Purchase of Real Estate in Germany

The actual and legal conditions for a real estate purchase in Germany differ considerably from those in other countries. The transfer of title is carried out in two steps: The conclusion of the purchase contract and the entry of the transfer of title into the land register.

The Land Register

The land register (Grundbuch) is administrated by the Land Registry at the particular Local Court. The function of the Land Register is to inform the public about the legal relationships in regard to a specific parcel of land. Albeit being a public register only such individuals gain access to it who can demonstrate a justified interest, e.g. banks and other creditors, public notaries, estate agents and potential purchasers.

In order to review the legal situation, each potential buyer is well advised to demand an actual extract of the land register. It is a basic feature of the German real estate law that transfers of ownership is effected by the transcription of title in the land register. Any individual who is nominated in the register is always and automatically the lawful owner of the property. Due to its publicity, the contents of the sheets are ascribed public faith and credit. As a consequence, everyone can rely on their accuracy and further research regarding the title held by the seller need not to be carried out.

Each property has to be registered on a separate sheet. Past entries in the sheets are deleted by the officers of the Land Registry by underlining them in red. The files attributed to each sheet contain all relevant deeds regarding present or future entries in the register.

Every sheet is divided into an inventory listing (Bestandsverzeichnis) and three sub-sections (Abteilung). The inventory listing identifies the cadastral district (Flur) and unit (Flurstueck) of the real estate and its size. The first section nominates the owner of the estate and the legal ground of his acquisition (purchase/ inheritance etc.). The second section shows all encumbrances in regard to the estate such as easements on the real estate or personal easements, heritable building rights, pledges or claims for recurrent payments or services, usufruct, priority notices, the owners limitations regarding the right to dispose of his title. The entries in the third section document if the real estate has been used before as a collateral security. These informations are important for any potential purchaser because irrespective of the individual who owns the property, each bailee of a lien on the real property is entitled to put the real estate onto auction in order to enforce his money claim.

The Purchase Contract and its Notarisation

A purchase contract should provide stipulations at least about the following issues at least:

  • Name of the parties
  • Description of the purchase object
  • Conveyance of property/ Priority notice of conveyance (important because it blocks further entries in the land register)
  • Purchase price
  • Change of possession
  • Warranty
  • Costs of the purchase and their distribution

The purchase of real estate is subject to a mandatory notarial recording. Conversely to the legal situation in most other countries, unless the contract is notarized any agreement is invalid. Therefore, any purchaser should take care that the complete agreement he has made with the seller is presented to the notary (Notar) and included in the official deed. As the costs for the notary are usually born by the purchaser it is custom that the purchaser decides who shall effect the recording. It is the notary`s duty to convert the parties mutual agreement into an efficient and legally binding set of rules. As a specialised and impartial lawyer, he advises the parties from an independent point of view about rights and obligations arising of the purchase contract. Consequently, it is his main task to identify contractual loopholes and to prepare the draft. Moreover, notaries offer to take and keep the purchase price in a notary trust account until all conditions for a vested transcription are met (approval by the municipality, payment of the estate purchase taxes, entry of a priority notice in favour of the purchaser in the land register). As the costs for the notary are usually born by the purchaser it is custom that the purchaser decides who shall effect the recording. As the deed is established in German the notary would be obliged to call a sworn translator unless the parties waive this requirement and call someone who can translate for them.

During the notarization hearing the notary reads the document out loudly to the parties before they sign the deed. Notaries have to explain the contract details to the parties if questions arise but they are prohibited to give advice in favour of one party. The notarization may take place in English or any other language if the notary is fluent. As purchase contracts may be complicated any purchaser should study the draft and join the notarization personally. However, each party may also can be represented by an authorised representative. After the notarization the notary manages the necessary entries in the land register. The transcription of title is accomplished after app. six months. However, the basic contractual obligations (payment, entry of priority notice, transfer of possession, benefits and the liability for public charges) are performed within one month since the notarial recording.

The notary fees and the fees of the Land Registry are accounted according a schedule as provided in the Fee Act (Kostenordnung). They usually add up to 1,5 % of the purchase price. The commission fee for estate agents differ and have to be born in part or totally by the purchaser. In booming regions like Berlin it usually amounts to 7,14 %, in Munich 3,57 %. The tax rate on the purchase of real estate is dependent on the German state where the real estate is located. In Berlin it is currently at 6 %, in Brandenburg even at 6,5 % as of July 2015.

  • Name of the parties
  • Description of the purchase object
  • Conveyance of property/ Priority notice of conveyance
  • Purchase price
  • Change of possession
  • Warranty
  • Costs of the purchase and their distribution

The purchase from a building developer

By agreeing to such contractual scheme, the purchaser obligates himself to buy a house or an apartment that has not been built yet. Such contracts (Bautraegervertrag) usually stipulate a purchase of undeveloped real estate plus the contractual obligation of the developer to construct a building on it as specified in the contract. The predominant conflict of interest between the building developer and the purchaser concerns the time and mode of payment installments.

§ 3 of the Agents-And-Building-Developers-Decree (Makler und Bautraeger Verordnung – MaBV) stipulates a statutory progress payment. Furthermore, the building developer is bound to several preconditions before he can claim for any payments from the purchaser. Finally, § 3 Sec. 2 of the Agents-And-Building-Developers-Decree provides maximum percentages for each installment of the purchase price which the developer can claim upon the accomplishment of particular milestones of the construction. Thereby, the developer has not the right to receive any payments unless …

  • a valid building agreement has been concluded,
  • a priority notice of conveyance has been entered in the land registry (as a second step the transfer requires the entry of the purchaser in the land registry),
  • the release of the property from previous encumbrances created by the contractor to obtain financing for the project has been assured. This is usually performed by obtaining a note of promise issued from the developer`s bank. As a condition for grating that note the bank demands that the purchase price is paid onto a particular account. Only upon receipt of the funds the bank has to clear the register. The law stipulates the particular requirements for such promise note. It shall also apply in case the building is not accomplished; instead of this the bank can reserve the right to pay the funds back, not more than the current value of the property)
  • a building permission for the house has been granted and
  • finally any right of the contractor to withdraw from the contract have ceased.

In spite of the granted promise note, there are substantial not covered risks in the event of the insolvency of the building developer because in that event the still outstanding purchase price is regularly not enough to complete the building. Furthermore, the purchaser can be liable to his bank for a prepayment penalty if the money is paid back by the bank that issued the promise note.

Instead of granting the fore mentioned measures for securing the purchaser claims the developer can also furnish a directly enforceable guarantee issued by a bank. The guarantee covers the total amount of claims for repayment of the purchaser funds.

The MaBV stipulates that the purchase price is paid in up to seven installments as stipulated in the contract which compound these elements:

  • 30 % after the earth moving
  • 28 % after completion of the structural including the carpenter work
  • 5,6 % for the tiling of the roof and the fixing of the rainwater gutter
  • 2,1 % for the preliminary installation of the heating system
  • 2,1 % for the preliminary installation of the electric system
  • 2,1 % for the preliminary installation of the sanitary facilities
  • 7 % for the windows
  • 4,2 % for the interior plaster
  • 2,1 % for the floor pavement
  • 2,8 % for the tiling in the sanitary rooms
  • 8,4 % after the building is ready to move in and the possession is handed over to the purchaser
  • 2,1 % for the work at the face of the building
  • 3,5 after full completion

The finance structure of the purchase should already be established at the time when the contract is concluded. An insolvency of the purchaser at a later date has no effect on the performance of the contract.