The French “bail à construction” and German “Erbbaurechtsvertrag” – same economic purpose, different legal concepts

At first glance, the French “bail à construction” and German “Erbbaurechtsvertrag” appear to be based on the same legal concept: the French lessee (preneur) or the German lessee (Erbbaurechtsnehmer) erects buildings on land owned by a third party.

Under both French and German law, the land remains the property of the lessor (bailleur/Erbbaurechtsgeber). At the same time, in both legal systems, the lessee holds a right in rem to the land and is regarded as the owner of the building he has erected.

The difference lies in the conceptual framework of the concept of ownership.

• Under French law, the lessee has an independent right of ownership over the buildings he has erected, which is independent of the right in rem to the land. Upon termination of the “bail à construction”, the landowner and lessor regains full ownership of the land and, as a result of the permanent connection of the building to the land (accession), also of the building. According to French case law, this retransfer constitutes an independent transfer of ownership.

The lessee’s right of ownership is thus subject to the general rules of French property law.

• Under German law, the lesse of a “Erbbaurechtsvertrag” does not acquire independent ownership of the building. The building is legally linked to the leasehold right (“Erbbaurecht”) and forms an integral part of it.

This right of ownership held by the lessee is therefore governed not by general property law, but by the specific rules of leasehold law (“Erbbaurecht”).

Despite this difference in terms of legal concept, the practical implications are largely comparable: the lessee under German law has almost the same rights as the lessee under French law.

The actual difference is therefore less of an economic or practical nature and more of a conceptual one: Whilst in France the ownership of a building erected under a “bail à construction” constitutes an independent right of ownership subject to general legal rules, under German law the right to the building to which the lessee is entitled is inseparably linked to the leasehold right (“Erbbaurecht”) and, in this context, is subject to specific legal rules.