Frankfurt 29 Jan 2026 municipal leasehold terms (M 213/2025)

What changed on 29 January 2026

On 29 January 2026 Frankfurt’s city council (Stadtverordnetenversammlung) approved the Magistrate’s paper M 213/2025, titled “Contractual contents of municipal leaseholds – additions and amendments to previous resolutions.” The decision applies to future municipal leasehold (Erbbaurecht) contracts and extensions and amends the city’s long‑standing framework from 2016 and 2019. The council removed a proposed cap to the family discount and confirmed new reliefs for self‑use and community‑oriented housing. The vote record and the exact modifications are public.

The city keeps the standard residential ground rent (Erbbauzins) at 2.5 % of land value, but introduces targeted reductions: 2.0 % for self‑occupied homes, 1.5 % for subsidised residential projects, and in tightly defined cases 1.0 % for community‑oriented housing that meets three cumulative criteria (cost‑rent, reinvestment, and at least 20 % below the local reference rent). All reductions are “schuldrechtlich” (contractual) and can be withdrawn if conditions are breached or lapse. The rules interact with federal ErbbauRG law on indexation and financing.

Erbbauzins and indexation: the numbers and the cap

Baseline: for residential city leaseholds the Erbbauzins is 2.5 % of the land value (Bodenwert). New contracts for self‑use are reduced to 2.0 % while self‑use lasts; if the property is rented out or sold, the rate reverts to 2.5 % unless another reduction applies. Projects under the city’s subsidy programmes (e.g., Förderweg I/II, student/apprentice housing) get 1.5 % for the binding period. Community‑oriented housing is defined and verified by the housing office; if all three criteria are met, 1.0 % applies for the binding period.

Indexation: Frankfurt adjusts the dinglich (registered) Erbbauzins by the consumer price index (VPI/CPI). Where CPI rises faster than average wages of full‑time employees, the increase is capped at the midpoint between CPI and wage growth. This reflects the federal cap in § 9a ErbbauRG for dwellings; under § 9a no CPI‑based increase may exceed the change in general economic conditions. The city states it uses five‑year CPI adjustment clauses in residential leasehold contracts; in designated settlement areas (Siedlungen) a five‑year “automatic” CPI clause remains in place.

Rentals on leasehold land: 30 % of rent and no condo split

Existing leaseholds with tenants can, via a contract addendum, obtain a contractual reduction that limits the Erbbauzins to 30 % of actual rental income, provided strict conditions are met: re‑lettings at or below the local reference rent (OVM/Mietspiegel), a freeze on above‑OVM rents until the OVM catches up, and inclusion of vacant/self‑used units at OVM for the calculation. Conversion into condominiums (WEG) is ruled out (family‑line inheritance exception only). After the council vote on 29 January 2026, modernisation rent uplifts are limited to 75 % of the statutory cap and must not push total rent above the OVM.

If the registered Erbbauzins would exceed 30 % of rental income, the city caps it at 30 % contractually; if it is lower, the registered rate applies. The city audits both the registered rate and the contractual conditions every five years, and failure to document rents triggers a reversion to the registered Erbbauzins.

Extensions, early renewals and settlement areas

Expiring residential leaseholds can be extended for less than the classic 99 years, as long as tax depreciation requirements are met; in practice Frankfurt states 60 years is the usual extension period. Early extensions and addenda that change site utilisation (e.g., adding units) lead to a “mixed” Erbbauzins in which the old reduction is credited for the remaining original term and current terms apply thereafter.

In the city’s designated settlement areas with very large plots and low allowable density, a special “splitting” rule continues: for plots over 465 m² the rent is split between a fixed notional area and the excess area; in Goldstein and Praunheim the splitting may be applied to up to four units. Historic “Siedlungskonditionen” for self‑use continue on a contractual basis and are tied to residence on the property.

Resale restrictions and the family discount

Holders may sell or gift their leasehold right; contracts are notarised without city participation, but Frankfurt’s consent to the transfer is required and the city holds a registered pre‑emption right. On each sale the city reviews the contract; if terms are outdated, buyers are routinely offered a notarial addendum on current terms. For leaseholds with tenants, conversion to condominiums is contractually prohibited except for lineal family inheritance.

Family discount: The city’s “Startprogramm für junge Familien” grants a contractual reduction of 20 % of the Erbbauzins per eligible child (maximum four children). A proposal to cap the discount at €500 per child/year was explicitly removed in the final council decision on 29 January 2026; the prior percentage rule remains in force.

Financing city‑leasehold flats: practical pitfalls

Bank lending on Erbbaurechte works, but terms differ from freehold. Key points Frankfurt itself highlights: city consent is required for any mortgage or charge; as a rule the total debt on the leasehold should be below 60 % of the building’s value (excluding land), though—with “current” contract terms and sufficient remaining term—the city may consent up to 80 %. Loans must amortise so that the scheduled repayment ends at least 10 years before the lease term expires. The city rejects broad “all‑monies” security clauses: only a narrow purpose‑limited security agreement is accepted, and only book entry land charges (no bearer/brief land charges). Lenders sometimes request a “standstill” letter acknowledging the city’s senior rights (Erbbauzins and pre‑emption) in the title.

Risks to budget: if you cease self‑use on a self‑occupier contract, the Erbbauzins rises from 2.0 % back to 2.5 %. CPI indexation can still raise annual costs despite the § 9a cap when inflation outpaces wage growth. Media in Hesse have reported sharp increases where legacy contracts reference land values; Frankfurt’s new framework leans on CPI rather than land value jumps, but buyers should test worst‑case affordability under five‑year CPI resets.

Action points: ask your lender in writing how they treat municipal leaseholds in Frankfurt (maximum loan‑to‑value, required remaining term at drawdown, acceptance of the city’s narrow security wording). Have your notary check the city’s pre‑emption, consent, and any addendum the city will require on transfer. For rental blocks, model the 30 %‑of‑rent cap and the OVM rent limits before bidding.