Granny flat

Granny flat - A granny flat is a self-contained, independently usable apartment within a single-family home that is structurally subordinate to the main building. It has its own entrance (or at least a separate access point), a kitchen or cooking area, a bathroom, and a living area. Granny flats are often located in the basement, attic, or as an addition. For owners, they offer rental income, tax benefits, and flexibility in use.

Classification under Building and Tenancy Laws

The granny flat has specific characteristics under building and tenancy laws:

• Building Code: The granny flat must be approved as a living space - sufficient ceiling height (at least 2.30 m in Bavaria), natural light (window area of at least 1/8 of the floor area), ventilation, and a second emergency exit
• Living space calculation: The granny flat counts toward the total living space of the house - it is included in the calculation for property tax and the unit value
• Parking space requirement: As a rule, proof of an additional parking space must be provided for the granny flat (municipal parking regulations)
• Tax law: If the granny flat is rented out, the owner may claim the costs attributable to the unit (depreciation, financing interest, maintenance) as business expenses

Special provisions under tenancy law

Simplified termination provisions under Section 573a of the German Civil Code (BGB) apply to granny flats:

• The landlord may terminate the lease without giving a specific reason (ordinary termination)
• The notice period is extended by 3 months compared to the regular period
• Prerequisite: The landlord must reside in the main house themselves - the house may contain no more than two apartments in total
• This simplified right of termination makes granny flats particularly attractive to landlords, as they can flexibly utilize the living space as needed

Granny Flats - Economic Overview (Nuremberg, approx. 2024)

Key Figure	Value	Explanation
Typical size	35-60 m²	Basement, attic, or extension
Achievable net rent (excluding utilities)	€450-750/month	Depending on amenities and location (Nuremberg)
Annual rental income	€5,400-9,000	No risk of rent loss
Tax Deductibility	Pro-rata depreciation, interest, maintenance	Proportion = living area of the unit / total living area
Financing Advantage	Rental income is applied toward loan payments	Improves credit rating with the bank
Notice Period (§ 573a BGB)	Standard notice period + 3 months	Only if there are max. 2 residential units in the building
Parking space requirement	1 parking space per residential unit	In accordance with Nuremberg parking regulations

Financing advantages through rental income

An often underestimated advantage of a granny flat is its impact on mortgage financing: Banks take the sustainable rental income into account during the credit assessment and can therefore grant a larger loan at better terms. Anyone who buys or builds a house with a granny flat can have the rental income offset against the monthly interest payments-this significantly reduces the actual out-of-pocket costs. With a net rent of €600/month for a 55-m² granny flat in Nuremberg, this corresponds to an additional annual income of €7,200, which significantly offsets financing costs. In addition, the rental income improves the overall tax position: depreciation and financing costs for the tenant’s share can be claimed as income-related expenses.

Practical Tip for Owners in Nuremberg and Franconia

In the single-family home neighborhoods of Nuremberg (Ziegelstein, Buchenbühl, Erlenstegen, Worzeldorf) and the surrounding communities, many houses have a granny flat in the basement or attic. We recommend that owners rent out these units-the rental income (typically in Nuremberg: €450-750/month for 40-60 m², depending on amenities and location) contributes to financing and is tax-deductible. Make sure the granny flat is approved under building regulations: In many cases, the basement was retroactively converted for residential use without a building permit. A lack of approval can cause problems with selling, renting, and insurance coverage-retroactive approval from the Nuremberg Building Authority costs approx. €200-500 and is definitely worth it.

Frequently Asked Questions

Can I terminate my granny flat lease without cause?

Yes - if you live in the same house and the house has no more than two apartments in total, you can terminate the lease without specific cause under Section 573a of the German Civil Code (BGB). However, the notice period is extended by 3 months: For a tenancy of less than 5 years, it is therefore 6 months (instead of 3); for 5-8 years, 9 months (instead of 6); and for 8 years or more, 12 months (instead of 9). This provision gives you flexibility in case you need the apartment for family members, wish to use the entire house yourself, or the rental situation changes significantly.

Does my granny flat need to have its own entrance?

Not legally required-but a separate entrance (its own front door or a separate entrance via a stairwell) is crucial for marketability and tenant appeal. To be recognized for tax purposes as a separate dwelling, the granny flat must have a kitchen or kitchenette, a bathroom/shower, and a lockable entrance. A passageway through the landlord’s living area is neither attractive to tenants nor sufficient for building code recognition as an independent residential unit. When planning new construction or renovations, include a true direct entrance from the outside.

How is the granny flat treated for tax purposes?

When renting: The costs attributable to the granny flat (pro-rata depreciation, pro-rata financing interest, maintenance, pro-rata property tax) are deductible as business expenses from rental income. The allocation formula is based on the living area (e.g., 30% granny flat / 70% owner-occupied). If the unit is owner-occupied (e.g., by family members rent-free), no income-related expenses apply. Note: The rent must be at least 66% of the local comparative rent in order to retain the full deduction for income-related expenses (Section 21(2) EStG) - check this against the current Nuremberg rent index.

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