When property is subject to temporary emphyteusis, the economic value of the property must be divided between two legal interests: the dominium utile, which entitles the emphyteuta to enjoy the property during the remaining duration of the emphyteusis, and the dominium directum, which entitles the ground-rent owner to receive the annual ground rent and to recover the property once the emphyteusis expires.
In valuation terms the central issue is therefore time. The longer the remaining duration of the emphyteusis, the greater the value of the dominium utile. Conversely, the closer the emphyteusis is to expiry, the more valuable the dominium directum becomes, because the property will soon revert to the ground-rent owner.
To translate these future rights into present economic value, valuation practice normally applies a discount rate. For illustrative purposes one may adopt a 5% discount rate, which represents a moderate and commonly used assumption in property valuation exercises.
The mechanics can be expressed through two simple formulas.
The present value of the ground rent stream is:
PV(cens) = C × (1 − (1 + r)⁻ⁿ) / r
where
C = annual ground rent
r = discount rate
n = number of years remaining.
The present value of the reversion—that is, the value today of the property that will revert to the ground-rent owner—is:
PV(reversion) = V / (1 + r)ⁿ
where V is the open market value of the property free of encumbrances.
The value of the dominium directum is therefore:
Dominium directum = PV(cens) + PV(reversion)
while the dominium utile is simply the residual value:
Dominium utile = V − Dominium directum.
A comparison of two examples illustrates how decisive the duration of the emphyteusis can be.
Suppose a property has an open market value of €1,000,000, the annual ground rent is €20, and the discount rate used is 5%.
If the temporary emphyteusis will expire in 35 years, the calculations proceed as follows.
The present value of the ground rent becomes:
PV(cens) = 20 × (1 − (1.05)⁻³⁵) / 0.05
The annuity factor for 35 years at 5% is approximately 16.37, giving:
PV(cens) ≈ 20 × 16.37 ≈ €327
The present value of the reversion becomes:
PV(reversion) = 1,000,000 / (1.05)³⁵
Since (1.05)³⁵ ≈ 5.52, the result becomes:
PV(reversion) ≈ 1,000,000 ÷ 5.52 ≈ €181,200
The value of the dominium directum is therefore approximately:
€181,200 + €327 ≈ €181,527
The remaining value belongs to the dominium utile:
Dominium utile ≈ 1,000,000 − 181,527 ≈ €818,473
In this situation the emphyteuta effectively controls most of the economic value of the property because the reversion lies far in the future.
The situation changes dramatically if the emphyteusis will expire in only five years.
The present value of the ground rent becomes:
PV(cens) = 20 × (1 − (1.05)⁻⁵) / 0.05
The annuity factor for five years at 5% is approximately 4.33, giving:
PV(cens) ≈ 20 × 4.33 ≈ €87
The present value of the reversion becomes:
PV(reversion) = 1,000,000 / (1.05)⁵
Since (1.05)⁵ ≈ 1.276, the result becomes:
PV(reversion) ≈ 1,000,000 ÷ 1.276 ≈ €783,500
The value of the dominium directum therefore becomes approximately:
€783,500 + €87 ≈ €783,587
The value of the dominium utile becomes:
Dominium utile ≈ 1,000,000 − 783,587 ≈ €216,413
These examples show how dramatically the valuation shifts depending on the remaining duration of the emphyteusis. Where the term is long, most of the economic value lies in the dominium utile. Where the term is short, the dominium directum rapidly increases in value because the reversion of the property is approaching.
