Rent-to-own explained · Mietkaufnest

In short

With rent-to-own you first live in the property as a tenant. Part of the rent is credited towards the purchase price that becomes due later.
The purchase price is fixed right at the start. Later price rises on the market no longer matter.
Because the deal is about buying property, the whole contract must be notarised. A rent-to-own contract signed privately is void.
A priority notice of conveyance (Auflassungsvormerkung) in the land register protects the buyer if the seller tries to sell the property to someone else or becomes insolvent.
Overall, rent-to-own is usually more expensive than a conventional mortgage. It can still make sense, for example if you lack equity or a bank will not (yet) lend to you.

How rent-to-own works

Rent-to-own combines two contracts you would otherwise know separately: a tenancy agreement and a purchase agreement. In practice both are combined in a single notarial deed. The process almost always follows the same four phases.

Contract before the notary
Buyer and seller agree on the purchase price, monthly rent, credited share and term. The notary records everything and usually applies for the priority notice in the land register.
Rental phase
The buyer moves in and pays rent every month. The agreed share is credited towards the purchase price. The rental phase typically lasts five to fifteen years.
Time of purchase
On the agreed date the remaining purchase price becomes due. Most rent-to-own buyers finance it with a bank loan, for which the credited payments now count like equity.
Ownership
Once the remaining price has been paid, both sides declare the conveyance. With the entry in the land register, the buyer becomes the owner.

Two models: purchase obligation or purchase option

Rent-to-own covers two types of contract that differ in one decisive point: whether the buyer must buy at the end or only may buy.

	Rent-to-own with purchase obligation	Rent with purchase option
Decision to buy	Made at once before the notary. The buyer is obliged to buy.	Made later. The buyer can exercise the option or let it lapse.
Flexibility	Low. You can only exit under the terms of the contract.	High. Without a purchase, the contract ends like a normal tenancy.
Rent already credited	Goes towards the purchase price for certain.	Is usually lost if you decide not to buy.
Option fee	Not usual.	Often charged as the price for the right to buy.
Real estate transfer tax	Arises when the contract is signed.	Usually only arises when the option is exercised.

Legal situation in Germany

There is no specific rent-to-own law. Instead, the rules for purchase contracts, tenancies and real estate transactions apply side by side. The most important points at a glance:

Notarisation of the whole contract

§ 311b BGB (Civil Code)

Anyone who commits to buying or selling land needs a notarised contract. With rent-to-own this also applies to the tenancy part where it is connected to the purchase, for example where it governs crediting, handover or term. Without notarisation, the entire contract is void. Payments already made must then be unwound, which often means disputes.

A purchase option also binds the seller and must therefore be notarised.

Priority notice of conveyance

§ 883 BGB

The priority notice is an entry in the land register that secures the buyer's future claim to ownership. As long as it is registered, the seller cannot validly sell the property to anyone else or encumber it to the buyer's detriment. For a rent-to-own deal over many years, it is the buyer's most important protection.

Tenancy law during the rental phase

§§ 535 ff. BGB

During the rental phase, residential tenancy law applies with its protections for tenants. This covers, among other things, termination, utility statements and defects. Contractual penalties are invalid in residential tenancy agreements § 555 BGB. Anyone who wants to divide repairs and maintenance differently from the law should set this out clearly in the notarial contract, as standard clauses often do not hold.

Consumer protection with commercial sellers

§ 506 BGB

If a business, such as a developer or housing company, sells to a private individual, rent-to-own can count as a financial accommodation for payment. The rules for consumer real estate loans then apply accordingly, including special information duties and a right of withdrawal. Whether this applies depends on how the contract is drafted and is a question for a specialist lawyer or the notary.

Real estate transfer tax

§ 1 GrEStG

The tax arises with the effective purchase contract. With a purchase obligation that is the notarisation at the start; with a pure purchase option it is usually only when the option is exercised. Each federal state sets its own rate, currently between 3.5 and 6.5 percent of the purchase price.

Seller insolvency

§§ 106, 108 InsO (Insolvency Code)

If the seller becomes insolvent, the residential tenancy generally continues. A registered priority notice is insolvency-proof: the insolvency administrator must fulfil the purchase claim. Without a priority notice, however, the buyer can lose the payments already credited.

Taxes for the seller

§§ 21, 23 EStG (Income Tax Act)

Until ownership passes, the rent is income from letting for the seller. If less than ten years lie between the seller's own purchase and the sale, the capital gain may also be taxable. It is worth talking to a tax adviser before the contract is drawn up.

Important: The legal situation always depends on the specific contract. Have the draft checked by an independent lawyer specialising in property or tenancy law before the notary appointment. The notary must remain neutral and does not represent either side.

Rent-to-own calculator

Play with the numbers. The example shows how much is credited at the end of the rental phase, what still needs to be financed and what rent-to-own costs overall. The values are examples.

Purchase price euros

Monthly rent euros, excl. utilities

Credit rate percent of the rent

Rental phase years

Down payment / option fee euros, credited

Real estate transfer tax percent, depends on the state

Notary and land register percent, rough rule of thumb

creditedRemaining price

Credited after the rental phase€92,800

Remaining price at the time of purchase€157,200

Total rent paid€138,000

Of which not credited€55,200

Purchase costs€16,250

Total cost until ownership€321,450

Compared with buying directly

Same down payment, and instead of rent you pay the same monthly amount as a loan instalment. The debt left after the rental phase is included.

Price if bought directly euros, empty = same as purchase price

Mortgage interest rate percent per year

Total cost if bought directly€346,503

Rent-to-own cheaper by €25,053

Not included: interest on financing the remaining price, the property's running costs and maintenance. The part of the rent that is not credited is what you pay for living there during that time.

Open the calculator on its own page and share the result

Who rent-to-own suits

For buyers

A path to ownership with little or no equity
A fixed purchase price protects against rising prices
Time to get to know the property and the area before buying
Time to build up creditworthiness for later financing
Total cost usually higher than with a bank mortgage
Few properties on offer, some in difficult locations or poor condition
Without a purchase, the credited share is often lost
A fixed price can become a disadvantage if prices fall

For sellers

A wider circle of buyers, even for properties that are hard to sell
Ongoing rental income until the sale
Often a higher purchase price than with an immediate sale
The full sale proceeds only arrive late
Risk that the buyer becomes unable to pay
Owner's duties and liability continue until handover
Tax consequences need careful planning

Checklist before the notary appointment

Tick off what has been settled. Your ticks are saved in this browser.

Inspected a current land register extract: who is the owner, which encumbrances are registered?
The contract provides for a priority notice of conveyance.
Purchase price checked for plausibility by an independent valuer.
Split between rent and credited share set out clearly in writing.
Clear who pays for maintenance, repairs and insurance.
Settled what happens in case of payment arrears, job loss or separation.
Checked with the bank whether the remaining price will be financeable.
Energy performance certificate and the property's condition checked.
Draft contract reviewed by an independent specialist lawyer.

0 of 9 done

Glossary

Credited share: The share of the monthly rent credited towards the purchase price, for example 60 percent (Anrechnungsquote).
Conveyance: The notarially declared agreement that ownership passes (Auflassung). Only with conveyance and land register entry does the buyer become owner.
Priority notice of conveyance: A land register entry securing the buyer's claim to ownership, also against resale and insolvency (Auflassungsvormerkung).
Option fee: A one-off payment for the right to buy the property later (Optionsentgelt). Often credited, but usually forfeited without a purchase.
Remaining price: Purchase price minus all credited rent and down payments. It becomes due at the time of purchase (Restkaufpreis).
Real estate transfer tax: Tax on acquiring land, with a rate set by each federal state (Grunderwerbsteuer).

Our role at Mietkaufnest

Mietkaufnest is a listings platform for rent-to-own property. We bring providers and interested parties together and check the identity of both sides as well as the providers' proof of ownership.

We are not an estate agent and do not broker contracts.
We are not a law firm and do not give legal advice.
You conclude contracts directly with the other side, always before a notary.

This guide is meant to help you ask the right questions. The answers for your case come from a specialist lawyer or tax adviser.