Alternatives to purchasing real estate are becoming more expensive

In its budget agreement, the federal government has decided to increase the registration fees for leasehold and building rights from 2 to 5 percent.

Few real estate investors are familiar with those formulas. However, they can be an alternative to the classic purchase of real estate. An overview of what you need to know.

With a leasehold, the leaseholder gets full enjoyment of real estate owned by someone else. He can use it well for a long time as if he owns it. It is similar to a rent squared: a leasehold lasts longer and offers more protection. A leaseholder may, for example, rent out the property, establish a mortgage on it, develop land or carry out renovation work. The only condition is that the leaseholder does not reduce the value. The leaseholder does not automatically become the owner of what is on the land, which is the case with a right of superficies (see further).

‘In the context of rising land prices, leasehold is a method that makes sense. Taking a leasehold of land can be an alternative to purchasing real estate,” says notary Bart van Opstal, spokesperson for Notaris.be. ‘It makes a big difference in terms of budget if you don’t have to buy the land but, as it were, rent it. The share of the land price for houses is easily 30 to 35 percent and for apartments even 40 to 50 percent.’

A leasehold agreement lasts at least 15 years and a maximum of 99 years. In exchange for full enjoyment, the leaseholder pays a fee, known in professional jargon as the canon. This is usually an annual fee, but a one-off canon is also possible.

Leasehold leads to a lower investment amount, but there are also disadvantages. ‘The leaseholder does not become the full owner of the property and resale is often more difficult. With a very long-term leasehold, the costs of the ground rent can be high, meaning that you pay more for the home in the long term than with a traditional purchase,” says van Opstal. The leaseholder may not be the owner, but he still has the obligation to maintain the property, carry out normal repairs and pay taxes relating to the property.

A leasehold is what is called a right in rem in professional jargon. This can perfectly be given to children or grandchildren or bequeathed as an inheritance.

‘The owner opts for a leasehold because he does not have to worry about properly exploiting the property. Nevertheless, he does not completely relinquish the good. He is certain that he will keep it well,” says Robin Messiaen, lawyer at Spartax. Some classic applications at a glance.

‘If monastic orders want to repurpose a church or beguinage, they traditionally work with a leasehold,’ says Messiaen. For example, in the Beguinage Onze-Lieve-Vrouw ter Hoyen – also known as the small beguinage of Ghent – houses and apartments were leased for 66 years.

• Governments and intermunicipal companies

In some locations the government is the owner of the land and wants to remain so. ‘Just think of the area surrounding (air)ports and stations,’ says Van Opstal. A well-known example are the apartments that were developed in Nieuwpoort along the harbor channel. Many cities and municipalities also lease land for schools, halls and factories.

‘The method is also often used in social housing. The social housing company remains the owner of the land, which makes the price of a home a lot more accessible to the leaseholder,” says van Opstal. Some cities, such as Ghent, invest in the rental market in this way. The leaseholder must then demolish the buildings and rebuild or renovate them, and then rent them out for a certain period through a social rental office.

Those who want to invest in real estate are not limited to houses and apartments. This is also possible in hotel rooms, weekend stays, holiday parks and parking lots. ‘Project developers often work with a leasehold’, says van Opstal. ‘The investor then does not buy the land. This significantly reduces the investment amount, resulting in a higher return for the investor.’

‘A leasehold is also sometimes used for other investment projects, such as the construction of a department store. A leasehold offers more protection than a commercial lease,” says Messiaen.

Leasehold constructions are also common for real estate leasing. ‘The leasing company does not buy the property itself, but becomes a leaseholder and markets it via lease. Such contracts usually run for at least 20 years and the ground rent is often set at 90 to 95 percent of the value of the property,” says Messiaen.

A right of superficies is a real right to build buildings, works or plants on someone else’s land. With a right of superficies you automatically become the owner of buildings or plants, unlike a leasehold. If you have a right of superficies and build a house on someone else’s land, you are always the owner of the house. The ownership of the land and the house is therefore split.

As with a leasehold, the rights of the building owner are much broader than those of a tenant. The law stipulates that the building owner pays a building compensation, in professional jargon a solarium, but also allows deviations from this. ‘In practice, the legal exception is rather the rule. Compensation is very rarely paid,” says Messiaen. A right of superficies can be granted for a maximum of 99 years.

Two applications are common today.

‘Right of superficies is a technique that is often used for new construction projects. A land company buys the land and then gives building rights to the construction company,” says Messiaen. ‘This method has been common in the sector for a long time and offers advantages in terms of, among other things, construction and bankruptcy risk and financing options. Since 2011 there has also been an additional tax benefit.’

That’s how it is. If a project developer sells the land and a building together, 21 percent VAT must be paid on the whole. If the land company sells the land without a building, 12 percent registration duties are due in Flanders. VAT only has to be paid on the building sold by the construction company.

That is good for the wallet of a private buyer who buys a home. ‘In practice, the buyer notices little of the division. He signs one purchase deed at the notary, but legally it concerns two transactions,” says van Opstal. ‘The increase in registration fees will have no impact on those sales. The land company usually provides this right of building free of charge, so no registration fees are due.’

‘A right of building is used by SMEs and management companies to strategically plan the ownership distribution of the land and the building,’ says Messiaen. ‘For example, with a right of superficies, one company can build on the land of another company. After the planned construction period, the building can then go to the first company. This is, for example, very important to be able to build with the money of an operating company, without also exposing the property to the risk of failure of that same operating company.

Just as with a classic purchase of land or a home, a notarial deed is drawn up for a leasehold and right of building and registration fees must be paid. According to the notary federation, almost 4,600 deeds for leasehold or building were signed last year.

The registration fees must be paid at the start of the leasehold or the right of superficies. They are calculated on the total of the compensation that the leaseholder or superficiary holder pays to the owner. This is not limited to the entry fee, but also applies to all future fees that are paid annually. “For example, if a ground rent of 1,000 euros per month is paid for 30 years, then registration fees must be paid on 1,000 euros x 12 months x 30 years,” says Messiaen. The amount of the compensation is determined completely freely. It is also determined whether compensation still needs to be paid at the end of the leasehold or building period.

The rate of registration duties for leasehold and building is currently 2 percent, but according to the government’s plans it will increase to 5 percent from New Year. Those registration fees go to the federal government. This is in contrast to the registration duties that must be paid on the purchase of a land or building. These are intended for the regions. The usual rate in Flanders is 12 percent, but lower rates apply for a family home.