Right to Housing

Right of Residence - the personal right to use a property or individual rooms for residential purposes without being the owner. Legally, it is a limited personal servitude under Section 1093 of the German Civil Code (BGB), which is entered in Section II of the land register and expires upon the death of the beneficiary.

What exactly is a right of residence?

The right of residence grants a specific person the authority to use a building or parts thereof as a residence, to the exclusion of the owner. It is strictly personal, meaning it can neither be inherited nor transferred or sold. The entry in Section II of the land register secures the right in rem-it remains in effect even if the property changes hands and is binding on every new owner.

A key difference from the frequently confused usufruct is that the holder of the right of residence may only occupy the property themselves. Renting to third parties is not permitted under a pure right of residence, whereas the usufructuary may also rent out the property and retain the rental income. Furthermore, the holder of the right of residence may accommodate family members and caregivers in the residence, provided this has not been expressly excluded in the contract.

The creation of a right of residence is effected through notarization and subsequent registration in the land registry. It is often agreed upon as part of a gift or anticipated succession when parents transfer their property to their children during their lifetime but wish to secure the right to continue living there. In wills, too, the right of residence is regularly stipulated as a bequest in favor of the surviving spouse.

Valuation and Impact on Market Value

The economic value of a right of residence is calculated based on the annual rental value of the affected area and the statistical life expectancy of the beneficiary. The Valuation Act (BewG) provides for multipliers based on age and gender. The younger the beneficiary, the higher the capitalized value of the right of residence.

For the market value of the encumbered property, this means: A registered right of residence significantly reduces the achievable sale price, as a buyer cannot freely use the property as long as the right of residence exists. In practice, the reduction in value can range from 20 to 60 percent, depending on the beneficiary’s age. The value of the reserved right of residence is also deducted from the property value when calculating gift tax.

Specifically: The beneficiary is a 65-year-old person; the base rent is 800 euros/month (9,600 euros/year). The multiplier according to Annex 9a of the German Property Valuation Act (BewG) is approximately 12.8 for this age. The capitalized value of the right of residence is thus around 123,000 euros-this amount is deducted from the property value for gift tax purposes, which significantly reduces the tax burden.

Cost Allocation and Contractual Provisions

The contract should clearly stipulate who bears which costs associated with the property. According to Section 1093 of the German Civil Code (BGB) in conjunction with Section 1041 BGB, the person with the right of residence bears the ordinary maintenance costs-that is, ongoing operating costs such as electricity, heating, water, and minor repairs. Extraordinary expenses and major repairs (e.g., roof renovation, heating system replacement) are the responsibility of the owner.

In practice, it is advisable to include detailed contractual provisions on the following points:

• Operating costs: Who pays property tax, insurance, and chimney sweeping?
• Renovation obligations: Is the person entitled to reside in the home obligated to perform cosmetic renovations?
• Maintenance costs: At what amount does the owner assume responsibility?
• Caregivers: Is the person entitled to reside in the home permitted to bring in a caregiver?
• Subletting: Express prohibition if not desired

The more precise the contract, the less potential for conflict arises over the years-especially as the relationship between the generations changes.

Right of Residence as a Planning Tool in Succession Planning

The right of residence is a central tool in anticipated succession. Parents transfer ownership of the property to their children during their lifetime while simultaneously securing a lifetime right of residence-which is tax-advantageous because the capitalized value of the right of residence reduces the gift tax base. The personal exemption per parent and child is 400,000 euros every 10 years, so significant tax savings are possible if the transfer is made in a timely manner.

As an alternative to the right of residence, a usufruct may also be agreed upon, which additionally grants the beneficiary the right to rent out the property and collect the rental income. Usufruct has a higher capitalized value and is therefore even more effective from a tax perspective, but it places greater restrictions on the new owner.

Practical Tip for Nuremberg and Franconia

In the Nuremberg metropolitan area, we see the right of residence particularly frequently in the transfer of single-family and two-family homes within the family. Especially in sought-after neighborhoods such as Erlenstegen, Mögeldorf, or Ziegelstein, parents use this to secure their quality of life, while the next generation already becomes the owner and benefits from rising property values.

We recommend always clearly defining the right of residence-for example, regarding the allocation of costs for maintenance and utilities-and consulting an experienced notary in Nuremberg. Tax planning is particularly important: We work closely with tax advisors and specialized attorneys to structure the transfer in a way that optimally minimizes gift tax and future inheritance tax. In neighborhoods like Erlenstegen, where single-family homes sell for 800,000 euros or more, an early transfer with a right of residence can save thousands of euros in taxes.

Frequently Asked Questions

Can a right of residence be removed from the land registry?

A right of residence can only be removed from the land registry with the consent of the beneficiary. This requires a notarized authorization for removal. Unilateral revocation by the owner is not possible. The right of residence automatically expires only upon the death of the beneficiary and can then be removed from the land register with the death certificate. The removal fee at the land registry office is usually a few hundred euros.

How does the right of residence differ from usufruct?

The main difference lies in the scope of use: With the right of residence, the beneficiary may only occupy the property themselves. With usufruct, on the other hand, they may also rent it out and keep the proceeds. Usufruct is thus economically more valuable-and therefore more tax-efficient-but places greater restrictions on the owner. Both rights are entered in the land registry and expire upon death. For parents who do not wish to rent out their property, the right of residence is the simpler and less burdensome option.

What costs must the beneficiary of the right of residence bear?

Generally, the beneficiary of the right of residence bears the ordinary maintenance costs of the home, i.e., ongoing operating costs such as heating, water, and electricity, as well as minor repairs up to a contractually agreed-upon amount. Major repairs and extraordinary expenses, however, are the responsibility of the owner. We recommend specifying the cost allocation in the notarized contract in as much detail as possible to avoid future disputes-especially if the generations do not live in the same house.

Can a right of residence be sold or transferred?

No. The right of residence is strictly personal and cannot be sold, gifted, or inherited. It automatically expires upon the death of the beneficiary. An assignment or transfer to another person-even to a spouse-is legally impermissible unless a usufruct has been expressly agreed upon instead of a right of residence.

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