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Country - Germany
Sale and Purchase
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A. ACQUISITION OF REAL ESTATE
Applicable legislation
The main sources of real estate law are:
- the civil code;
- the notarisation act;
- the land register ordinance;
- the act on the transfer of real property;
- the federal building code; and
- the building ordinances of Federal States.
Is the purchase of real estate assets by foreign investors subject to restrictions?
There are no restrictions on the purchase of real estate assets by foreign investors.
Do different legal regimes apply to the transfer of title to different kinds of real estate (commercial, residential, manufacturing)?
The regime for the transfer of title is always the same, irrespective of the use of the property.
Do mandatory pre-emption rights apply to the sale of real estate assets?
Yes, municipalities may have mandatory pre-emption rights under the federal building code or the historic preservation laws of individual states.
Is expropriation (compulsory purchase) possible?
If so, under what conditions?
Expropriation is possible but only under a law allowing the expropriation or an ordinance based on the law. Expropriation is only allowed when it is necessary in the public interest. The state must also pay compensation to the relevant party.
Is real estate registered?
If so, is this official information made available to the public?
Real estate is registered in the land register which is kept by the local courts. Information is not publicly available and is only accessible to those who can demonstrate a legitimate interest. However, access to the registers can be gained by instructing a notary, who is deemed always to have a legitimate interest.
Is transfer of title recorded?
Can other related deeds (for example preliminary sale agreements) be recorded?
Transfer of title is registered with the land register and the title only passes to the buyer once registration is complete. The land register can only register information about the premises, the title, easements and similar encumbrances, and about land charges and mortgages.
Do buyers usually carry out due diligence?
If so, what due diligence is typically conducted and what is its timing (i.e. before or after contract execution)? Is there any protection for the buyer during the due diligence period (for example an exclusive right to negotiate or buy)?
It is customary to carry out due diligence prior to the execution of the contract. For a single asset transaction due diligence will take approximately two to three weeks. Investigations include the verification of the title, leases and the zoning and planning situation. Though it is common to agree on exclusivity periods in relation to commercial property transactions, and these are often tied to liquidated damages, it is difficult to obtain full protection for a buyer since an agreement to sell real estate is only enforceable once the sale and purchase agreement has been notarised. Please note that the purchase of property via a share deal may also require notarisation, for example if shares in a GmbH are acquired.
Is title insurance available?
Title insurance is not common in Germany.
How are deals typically structured?
Deals may be structured as asset deals or share deals. The choice between these is normally determined by tax considerations. However, the majority of transactions are asset deals.
B. STRUCTURE OF THE CONTRACT
Are there formal requirements regarding the content and structure of the sale and purchase contract?
There is complete freedom for parties to structure the sale and purchase agreement to suit their needs. The agreement will, however, always contain clauses identifying the property, specifying the purchase price and payment terms, rules on the transfer of title (including the granting of a priority notice of conveyance, which ensures that the title will pass to the buyer) and, in most agreements, the seller will authorise the buyer to mortgage the property.
What is a typical contract like?
A typical contract is about 20 to 30 pages long and contains the clauses described above. The most important aspects are to secure payment by the buyer and to ensure the transfer of an unencumbered title. For this reason the contract specifies certain conditions which must be fulfilled before the purchase price is payable. The buyer, therefore, only pays once his notary has received confirmation that any existing mortgages have been cancelled.
Are special consents required for certain transactions (for example consent by a spouse)?
Under specific circumstances certain consents may be required. If the seller is a minor, approval by the court may be necessary. If the sale comprises the sale of a substantial part of the seller’s assets, the consent of a spouse may be necessary.
What seller’s warranties are provided under statute (for example the state of the building, asbestos, etc.)?
Can they be excluded or varied by contractual agreement? Is there a deadline for claims to be made?
Generally, the seller's statutory liability for property and construction defects will always be excluded. The buyer is responsible for obtaining information about possible damage to the property, and about the overall legal position, through careful due diligence. However, the seller has a statutory liability to provide valid title (which cannot be excluded). In addition, the seller is responsible for disclosing any technical damage or defects in the property which are known to him but not easily noticeable during due diligence. If the seller fails to do so then he will be deemed to have acted fraudulently. It is therefore common to include a clause in the sale and purchase agreement stating that, to the best of the seller's knowledge, there are no such defects.
What are the buyer’s remedies against misrepresentation by the seller?
The remedies available to a buyer include withdrawal from the sale and purchase agreement, claiming damages, or claiming a reduction in the purchase price. Where appropriate the buyer also has a right to expect the seller to rectify a specific defect.
Are there any interests in real estate other than exclusive ownership?
If so, what are they?
There may be joint ownerships in the form of condominium (Wohnungseigentumsgesetz) as well as hereditary building rights. The latter are long-term leases (often of 99 years) which include the right to have buildings on the property. It can be registered in the land register in the same way as freehold property.
C. PUBLIC LAW ASPECTS RELATED TO THE ACQUISITION OF REAL ESTATE
What are the most important areas of public law for an investor to consider when purchasing real estate?
An investor should always verify that the building complies with the building permit. It is also important to consider the zoning laws and building laws. Usually the building permit will be sufficient to confirm that the building complies with zoning law but sometimes it is also helpful to look at the zoning plan. This allows the buyer to verify whether the proposed use of the premises is permitted. Any change in use will require a revised permit.
Is the buyer of a real estate asset responsible for soil pollution or contamination of the building even if it is not caused by him?
Yes, the buyer may be responsible for soil pollution or contamination even if he did not actually cause it. The authorities may, at their discretion, expect either the party who actually caused the problem, or the current owner/occupier, to take remedial action. However, the party taking the remedial measures can then make a claim against the party who actually caused the problem, unless this is explicitly excluded in the sale and purchase agreement.
How can a buyer ascertain the possible uses of an area under the applicable zoning or planning laws?
Can uses be changed?
Public authorities establish zoning plans which designate the permitted use of an area. Uses may be changed, but there is protection for existing buildings, so that if a use has been permitted in the past it remains permitted, even if the zoning plan has changed since then.
Is it possible to enter into specific development agreements with relevant public authorities in order to facilitate a project?
Can public authorities make a charge for this?
Developers often enter into development agreements with the relevant public authorities. Charges may be negotiated as part of a specific agreement.
D. TAXES RELATED TO ACQUISITION OF REAL ESTATE
Are there transfer taxes or sales taxes?
The most important tax is the property transfer tax. Most sale and purchase agreements stipulate that this tax is paid by the buyer. In share deals there are strategies available to avoid property transfer tax if the seller remains as a shareholder in the company, holding a stake of more than 5%, for more than five years. In general the rate of property transfer tax is 3.5%, although in the State of Berlin it is 4.5%.
The rate of VAT is currently 19%. Property transactions are not normally subject to VAT if they comprise the transfer of a business as a going concern. Even if this does not apply, property transactions are generally exempt from VAT, however, a seller can opt for VAT to apply to a sale. This can be an advantage where the VAT on costs incurred during related development activities can be offset against VAT on the purchase price.
What are the normal transaction costs?
Transaction costs include notary fees, which are fixed by statute; property transfer tax; legal costs for the registration of priority notices, land charges and the transfer of title; and the fees of lawyers instructed to carry out due diligence and to draft and negotiate the sale and purchase agreement. Notarisation costs are quite substantial. For an acquisition in the region of EUR 9,000,000 these costs would be in the region of EUR 30,000, excluding VAT. Lawyers' fees are usually negotiable.
How are transaction costs shared by the buyer and seller?
Normally each party pays their own legal fees. Property transfer tax, notarisation fees and the legal costs related to the implementation of the sale and purchase agreement are paid by the buyer, with the exception of any legal costs incurred in connection with the discharge of existing encumbrances by the seller.
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