Sell an Apartment with Right of Residence: How does it work? – Advantages & Special Features

Sell apartment with right of residence — the sale of one’s own property under the reservation of a lifelong right of residence is one of the most powerful instruments of testamentary succession. Properly structured, this allows a family to save six-figure amounts in gift and inheritance tax, while the seller spends their old age in their own four walls. Improperly structured, it can lead to disputes over maintenance costs, unexpected tax liabilities, and problems when reselling. In this guide, you will learn how the right of residence works legally, how the specific value reduction can be calculated, what the decisive difference to the usufruct is, and which twelve points must be clarified before the notary appointment.

The Right of Residence Explained

When it comes to Real Estate as a Retirement Provision, the term right of residence quickly comes up. The right of residence under § 1093 BGB entitles a favored person to live in a property or part of it themselves — even if the property belongs to someone else. It is a real right, meaning it is inseparably linked to the plot of land and survives any change in ownership.

Limited, lifelong, paid, unpaid

Right of residence can be flexibly structured. In practice, four variants dominate:

• Lifelong & unpaid — the classic option for transfers within the family
• Lifelong & paid — the entitled person pays a reduced rent, often when selling to an investor
• Limited & unpaid — e.g. five years until the planned move to a nursing home
• Deferred condition — Right of residence begins only upon the death of the spouse or at a specific date

Right of residence vs. Right of use — the decisive difference

Whoever plans to sell with long-term housing security must clearly distinguish between these two instruments. They are often confused — but the economic consequences are significantly different.

Feature	Right of residence (§ 1093 BGB)	Right of use (§ 1030 BGB)
Own use	Yes	Yes
Rent out possible	No (only with consent)	Yes, rental income belongs to the entitled party
Value reduction	Low	Higher (often full market rent as a basis)
Tax depreciation	Owner	Right of user (when rented out)
Typical application case	Own apartment in old age	Apartment building, return objects
End	Death or term	Death or term

Rule of thumb: Whoever just wants to continue living there chooses the right of residence. Whoever wants to remain flexible and possibly rent out or move, without losing the right, chooses the usufruct.

For whom is the right of residence worthwhile?

The typical scenarios

A lifelong right of residence is mainly agreed upon in four scenarios in practice:

• Parents to children — anticipated inheritance, use of gift tax allowances every ten years
• Spouses to each other — security for the longer-living partner in separate property arrangements
• Sale to investors — so-called “sale on a pension basis” or “real estate life annuity”
• Sibling inheritance — one heir takes over the property, the other receives the right of residence

The right of residence is ideal for close relatives, spouses, parents & grandparents.

When it is not worthwhile

Little sense makes a right of residence if the entitled person intends to move anyway in the foreseeable future, if the property would have to be sold below market value because the market is weak, or if the owner needs external financing — banks assess properties burdened by a right of residence significantly more conservatively and often require a priority entry in the land register.

Value Calculation: What is the value of the right of residence?

The central question in every negotiation. The capital value of the right of residence is determined according to § 14 of the Real Estate Transfer Tax Act and reduces the purchase price or the assessment base for gift tax.

The Formula

Annual value (local cold rent × 12) × life annuity factor = capital value of the right of residence

The life annuity factor is derived from the statistical life expectancy of the entitled person and is updated annually by the Federal Ministry of Finance. Simplified: The younger the entitled person, the higher the factor — and the greater the value reduction.

Calculation example — condominium in Munich

• Market value of the apartment: 850,000 €
• Local cold rent: 1,800 €/month = 21,600 €/year
• Beneficiaries: 72-year-old woman, life annuity factor approx. 9.8
• Capital value of right of residence: 21,600 € × 9.8 = 211,680 €
• Reduced selling price (to daughter): 850,000 € − 211,680 € = 638,320 €

As the daughter has a gift tax exemption of 400,000 €, a significantly lower tax applies to the difference between the reduced value and the exemption than without the right of residence. With a strategic division over ten years, the tax burden can often be reduced to zero.

Rule of thumb for quick calculation

Age of beneficiary	Life annuity factor (approx.)	Value reduction for 1,500 € monthly rent
60 years	13.1	235,800 €
70 years	10.5	189,000 €
75 years	8.9	160,200 €
80 years	7.2	129,600 €
85 years	5.5	99,000 €

Advantages for the entire family

Properties with registered right of residence are only sold on the open market at a significant discount, because they are unattractive to external buyers. For this reason, they are usually passed on within the family — and there, they fully realize their tax and emotional impact.

Advantages at a glance — Who benefits how?

Actor	Concrete Advantage
Seller / Donor	Lifetime housing security, liquidity from sale, no moving stress
Heir / Buyer (Child)	Reduced purchase price, use of gift tax exemption, early transfer of ownership
Family as a whole	Wealth remains within the family group, clear regulations prevent inheritance disputes
Tax optimization	Exemptions can be used every ten years (400,000 € per child, 500,000 € spouse)

What is additionally tax relevant and affects the future owner: AfA Real Estate.

What needs to be considered

Decide to sell your apartment with a registered right of residence, several aspects must be clearly regulated. Whoever is careless here creates potential for disputes for decades.

Duration and Expiry of the Right of Residence

A right of residence can be time-limited or lifelong — it expires either at the end of the agreed period or with the death of the entitled person. The owner can only unilaterally revoke it in exceptional cases (such as gross misconduct). The entitled person can voluntarily renounce their right of residence at any time — for example, when moving into a nursing home. Merely not using it does not automatically lead to its expiry: After 30 years of non-use, the right of residence can be removed from the land register without the consent of the entitled person.

• Duration is notarially determined in advance
• Revocation only in exceptional cases
• Renunciation by the entitled person is always possible
• Expiry automatically upon death of the entitled person
• Cancellation after 30 years of non-use

Costs and Burdens — who pays what?

The most common point of contention after a change of ownership. Without a clear regulation in the notarial contract, the statutory distribution applies — and this is often unsuitable. Standard practice:

Position	Right of Habitation Holder	Owner
Electricity, water, heating (consumption)	Yes	No
Beauty repairs	Yes	No
Land tax	Negotiable	Standard
Condominium fees (management)	Pro rata (consumption costs)	Pro rata (maintenance)
Roof, facade, heating system	No	Yes
Building insurance	No	Yes

Recommendation: List this division point by point in the contract — general formulations such as “Holder bears the ongoing costs” regularly lead to conflicts.

Inheritance by third parties not possible

The right of residence is personal and not inheritable. It ends with the death of the person entitled to it — heirs or successors cannot continue it, unless this is explicitly stipulated differently in the original agreement (which is the exception). After death, the owner regains full control and can sell, rent out, or use the property themselves.

Move-in to a nursing home — what happens then?

An often underestimated practical case. If the entitled person moves permanently into a nursing home, the right of residence remains in place initially — the apartment, however, remains empty. Three options:

• Renunciation by the entitled person — clean, but final
• Agreement on renting out — rental income often covers nursing home costs
• Social services reimbursement — if the person is in need of care and receiving social assistance, the social services office may take the right of residence into account as an asset or demand its capitalization

Tip: Include a so-called “tenant compensation clause” in the contract — it regulates that the owner must make a reduced monthly payment to the entitled party as long as the right of residence remains formally in place upon moving out.

Notarial Certification and Registration in the Land Registry

The right of residence must be notarially certified and registered in the land registry (Section II) in order to be legally effective as a real right against any future owner. During the notary appointment, the notary ensures that all formalities are followed. Registration in the land registry makes the right of residence publicly visible and protects the entitled party against any future buyer.

Necessary for security:

• Notarial certification of the contract
• Registration in Section II of the land registry
• Clear description of spaces, rights of joint use, cost distribution
• Provision for the case of moving out/entering a care home

Checklist: Clarify before the notary appointment

• Will a right of residence or a usufruct be more suitable?
• Which rooms are included in the right of residence (entire apartment or only parts)?
• Co-use rights for garden, basement, garage, attic regulated?
• Current local cold rent determined as a basis for evaluation (rent index/expert opinion)?
• Life annuity factor calculated based on age?
• Detailed cost allocation (consumption, maintenance, land tax, insurance)?
• Nursing home clause and tenant compensation regulation included?
• Gift tax exemptions optimized with a tax advisor (10-year rule)?
• Priority in the land register established (before or after bank mortgages)?
• Renovation obligations and cosmetic repairs defined?
• Right of first refusal for the family considered?
• Agreement on the possibility of mutual termination against compensation?

Apartment with existing right of residence