Conditions and procedure for the acquisition of property

Information about Rights & Duties of #Land tax and land transfer tax

Information about Rights & Duties

Purchasing and selling of immovable property, including any conditions and obligations related to taxation, ownership, or use of such property, including its use as a secondary residence

Conditions and procedure for the acquisition of property

German law distinguishes between the contractual act (contract of sale, under 1.1 below) and the material transfer transaction in the form of the transfer of the property (transfer of property, under 1.2 below).

Contract of sale as a contractual purchase agreement

  1. Establishment of a contract of sale on real estate and contractual obligations

In Germany, the purchase of real estate is subject to the general sales law rules and regulations under Sections 433 et seqq. of the German Civil Code. A contract of sale on real estate obliges the seller, according to Section 433(1) sentence 1 of the German Civil Code, to transfer the real estate to the buyer and also transfer ownership of the real estate. In doing so, the seller must ensure that the real estate is free of material defects and defects of title for the buyer in line with Section 433(1) sentence 2 of the German Civil Code. The buyer shall pay the seller the agreed purchase price in line with Section 433(2) of the German Civil Code.

To ensure a valid contract of sale, the contracting parties must reach an amicable arrangement on the essential elements of the contract of sale (essentialia negotii). These include the purchase item, the purchase price as well as the designation of the contracting parties. For real property, the statement of the list of titles is sufficient for an adequate designation of the real estate, provided that solely the relevant real property is entered in the list. In the case of a contract of sale concerning commonhold as defined in Section 1(2) of the German Condominium Act (WEG), this refers to the special ownership of a separate flat in conjunction with the share in co-ownership of the building/real property in/on which the flat is located a distinction must be made as to whether the division of the building has already taken place in the land register or not: if a land registration has already taken place, a reference to the relevant sheet in the housing land register is once again adequate the inventory of the housing land register then indicates the share in co-ownership of the purchase item and the associated special property. Additional separate information on the number, type and location of the rooms as well as on the size of the living space is not required for the validity of the contract of sale. If the division in commonhold has not yet taken place in the land registry, reference may be made to the deed of settlement to identify the purchase item.

The contract of sale is established by the offer of one contracting party and the acceptance of this offer by the other contracting party. The offer to conclude a contract may originate from the seller or buyer. An offer must at least identify the real estate that will be the object of the contract and the purchase price to be paid.

  1. Requirement for a notarial act

Every contract which involves an obligation to transfer or acquire ownership of real property requires a notarial act according to Section 311b(1) sentence 1 of the German Civil Code. The requirement for a notarial act serves to protect against the hasty and rash conclusion of a contract and the provision of information to the parties (detailed under c). The fact that the parties are required to appoint a notary highlights that this is not a usual everyday transaction. The certification satisfies a consultation and protective function. In this case, the intention is not just to ensure that the contracts comply with the statutory provisions and are valid (guarantee of validity). The deed also provides unambiguous proof of the agreements reached (evidentiary function). The certification serves to prevent dispute and lawsuits and so also relieves the burden on the courts. Section 311b(1) sentence 1 of the German Civil Code applies for all transfer and acquisition transactions concerning real property and therefore also non-material shares in real property, flat and partial ownership. The certification obligation not only extends to the payment of the purchase price and the transfer of the property, but also to all ancillary restraints, which the parties concerned intend to include in the contract, such as arrangements on the physical condition of the real estate as defined under Section 434(1) sentence 1 of the German Civil Code. As the notarial act is required before the parties enter into a legal relationship, the certification requirement also extends to legal acts that establish indirect sale and purchase obligations, such as the conclusion of reservation agreements with realtors or the issuance of irrevocable transfer or acquisition authorisations.

The notarial act is intended as a simultaneous certification such that the seller and buyer appear before the notary at a meeting with the notary where they conclude the contract of sale with an offer and acceptance. The notary documents the declarations of both contracting parties in a record. The contract of sale enters into force with the completion of the record by the notary.

However, in accordance with Section 128 of the German Civil Code, it is also possible for the offer to conclude the contract of sale to be certified by a notary first, before the acceptance of the offer, that is to say, that the declarations of the contracting parties are consecutively certified at two separate notary appointments. For this type of certification, the offer is first documented in a record. The offer takes effect once it is received by the person with whom the contract of sale is to be concluded. An offer signed before a notary public is received when a certified copy of the record in which the offer was documented is received. According to Section 145 of the German Civil Code, the person offering to conclude a contract with another person is bound to their effective offer for a certain period of time, unless this binding period has been waived. According to Section 148 of the German Civil Code, the period of time within which the offer is to apply may be expressly defined by the person submitting the offer. If no period of time is defined for the acceptance of the offer, the offer can only be accepted up to the point in time at which the offeror can expect to receive the response to their offer under regular circumstances (Section 147 of the German Civil Code). This time period regularly amounts to four weeks for property transactions according to case law. According to Section 146 of the German Civil Code, the offer expires if it is rejected or not accepted on time. The offer lapses upon expiration and acceptance of the offer is no longer possible. According to Section 152 of the German Civil Code, the contract of sale takes effect upon certification of the acceptance, if the acceptance of the offer has not expired at the time of acceptance. According to Section 150(2) of the German Civil Code, the delayed acceptance of an offer is considered a new application that, due to the form to be complied with under Section 311b(1) sentence 1 of the German Civil Code, cannot be accepted implicitly for instance by payment of the purchase price.

  1. Procedure and instruction by the notary

For the purposes of pre-contract preparations, the notary discusses the desired intrinsic terms of the contract with the contracting parties, explains the regulatory options and refers to existing risks and alternative configuration options. The notary also takes over the preparation of the draft contract of sale in accordance with the requests of the contracting parties, typically without resulting in any additional costs. In addition, the notary inspects the land register before certification in order to inform the buyer and the seller of existing legal relationships (Section 21 of the German Notarisation Act (BeurkG)).

As part of the certification, the notary identifies the parties (Section 10 BeurkG) and establishes their legal capacity (Section 11 BeurkG). The contract of sale for real estate is then read out in full to all parties present (Section 13 BeurkG). The reading out of the contract is an integral part of the contract certification, which cannot be waived. If a contracting party cannot attend the certification, this party may appoint a representative for the conclusion of a contract. The notary also explains the legal significance of the intrinsic terms of the contract to the parties concerned, informs them of the legal consequences (Section 17 BeurkG) and refers to important aspects, such as existing approval requirements (Section 18 BeurkG), the necessity of a clearance certificate from the tax inspector (Section 19 BeurkG) and the statutory pre-emption rights (Section 20 BeurkG). Addenda and amendments to the intrinsic terms of the contract may also take place in this respect after receiving expert advice from the notary. At the end of the certification, the contract of sale for real estate is signed by all parties in attendance and the notary, at which points it becomes legally valid and legally binding (Section 13 BeurkG).

If a principal as well as a consumer are involved in the contract of sale for real estate, the notary must take steps to ensure that the legal declarations of the consumer are issued before the notary in person or by a trusted person. In addition, the notary must takes steps to ensure that the consumer is given adequate opportunity to come to terms with the object of the certification in advance. The latter generally occurs by making the intended text of the legal transaction available to the consumer two weeks prior to the certification (Section 17(2a) sentence 2, number 1 and 2 BeurkG). The statutory time limitation should give the parties the opportunity to study the draft contract in detail and also clarify the value of the object and its suitability, check the tax consequences as well as carry out structural investigations, including checking matters that are not checked by the notary in advance or which the notary does not supervise.

With regard to the notarial obligation to provide information, the splitting of a contract of sale for real estate into offer and acceptance is only acceptable if a sufficiently important reason exists, as this can lead to an information deficit. If the splitting is objectively justified, the notary must structure the procedure so that the offer is issued by the more vulnerable party or party in greater need of instruction and information so that this party receives the full extent of the notarial consultation with regard to the offer as well as the offered contract.

  1. Consequences of non-compliance with the notarisation requirement

The consequence of non-compliance with the mandatory notarial form specified under Section 311b(1) sentence 1 of the German Civil Code is the nullity of the contract of sale in accordance with Section 125, sentence 1 of the German Civil Code. The contract does not establish any rights and obligations for the contracting parties. However, if the ownership of the real estate has been transferred from the seller to the buyer by way of a transfer of property and entry of the buyer in the land register, the nullity of the contract of sale is remedied and the contract and all of its content is valid in accordance with Section 311b(1) sentence 2 of the German Civil Code. However, the remedying of the formal defect does not apply retrospectively at the time of conclusion of the contract.

Transfer of property to the buyer by way of conveyance of property to the buyer and entry of the buyer in the land register

The certification of the contract of sale as a contractual sales transaction does not yet result in a transfer of ownership of the real estate to the buyer. Rather, the transfer of ownership to the buyer requires a material transfer transaction, whose effectiveness requires:

  1. an amicable arrangement between the contracting parties on the transfer of ownership to the real estate to the buyer (transfer of property), which must be declared before a notary (Section 873(1) and Section 925(1) of the German Civil Code).

as well as

  1. the entry of the buyer in the land register as the legal owner of the real estate.

The transfer of property is usually signed before a notary public together with the contract of sale. For the buyer to be entered in the land register as the legal owner, evidence of the transfer of property must be submitted to the land registry in a publicly certified form (Section 29(1) GBO (Land Registry Act)). Corresponding land registry approvals must also be submitted in this form (Section 19 GBO). As a rule, the notary is authorised and assigned to register the transfer in the land register (in particular, declaration of approvals and submission of the necessary applications to the land registry).

Costs associated with a contract of sale for real estate

According to the statutory regulation in Section 448(2) of the German Civil Code, the buyer of the real estate bears the costs of certifying the contract of sale and the transfer of property, the entry in the land register and the costs necessary for entry. According to the case law, the costs of certifying the contract of sale also include the real estate transfer tax, as this is inseparably linked with the purchase procedure.

The seller is required to bear the costs of the transfer of the real estate in accordance with Section 448(1) of the German Civil Code.

The aforementioned statutory settlements of costs are not mandatory. Different arrangements between the parties in the contract of sale are acceptable.

Other professional groups that may be involved in the contract of sale for real estate

Besides notaries, lawyers may also advise and represent buyers or sellers within the scope of the transaction. This particularly applies if the sole interests of a contracting party are to be represented. Notaries are tasked with providing impartial support to all parties and are obliged to work towards commutative justice calling for equivalent performances by the parties. Lawyers are independent judicial bodies with the task of providing independent advice and representation in all legal matters. They are subject to a range of professional rules and regulations, especially the Federal Code for the Legal Profession, and, when supervising a property transaction, must also exercise their task in a manner reconcilable with the position of an independent judicial body.

What type of taxes need to be paid when purchasing real estate?

The purchase of real estate is subject to real estate transfer tax.

The real estate transfer tax is based on legal processes associated with domestic real estate, to the extent that they are intended to acquire ownership of the real estate or a position similar to ownership. This particularly includes contracts of sale and other legal transactions that establish a claim to the transfer of domestic real estate. The tax rate is between 3.5% and 6.5% depending on the state.

What type of taxes need to be paid when selling real estate, including on capital gains?

When selling real estate from a pure asset management perspective, the private proceeds of sale if the period between the acquisition and sale is no more than 10 years may be subject to income tax.

If the real estate is business property, the income from the sale is subject to income as well as occupational taxes.

If the transferor is a corporate body, the income is subject to corporate tax and, potentially, occupational taxes.

The sale of real estate is also subject to real estate transfer tax. However, the buyer effectively bears the real estate transfer tax as a cost of certification. But the seller is liable as a joint debtor (Section 13 GrEStG (German Real Estate Transfer Tax Act)).

What type of taxes need to be paid for the possession of ownership?

Property tax, income tax for income from rental and leasing or second home tax may be incurred during the period of ownership of real estate.

Property tax, as an impersonal tax, is linked to the economic units of the real estate as defined in Section 2 of the German Property Tax Act (property tax A: agricultural or forestry operations and property tax B: real estate) as a tax base. It is charged without consideration of the personal circumstances and personal capacity for payment of the person liable for the payment of tax. Property tax is charged by local governments and is entirely at their disposal.

If the real estate is rented or leased, the income from rental and lease are subject to income tax or corporate tax and, potentially, occupational taxes.

Some local governments charge a secondary residence tax for owning a secondary residence in the local authority area. The secondary residence tax is a local expenditure tax. To charge and structure the secondary residence tax, the local governments enact statutes that have their legal basis in the local tax legislation of the state governments.

Further information

Responsible for the content
Federal Ministry of Finance

Federal Ministry of Justice and Consumer Protection

Last update or date of publication
07.10.2020