognized party.
In practice, this means that when buying a ground lease property, you not only need to arrange the purchase price but also check in good time whether your mortgage lender will approve the specific ground lease structure. A mortgage advisor with experience in ground leases is essential here.
What is the difference between a perpetual and a fixed-term ground lease?
A perpetual ground lease runs for an indefinite period and is revised periodically, while a fixed-term ground lease has a set end date after which the right expires or must be renegotiated. This difference has significant consequences for the value and saleability of a property.
Perpetual ground lease
With a perpetual ground lease, you hold the right of use for an indefinite period. The canon is revised after an agreed interval based on the land value at that time. This provides certainty of use, but no certainty about future canon costs. In Amsterdam, the municipality operates this system, with revisions taking place every 10 or 50 years depending on the contract.
Fixed-term ground lease
With a fixed-term ground lease, the contract specifies an end date. As that date approaches, the property’s value drops significantly, because buyers know the lease right is finite. Financing is harder to obtain for a fixed-term ground lease with a short remaining term. This type of ground lease is less common in the residential market, but does occur in property developments.
When is a ground lease property still a good buy?
A ground lease property is a good buy when the purchase price is significantly lower than comparable freehold properties, the canon costs are stable and transparent, and the remaining term is long enough to live there comfortably and resell the property later.
Situations in which a ground lease can work in your favor:
- Low or bought-out canon: If the canon is fixed for a long period or has already been bought out, monthly housing costs are easy to manage.
- Favorable purchase price: A lower purchase price makes the property more accessible, especially if you can invest the difference or keep it as a financial buffer.
- Long remaining term: A ground lease with 50 or more years remaining offers sufficient security for both living in the property and reselling it.
- Clear revision terms: If the contract clearly sets out how and when the canon will be revised, you know exactly where you stand.
A ground lease need not be a dealbreaker. With the right information and guidance, you can make a well-informed decision.
How we help you sell a ground lease property
Selling a home on a ground lease requires extra care. Buyers ask more questions, lenders impose additional requirements, and valuing the property is more complex than with freehold homes. At Urban Homies, we guide you through the entire process.
What we do for you:
- Tailored valuation: We analyze the ground lease terms and current market conditions to determine a realistic asking price.
- Targeted marketing strategy: We present your property professionally, with photography and a listing that highlights its strengths and keeps buyers well informed about the ground lease structure.
- End-to-end support: From the initial strategy meeting to signing at the notary, we are by your side throughout.
- Network of specialists: Through our network of notaries and legal advisors, we ensure that all ground lease documentation is in order and that buyers encounter no surprises.
Would you like to know what your ground lease property is worth and how to sell it to best effect? Get in touch for a no-obligation conversation. Or take a look at our sales service to see how we can help you.
