Due to the excellent market conditions, Germany is the perfect place for real estate investments of companies and private individuals. A fact that becomes apparent within our international network “Primerus”. We constantly receive requests asking for support on German real estate investments. Often, also in-house counsel need support when going into Germany with a real estate investment.
Germany has a codified system which governs real estate transactions. Sale and purchase agreements (SPA) are codified in the German Civil Code (Bürgerliches Gesetzbuch - BGB) which was enacted in 1900 and has provided a stable framework for the law of real property in Germany since its inception.
While the Civil Code provisions for SPAs are dispositive they provide the starting point nevertheless for all negotiations in the German real estate market. Depending obviously on the nature of the investment and the particular circumstances of the property and the needs of the parties the SPA will be more or less extensively negotiated between the parties and their advisors. The SPA (in the requisite form set out below) is the operative document when purchasing real estate in Germany. It dictates every aspect of the deal from signing to closing.
Transfer of title to real estate is also governed by the German Civil Code. But, these rules are not dispositive. Title to real property in Germany is based on a registry system. Once the parties have reached agreement on the terms and the financing and closing conditions of the SPA it must be drawn up in the form of a notarial deed signed and executed before a German Notar - not to be compared with an American notary. A German Notar is a fully trained German jurist who holds a neutral office in the German legal system and therefore bears a fiduciary responsibility to both the buyer and the seller. The fees for his services are not insubstantial. Understandably so, because the Notar is the one who has the task of monitoring the fulfillment of the closing conditions of the SPA.
As a first step after the execution of the SPA by the parties in the form of the notarial deed the Notar will enter a Vormerkung into the real estate register called the Grundbuch. The Vormerkung is an entry into the real estate registry that protects the buyer by disallowing any other entries into the title register which could interfere with the closing of the SPA and the transfer of title to the buyer.
Upon fulfillment of the conditions to closing the Notar will effect the financial closing by calling in the funding from the buyer’s financing institution and simultaneously ensuring that the transfer of title to the buyer as well as the mortgage(s) for the benefit of his financial backer are entered into the real estate register.
The governmental and regulatory landscape for real estate transactions in Germany is well settled and very stable. The civil law rules and regulations as well as the procedures governing this market have hardly changed since their enactment. Though - as is the case in the US - the investor will have to take into account local zoning rules and regulations on the municipal level, which will obviously vary from city to city and from location to location, also depending on the project – is the investment targeting a developed area or is the investor looking at a greenfield project?
In the same vein, the intended use of the property will be important. Again, it will be the zoning rules and regulations on the local level that will have an impact on the intended use. Also, the timeline of the project will be a function of how closely the intended use aligns with the plans of the zoning authority, which is not to say, however, that deviations and variances cannot be achieved.
Like SPAs, lease agreements are codified in the German Civil Code. And as is the case with SPAs the Civil Code provisions are dispositive. But, they will still serve as baseline for the negotiations between the parties. A distinction is made between residential and commercial leases, the former being subject in some aspects to mandatory tenant protection laws. On the other hand, the terms of commercial leases will obviously be informed by the intended use; a lease for office space differing considerably from that for instance for a manufacturing plant.
Market conditions in the German real estate market are positive. Interest rates remain at a record low with financing conditions historically favorable. In the retail sector there is a strong demand for A-class locations and office properties are experiencing a boom in commercial leasing. Office properties are in great demand due, among other things, to record employment levels.
In sum, despite some discussion about a possible real estate bubble, the outlook for the German real estate sector continues to be positive for investors. If you plan to invest in German real estate, our experts on investments in Germany are there for you! Please do not hesitate to contact us with your questions.
Consult a real estate lawyer to successfully facilitate the process of buying, selling or leasing real estate in Germany. Your attorney for all issues related to German real estate law is Attorney Boris Piekarek. Please do not hesitate to contact us via e-mail (email@example.com) or by phone (+49 69 76 75 77 80).