IAG Real Property Group Questionnaire GERMANY:
Q1. What type of ownership can I have? (e.g. of land and buildings, apartments. Whether the land and
buildings on the land have to be owned by the same party. Is title freehold or leasehold?)

Freehold ownership (“Eigentum”): The owner of the land is by law the owner of the building

Land and buildings on the land are always owned by the same party. The exceptions are:
-
Heritable building rights (Erbbaurecht) where land is encumbered in such a way
that the beneficiary owns a building on the encumbered property. The
beneficiary has to pay fees to the owner of the land. The usual contract period is
100 years
-
Special provisions due to German reunification (different ownership of the land
and of the building was possible under the laws of the GDR)

Ownership of residential apartments (Wohnungseigentum) and part-ownership of
offices/non residential premises. (Teileigentum). Such ownership consists of the absolute
ownership of the unit (e.g. apartment or office, (Sondereigentum) itself and of proportional
co ownership (Miteigentum) of the common parts (e. g. hallways, staircases).
Q2. What structures are commonly used to buy or invest in real property? (e.g. property companies,
partnerships, real estate property companies, private individuals)
Private individuals usually buy real property in their own name. Several individuals can buy as
proportional owners in common, in fractional shares, or as a private partnership (Gesellschaft
bürgerlichen Rechts)
All legal forms of companies can own real property. There is no commonly used structure.
Where a company owns real property, its shares may be transferred according to the laws
applicable for that company.
Q3. How can I finance the purchase? (i.e. What are the most common forms of security granted over
real property to raise finance?)
The Land Charge (Grundschuld) is the most common form of security granted over real property
to raise finance. The land charge is independent of the underlying personal claim and identifies
a sum to be paid to the person in whose favour the charge is created. The connection between
the owner of the land and the chargee is made by a special agreement
(Sicherungszweckerklarung).Payment does not automatically settle the underlying claim.
The Mortgage (Hypothek) is rarely used today. A mortgage serves solely to satisfy a personal
claim to which the mortgagee is entitled. The mortgage and claim are closely connected
Q4. Are there any restrictions on foreign ownership or occupation of real property or on foreign
guarantees or security ?
There are no restrictions on foreign nationals buying property in Germany. Owning property in
Germany does not confer the right of residence.
Foreign companies enjoy the same rights they have in their country of incorporation. Therefore,
if a company is capable of acquiring real property under the laws of the country in which it is
incorporated, this will also apply in Germany.
Foreign guarantees or securities can be registered onto the Land Register but in practice this is
not common.
Q5. What costs are normally paid by the buyer and by the seller?
Buyer's costs:
Fee for notarization: 1 % - 1.5 %
Land Registry fees: 0.2% – 0.5%
These are fixed by law and are based on the value of the property.
Buyer’s costs:
Broker’s Fee: 3% - 6% (plus 19% VAT)
Seller's costs:
Cost of removal of encumbrances on the Land Register which are not taken over by the buyer
Q6. What taxes are payable on the sale and purchase of real property and by whom? What are the
rates? (e.g. VAT , stamp duty, transfer tax, real estate tax?)
Tax on acquisition of real estate (Grunderwerbssteuer): The rate differs between federal
states but is around 3.5%. In Berlin the rate is 4.5%. It is paid by the buyer.
Once the tax is paid, the tax office issues a clearance certificate
(Unbenklichkeitsbescheinigung). The registration of transfer of ownership in the Land Register
is impossible without this document.
VAT : No VAT is charged for the transfer of real property. However, the parties can choose to
subject the transaction to VAT.
Speculation Tax: This is paid by the seller and the rate depends on seller’s income tax rate. No
tax is payable on the sale of non-commercial property by a private seller after ten years (the
speculative period) or after two years if the real property served as the seller’s principal
residence.
Q7. What are the main stages and documents in the sale and purchase of real property? (e.g. Are
there pre contractual negotiations, heads of agreement, non binding letters of intent, term sheets,
memorandum of understanding, sale contract completion/transfer? Answer in short bullet points)
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check of the Land Register (who is the owner, what are the encumbrances?)
-
due diligence by the buyer (planning and building permission, existence of residual wastes,
defects of the building, tenancy agreements)
-
letter of intent (in the case of investments) / agreement of reservations
-
appointment of the notary by the buyer. The notary prepares the first draft purchase
agreement (the notary is neutral)
-
negotiation of the purchase agreement ( attorneys may be involved)
-
notarization of the purchase agreement (notarization is compulsory)
-
registration of a priority notice of conveyance (Auflassungsvormerkung) in the Land Register
-
payment of the purchase price (directly to the vendor or to a notary trust account). The
payment date is stipulated in the contract, and the right of possession passes to the buyer
commercially but not legally
-
payment of the tax on acquisition of real estate by the buyer and obtaining all outstanding
conditions, approvals and declarations
-
registration of the transfer of property into the Land Register (which can take several
months)
Q8. When are the parties legally bound?
When the purchase agreement has been signed by the parties and notarized. Any amendments
or supplements are void if not notarised and can invalidate the whole transaction.
Q9. When is title to the property transferred? What are the formal legal requirements? (e.g. in
writing and signed by the parties? Notarised?
Title passes when the buyer is registered as owner on the Land Register.
Registration requires:
• a notarized purchase agreement
• an agreement which stipulates the transfer of ownership (Auflassung) which may be included
in the purchase agreement or declared in a separate deed.
• a clearance certificate of payment of the tax on acquisition of real property issued by the tax
authorities
• in certain cases official authorisations from public authorities
The registration of the transfer of ownership in the Land Register takes place several months
after signature of the purchase agreement. Meanwhile in order to protect the buyer’s rights, a
priority notice of conveyance (Auflassungsvormerkung) may be entered in the Land Register.
However, all benefits, burdens and risk are transferred to the buyer as soon as the purchase
price has been paid and all conditions are fulfilled.
Q10. Does the seller have any statutory or other liability to the buyer after the sale of the property?
The seller is liable if he transfers the real property with material or legal defects. A material
defect occurs when the property is not suitable for the agreed or customary use. A legal defect
occurs if third parties can assert any rights, other than those included in the purchase
agreement, against the buyer.
Private sellers usually exclude liability for material defects in a sale of used buildings and are
only liable if they have hidden known defects or have given guarantees to the buyer. Such
liability cannot be completely excluded in purchase agreements between professional sellers
and private individuals. In the purchase of new buildings, liability can only be excluded in special
exceptional cases.
Ulrike Warneke
24.01.2011
www.wollmann.de
Warneke@wollmann.de