Construction law interest rate — That's what building lawmakers and building rights holders should know
What do construction law and interest rate mean? The definition
Construction law allows one person to build on someone else's plot of land, although the right is temporary but hereditary and transferable. The legal regulations are regulated in Art. 675 and 779 et seq. of the German Civil Code (https://www.fedlex.admin.ch/eli/cc/24/233_245_233/de). During the construction law period, the property owner receives the so-called building rights interest in return. According to the principle of accession under the Civil Code, the owners of a plot of land are also owners of all buildings built on it. In order to interrupt this principle, a building rights contract can be concluded and the easement entered in the land register, as a result of which the building owner becomes the owner of the building.
In simple terms, building law can be understood as renting the land, while the erected building usually belongs to the building rights holder.
In which cases is construction law applied?
Construction law is used in various situations, in particular when using and developing state-owned land. Typical applications include:
- Urban planning and development: Municipalities award building rights to promote development goals, such as the creation of housing or public facilities.
- Private use of land: Owners can grant building rights to allow third parties to build on their property without transferring ownership.
- Agricultural use: Construction of agricultural buildings or development of land without acquisition of ownership.
- Renewable energy: Use of building rights for renewable energy projects to provide access to locations for wind turbines or solar systems.
What rights do building lawmakers and building rights holders have?
A building rights contract allows the client to use and develop the property for a period of at least 10 years, but a maximum of 100 years. The amount of the interest on building rights is freely agreed between the parties and can be adjusted periodically to current circumstances.
Tip: Building rights holders who live in their property themselves must tax the imputed rental value as income. Interest on building rights reduces the imputed rental value, as they are part of the investment costs.
What must a building rights contract contain?
A building law contract, which must be certified in writing and by a notary, contains essential regulations such as:
- Name and address of building law grantor and recipient
- Information about the encumbered property
- Duration of construction law
- Construction law interest
- Home compensation (compensation payment at the end of the building law, see below)
Important: A termination of the building rights contract is only possible in exceptional cases.
What is a homecoming allowance?
The interest on building rights is a usage allowance based on the value of the land. Different models can be used for the calculation:
- Conventional building law model: The value of the property is multiplied by the interest rate of the cantonal bank.
- Zurich building law model: One-off payment replaces the interest on building rights for the entire term.
- Basel building law model: Construction interest rate = net income × land value/(land value + building value)
Important: The choice of calculation model has long-term effects and requires the consideration of cost risks, land value development and price fluctuations. Legal assistance in identifying and drafting contracts is recommended.
The building law interest rate is a decisive instrument in planning construction projects and has an effect on both the financial planning of building rights holders and building law grantors.
.png)