Comparative observations

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of this type of contract seems to be limited to the development of industrial complexes where the builder undertakes to design and erect the complex. The Belgian and Danish reports suggest that such a contract can be supplemented with a post-construction management contract. The Danish report recommends using two independent contracts, one with a turnkey developer and one with an administrator, but warns that in both these contracts the owner bears the overall risk.

The English and Scottish4 reports suggest a building lease of land for a long term, usually ninety-nine years, at a so-called ‘ground’ rent. The tenant covenants to erect certain structures on the land according to a particular specification and to maintain the structures during the term.5 The long term of the building lease approximates the civil law hereditary land lease (emphyteusis).6

As a second option, a limited real right solution may also be used in order not to engage A in the construction and to have the construction financed by the developer (B). The latter must be granted a real right over the property which can be mortgaged as security for a loan. The German, Austrian, French,7 Belgian, Spanish, Italian and South African reports mention the traditional hereditary building lease (superÞcies, Erbbaurecht) as the most common device for achieving this goal. Although special regulations were initially introduced in Germany in 1919 in order to promote the supply of affordable housing in urban areas, the institution became more flexible over time and is presently also used to provide for commercial, industrial and sporting facilities.

It is almost universally accepted that the hereditary building right not only gives B a limited real right8 but (temporary)9 ownership of the building which he/she has erected, coupled with a right of use with regard to the land. If registered, this lease is a valuable asset in B’s estate, which can be mortgaged. On expiry of the building lease, the landowner acquires ownership of the building subject to the payment of compensation of the actual value of the building (Belgium), a quarter of the value of the

4The Scottish report suggests a lease of 125 years, supplemented by a management contract and agreements of lease with future occupational tenants.

5See the Hungarian report for a similar use of a lease.

6See also the special contract mentioned in the Greek report. The so-called trust contract introduced in France by the Law of 2007 seems unsuited for this purpose.

7The French report calls it a construction lease.

8See the South African report and the Italian minority view mentioned in that report.

9See the Spanish report.

building (Austria) or as agreed in the constitutive deed (Italy).10 In France, the holder is sometimes rewarded with a fractional share in the building.

Since very few of the provisions regulating a hereditary building right are mandatory, parties are free to include a variety of clauses in the constitutive agreement, for example, granting the required level of control to A for the duration of the right (Belgium) or pertaining to the design of the construction (Spain). The shorter term of a hereditary building right (superÞcies)11 as opposed to that of a hereditary lease of land (emphyteusis), renders it more suitable for the envisaged transaction, especially in Austria, Belgium and Portugal.12

The Belgian, French, South African and Polish reports mention the hereditary land lease (emphytheusis, erfpachtrecht) as a possible option for achieving this purpose. In essence, the hereditary land lease (emphyteusis) grants B (the developer) the right to develop the land by, among other things, constructing buildings on it. This right can endure for a fixed term and B is entitled to exploit the construction during this term. Since none of the provisions of the regulatory statutes are mandatory, the parties are at liberty to provide in the agreement for A to have the required level of control for the duration of the right. On expiry of the hereditary land lease, the land and the structures are returned to the landowner. Owing to its long duration (in Belgium at least twenty-seven years), the hereditary lease (emphyteusis) is not so popular in practice.

The Belgian and Hungarian reports suggest that this goal can be achieved by the landowner creating a usufruct in favour of the developer which will entitle him to exploit the land and the buildings thereon for a fixed term. The Belgian report states that this device is less commonly used than the hereditary building right (superÞcies) and the hereditary land lease (emphyteusis) and that it is only used when the developer intends to develop the building from scratch. The Hungarian report states that this device is not used frequently in practice because usufruct is mainly used in a family context.

A special French Law of 1967 permits the owner of land to grant a concession to B for a term of at least twenty years, permitting B to build on the land against payment of an annual rent. Although doctrinal writers

10If not, B will have a claim on the grounds of unjustified enrichment.

11E.g. between ten and fifty or 100 years in Belgium and Austria respectively and a minimum term of ten years in Portugal.

12See further the Portuguese Law of 2007 on underground structures and the Austrian report on the right of superstructure.

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cannot agree on whether the right of B is personal or real, the constitutive contract must be executed notarially and registered in the Land Register. Unless otherwise agreed, the concessionaire may choose the purpose for which he/she wants to exploit the property. On termination of the contract, the owner must reimburse the concessionaire with the amount that the completed structures has increased the value of the property.13

The German report suggests a third option. A can agree to allow B to acquire full ownership of the land subject to a right in favour of A to repurchase the land (including the structure to be built by B) after a certain period of time (Wiederkaufsrecht), which can be made enforceable against third parties by registering a priority notice in the Land Register. Such mechanisms are commonly used in sale-and-lease-back transactions regarding commercial property where the seller wants to continue to use the property or to manage it in his/her own name.

The Danish report suggests a similar mechanism rarely used in practice: A sells the land to B subject to an option in favour of A to repurchase the land and the completed buildings. In the sale agreement, this option can be constituted as a right of first refusal, an obligation on B to sell on demand or an obligation on A to purchase on a certain future date and A can provide some control mechanism for himself/herself in the agreement of sale. A more frequent variation in Danish practice is the following: A does not transfer full ownership of the land to B but only ownership of the building once it has been erected. The basic transaction will be a lease of the land in which A can include any of the three options discussed above. Such an option must be registered in the Land Register to be afforded proprietary protection.

Hungarian law also allows a contractual arrangement by which B will become the owner of the building erected on the land, subject to a right of pre-emption of the building in favour of A and a right of pre-emption of the land in favour of B. On the facts given, the landowner must arrange for the future transfer of the ownership of the structure. The Hungarian report suggests the following: sale of the land to B with retention of title of the future building, which is registrable; a right of pre-emption of the building in favour of A, which is also registrable; an option which entitles the landowner to buy the building by unilateral

13The restoration lease mentioned in the French report for the restoration of residential property by public or quasi-public organisations is not suitable for the purpose envisaged in this case. See further the provisions of the French Code for Construction and Habitation.