Examination of real estate purchase contract, apartment purchase contract, land purchase contract in Germany

Review, drafting, contract negotiation and enforcement for buyers and sellers in Germany

The transfer of real estate such as houses, apartments, commercial properties or even agricultural and forestry land requires careful drafting of contracts under german law. The subject of a real estate purchase contract is a developed or undeveloped plot of land, a part thereof or also a co-ownership share, special property or a heritable building right.

Below you will find an overview of important topics in the purchase or sale of real estate and answers to important questions. Investors or commercial buyers and sellers in Germany will find the appropriate information here: Commercial Real Estate Transactions

Legal services for real estate transactions in Germany

As a law firm specializing in german real estate law, we provide nationwide legal and tax advice on private and commercial real estate transactions, from the initiation to the completion of the transaction. The services provided by our attorneys, certified specialists and tax advisors include, among others, the following:

1. Drafting or review of real estate purchase agreements, apartment purchase agreements
2. Tax audit and optimization of real estate transactions
3. Design of corporate law structures for real estate purchases (share deal, family pool, etc.)
4. Preparation of and assistance with notarizations
5. Examination of special legal and tax issues in the field of real estate transactions
6. Legal and tax due diligence, in particular tenancy law due diligence
7. Foreign language deeds (English, French, Italian)
8. Review and drafting of asset management contracts
9. Assistance in brokerage law

We are often able to offer private real estate buyers an all-inclusive fixed price for the review, commentary and final negotiation of the property purchase agreement.

For a non-binding inquiry, please contact one of our experts directly by phone or email, or use our contact form at the bottom of this page.

The procedure and principles of the real estate purchase in Germany

The real estate purchase contract always refers to a plot of land or to condominiums. Thus, it is not a house that is purchased, but always the plot of land, of which the house is an integral part. German civil law distinguishes between the obligation under the law of obligations to transfer the land and the actual transfer. The latter is effected by an agreement between the buyer and seller and the registration of the change of ownership in the land register. In german practice, the obligation under the law of obligations and the agreement of the parties are combined in a single document - the "land purchase agreement". This contract is governed by both the provisions of the law of sale (obligation to pay the purchase price, liability for defects, etc.) and the provisions of the law on real property (above all, formal requirements).  

The land purchase contract - what you need to pay attention to in german practice

Below you will find an initial overview of points that need to be regulated in a real estate purchase contract or may be problematic.  

1. Contracting parties: The seller is not always registered as the owner in the land register, e.g. if he has just inherited the property. If the seller is married, the respective matrimonial property regime must be observed and, if necessary, the consent of the spouse must be obtained. The acquisition or sale of a property by a GbR (civil law partnership) can be legally complex. In the case of all companies - as well as minors or persons under guardianship - the power of representation of the persons acting must be checked.
2. Object of purchase: The property or properties are to be described as precisely as possible in the purchase contract with the respective parcels. This is difficult, for example, if the property is a partial area that has yet to be surveyed and is identified with a site plan and a precise description. In addition to the land, the essential components and the so-called accessories are also sold. These include in particular the buildings, but also certain furniture, machinery, etc., depending on the circumstances of the individual case. Within certain tax limits, a portion of the total purchase price can be allocated to co-sold accessories with the consequence that the real estate transfer tax can be reduced. Basically, it can be said that the sale of an existing property (sale of a condominium) is significantly less complex than the sale of an apartment/house yet to be built (so-called developer contract), since in the latter case the property buyer is to some extent exposed to the (uncertain) progress of the construction project.
3. Purchase price: In german practice, the purchase price will regularly have to be paid by transferring a sum of money. It must either be fixed as an absolute amount or be determinable - for example, by specifying a price per square meter for an area that has yet to be measured. It is possible to agree on partial payments and this is common practice, for example, in property development contracts. In individual cases, it is possible to process the purchase price payment via a so-called notary escrow account. However, this incurs considerable additional costs and is not necessary in most cases.
4. Maturity, handover and transfer of possession: There are numerous contractual options that secure either the buyer or the seller. For example, a priority notice of conveyance may be agreed or the purchase price may not be due until the necessary permits have been obtained or certain encumbrances have been cleared. The seller will usually be interested in the transfer of ownership in the land register not taking place until the purchase price has been paid. This area also includes contractual rights of rescission and agreements on the transfer of possession and use: From when is the purchaser entitled to use the property himself or to rent it out, and from when does he have to bear the encumbrances (for example, insurance costs) of the property? It has become common practice in Germany here that a kind of economic transfer of ownership takes place upon payment of the purchase price, also known as a change of use and encumbrance.
5. Encumbrances, public encumbrances: If encumbrances such as land charges or a residential right or usufruct are entered in the german land register, the fate of these rights must be regulated in the real estate purchase contract. Both the assumption and the deletion are conceivable. The examination always requires the inclusion of the agreement on which the right is based, e.g. the real estate loan agreement in the case of the land charge. If the loan still has a value date, it may make sense for the purchaser to take over the right - with the bank's consent. Who bears which development costs for a sold property is regulated by the german purchase law. A precise regulation in the property purchase contract is nevertheless advisable.
6. Defects (material defects, defects of title): It is particularly important to regulate liability for material defects or defects of title that become apparent during or after the execution of the real estate purchase. The legal rights of the buyer, namely withdrawal, reduction and/or compensation) can be modified by contract. A material defect may exist, for example, if the property is smaller than agreed, dry rot or rising damp is evident, a building permit has not been obtained or, in the case of a rented property, the rental income is lower than anticipated. Defects in title come into consideration if, for example, the rights of third parties prevent the buyer from unrestricted use, i.e. if the seller conceals the fact that the house or apartment is rented out. The seller will have an interest in disclosing as many defects as possible so that the buyer becomes "bad faith" in this respect, i.e. can no longer invoke these defects after the contract has been concluded. If the seller conceals a major defect (the classic case is concealment of moisture), he is liable for rescission of the purchase contract and damages due to fraudulent misrepresentation.
7. Miscellaneous: In addition to the above-mentioned main points in the real estate purchase contract, numerous other points can and should be regulated that are of not inconsiderable economic weight. These include the question of who bears the real estate transfer tax and the notary and land registry costs. Another practically relevant issue is so-called brokerage clauses. These clauses should be treated with great caution; on the one hand, they increase the notary fees, and on the other hand, they can disadvantage the debtor of the broker's commission if they are designed accordingly ("abstract promise of commission").    

Lawyers, tax advisors and notaries - players in the purchase and sale of real estate in Germany

Real estate transactions and certain other transactions in the german real estate sector require notarial certification. The german notary also has an important role in the execution of real estate purchase contracts - as does the german land registry. On the other hand, the notary (as well as the lawyer-notary) cannot and may not represent the legal and economic interests of the buyer or seller.

Therefore, a lawyer should always be involved in the purchase of real estate in Germany - either already during the drafting of the contract or later during the review of the real estate purchase contract. It is the lawyer's task to ensure that the interests and objectives of his client are formulated accordingly in the contract to be notarized. The german notary cannot advise on tax matters either.

Here, too, a lawyer or certified specialist for german tax law or a tax advisor is required. As a real estate law firm for german law and taxes, we prepare your contract accordingly or check the contract presented to you for all risks. In particular, in the case of commercial real estate transactions under german law, it is always necessary to check whether the incurrence of real estate transfer tax can be avoided in the individual case.

Here you will find further information on the subject of real estate and taxes: REAL ESTATE & TAXES in Germany

Purchase and sale of real estate in the company assets in Germany

In german practice, it is also possible to transfer real estate assets without a notary and land register if the real estate belongs to the assets of a company and the company itself or shares in the company are transferred.

Those who hold real estate in a company can also take advantage of the additional possibilities offered by german company law. These are of interest, for example, in the case of the transfer of real property within the family. In these constellations, a certified specialist for german corporate law should be relied upon for the structuring or examination.

You will find further information on the following pages of our law firm on the Internet:

• ASSET MANAGEMENT REAL ESTATE COMPANY
• FAMILY POOL