What’s an Emphyteutic Lease? (And Why You May Want to Avoid One)

The other day the Honeybee and I were watching the two-millionth episode of House Hunters (or was it Buy Me ?) when the host mentioned something that sent a shiver down my spine. Apparently, the unwitting owners of a condo found that their home was built on land subject to something called an emphyteutic lease.

Of course, I had no idea what the heck an emphyteutic lease was, but I knew it couldn’t be good because I was fairly certain my Aunt Edna had once been diagnosed with a severe case of emphyteusis that required several aggressive courses of antibiotics before it was finally brought under control.

Anyway, as soon as she heard the word “emphyteutic” the Honeybee quickly spoke up, “My God, Len, did you hear that?”

“Sure did,” I answered, trying to sound as authoritarian as possible. “We can only pray that those poor people have decent health insurance.”

But the Honeybee kept pressing me for an answer until I finally caved in and admitted that I had absolutely no idea what an emphyteutic lease was.

So what is an emphyteutic lease?

It turns out that emphyteutic leases are generally used when a cash-strapped property holder wants to increase the value of his asset without actually having to spend the money to do so.

Generally speaking, in an emphyteutic lease the owner leases land or property to the lessee for a period of up to 99 years. But unlike a conventional lease, the lessee agrees, over the period of the lease, to add construction or improvements to the property so as to increase the value at the end of the lease period.

The lessee often benefits from this arrangement by getting a reduced rent (on top of the cost of the agreed-to improvements, of course, that have to be made).

The big drawback is, at the end of the emphyteutic lease period, the property and all of its improvements revert to the lessor! Think about the consequences of that for a moment.

If you’ve got a long time horizon before the lease expires, that could be a pretty good deal – the odds are you probably don’t care about the consequences anyway if you will be 127-years-old when the lease finally expires. ;-)

But what if the lease expires sometime before you expect to finally kick the bucket?

As I mentioned earlier, on the show we were watching the owners’ condo was built on land that was subject to an emphyteutic lease. The rub was the lease only had about 25 years to run before it expired, making the sale of the condo extremely difficult because ownership of the condo would then revert to the owner of the land!

Amazingly the owners ultimately found a buyer, although at a slightly lower price than they originally paid for it. You can imagine future sales of that condo will only get tougher though as the end of the emphyteutic lease period gets even closer.

So do you have an emphyteutic lease, or is your home built on land subject to one?

Emphyteutic leases are found in jurisdictions based upon Roman Law such as Quebec and most of Latin America. Thankfully, because emphyteutic leases are derived from Roman Law, they are not typically found in the United States; civil law here is based upon the old English Common Law.

For more information on emphyteutic leases check out this article from Tim Worstall at Examiner.com.

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