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# Lease of immovable assets (e.g. farmland, garden)

Help on the Immodio entry item Lease of immovable assets (for example arable land, a garden).

You use this category for **lease payments for land, areas or other immovable assets** that you have leased yourself from a third party and that economically serve your letting activity.

Typical cases of application can be, for example:

* an additionally leased **garden** used for one of your let properties,
* a leased **green or open space**,
* leased **arable or garden land**,
* an additional area of land that you pass on together with a let property,
* or another immovable asset that you use for your letting activity under a lease agreement.

{% hint style="warning" %}
What matters is not only that you pay regularly for the use of an area. There actually has to be a lease relationship and the lease has to be economically connected with your letting activity.
{% endhint %}

Under Section 581 BGB the lessee, unlike with an ordinary rental, in principle receives not only the right to use the item but additionally the right to **take the fruits or proceeds of the leased item**.

#### **This category is for a lease – not for ordinary rent or leasing**

For the entry, Immodio distinguishes between different categories:

1. **an ordinary rental agreement** → **Rent for immovable assets**
2. **a lease agreement** → **Lease of immovable assets**
3. **a leasing contract** → **Leasing immovable assets**

Even though in all three cases regular payments arise for the use of a third party's asset, they are different types of contract.

#### **What is the difference between rent and a lease?**

With an ordinary rental the **use of an item** is in principle made available to you.

With a lease, by contrast, you may in principle not only use the item but also **use the fruits or proceeds** obtainable from it.

With a lease agreement the lessor has to grant the lessee both the use of the item and the enjoyment of the fruits obtainable from it under proper management.

**a) Example: land used only as a storage area**

You have an area of land made available to you by a neighbour merely for use as a parking or storage area. You may use the area but may not take any economic proceeds from the land beyond that.

Depending on how the contract is drafted, this can be more of a **rental** than a lease.

The category to use is then: **"Rent for immovable assets"**

**b) Example: a leased area belongs to the letting**

You own a let apartment building. Directly next to your land there is a garden area belonging to another owner.

You lease this area for **€120 a month** and make it available to your tenants for use together with your let property.

The area is thereby used exclusively in connection with your letting activity.

The annual cost is: **€120 × 12 = €1,440** in lease costs.

The **€1,440** can in principle be attributed to your letting activity and posted to the category **"Lease of immovable assets (for example arable land, a garden)"**.

#### **Do not confuse a lease and leasing**

Leasing is to be distinguished from a lease. With leasing, and with finance leasing in particular, the following points, for example, can play a role:

* a fixed basic term,
* a financing character,
* the amortisation of the acquisition costs,
* a purchase option,
* an extension option,
* residual value provisions,
* and the attribution of the asset for tax purposes.

Where there is actually a leasing contract, use the category **"Leasing immovable assets".**

#### **Private use has to be excluded**

Where the leased area is **not used exclusively** for your letting activity, the full lease may not be taken into account as income-related expenditure of your letting activity.

**Example**

Monthly land lease: **€300**

The area is comprehensibly used:

* **70% for your letting activity** and
* **30% privately**.

The share attributable to your letting activity is then:**€300 × 70% = €210** a month.

{% hint style="info" %}
The private share is **€90** and does **not** belong to the income-related expenditure of your letting activity and is therefore not posted to this category.
{% endhint %}

#### **Advance lease payments for more than five years**

Lease payments are normally made monthly or annually.

For income from letting and leasing, the **outflow principle** applies in principle to expenditure.

There is an important exception, however, for very long-term advance payments. Where expenditure for a **grant of use of more than five years** is paid in advance, it has under Section 11 (2) EStG in principle to be spread evenly over the period for which the advance payment was made.

**Example: ten years' lease in advance**

You lease an area for **10 years** and at the start of the contract pay **€30,000** once in advance for the entire period.

The **€30,000** may then **not** be taken into account in full as running expenditure in the year of payment. Spread evenly, the result is **€30,000 ÷ 10 years = €3,000** that you post each year to the category "Lease of immovable assets (for example arable land, a garden)".

#### **Ground rent is not the same as a lease**

Not every regular payment for the use of third-party land is a lease.

A **heritable building right** is an independent right equivalent to land and belongs by law to real property.

Where you pay **ground rent**, it should therefore not automatically be treated as a lease merely because it is paid regularly.

Use the category "Costs for ground rent, heritable building rights and long leases" for that.

#### **Do not recover from the tenant**

The fact that lease costs arise for you each month or each year does not mean that this payment may automatically be recovered from your residential tenants as operating costs.

A lease you pay to a third-party landowner is at first merely the **charge for being allowed to use a third party's asset yourself**.

It does not become a recoverable operating cost item merely because it is paid regularly.

The **"Recoverable in the operating cost statement" switch should in principle stay disabled for this category**.

#### **Assignment in Immodio**

With this category the assignment is to the **owner.** Select the owner who actually bears the lease.

#### **In short**

Use **"Lease of immovable assets (for example arable land, a garden)"** where:

* there is actually a **lease agreement**,
* you pay a lease for third-party land or a third-party area,
* in addition to the use you are, where applicable, also entitled to the economic use, that is to take the fruits, and
* the area serves your **letting activity**.

The following applies:

* **rent** → **"Rent for immovable assets"**
* **a lease** → **"Lease of immovable assets (for example arable land, a garden)"**
* **leasing** → **"Leasing immovable assets"**

What matters is the **actual drafting of the contract**.

For this reason keep in particular:

* the lease agreement,
* proof of payment,
* invoices or statements,
* a description and the location of the leased area,
* evidence of its use for your letting activity,
* where applicable, permission to pass it on,
* and, with mixed use, the split used

permanently.