Real estate purchase

The actual and legal conditions for a real estate purchase in Germany differ considerably from those in other countries. The transfer of title regarding real estate in Germany 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. According to § 3 Sec. 1 of the German Land Registry Act (“Grundbuchordnung”) each property has to be registered on a separate sheet. The function of the Land Register is to inform the public about the legal relationships in regard to a specific real estate. Its main task is to create a basis for the transfer of title by clarifying the ownership and reporting on the rights in favour of third parties. Although the land register is a public register only such individuals gain access who satisfactorily show a justified interest in obtaining such information, e.g. banks and other creditors, public notaries, estate agents and potential purchasers.

In contrast to the legal situation in other countries the transfer of ownership according to German law takes place only as recently as such transfer of title has been entered into the land register. Due to this constitutive effect of the transcription the individual who is nominated on the sheet is always the 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.

The sheet of the register identifies the cadastral district (“Flur”) and unit (“Flurstück”) of the real estate, its size, its owner and the encumbrances. The title deeds attributed to each sheet contain all relevant documents regarding present or future entries in the register. Each sheet is divided into the inventory listing which contains a description of the estate (“Bestandsverzeichnis”) and three sections (“Abteilung”). Past entries are deleted by the officers by underlining them in red.

The first section nominates the owner of the estate and the legal ground of his acquisition. The second section shows all encumbrances in regard to the estate such as easements on the real estate and personal easements, heritable building rights, pledges or charges conveying rights to recurrent payments or services, usufructs, priority notices, the owner´s limitations of the right to dispose of his title and protests against the registration. The entries in the third section provide an overview about what extend the real estate has been used as a collateral security. These information 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 receive payments on his money claim. Such entitlements are commonly awarded to banks as collateral securities for their loans and mortgages.

The Purchase Contract

The purchase of real estate must be notarised. The notary is a specialized lawyer who advises the parties from an independent point of view about the rights and obligations arising of a purchase contract. The notary´s duty is to convert the mutual agreement of the parties into an efficient and legally binding set of rules. Consequently, it is his main task to identify contractual loopholes and to prepare the draft. During the notarisation the notary reads the document out to the parties before the signing. Notaries hereby explain the contract details to the parties but they are prohibited to give advice in favour of one party. The notarisation may take place in English or any other language if the notary is fluent. As purchase contracts are quite complicated the purchaser is well advised to study the draft and join the notarisation personally. However, each party may also can be represented by an authorised representative. After the notarisation the notary manages the necessary entries in the land register. This proceeding takes at least about 6 months.

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 5 % of the purchase price. The commission for estate agents usually amounts to 3 % plus VAT. The tax rate on the purchase of real estate in Berlin is 4,5 %.

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

• 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

One special and important mode of transaction is the purchase from a building developer, which means that the purchaser obligates himself to buy a house or an apartment and effects payment at a time when the construction of the building has not been completed. Such contracts (“Bauträgervertrag”) usually provide a purchase of undeveloped real estate on the one hand and the obligation of the developer to construct a building on the account of either the developer/ the purchaser on the other hand. In order to solve the natural conflict of interest between the building developer (who wants to receive a progress payment before the transcription of the real estate) and the purchaser (who wants to effect payment upon transcription of the real estate and completion of the construction) § 3 of the Agents-And-Building-Developers-Decree stipulates the progress payment as mode of payment. However, the building developer is bound to several preconditions before he can claim a payment. Furthermore, § 3 Sec. 2 of the Agents-And-Building-Developers-Act stipulates maximum amounts which any developer claim according to the progress of the construction.

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