With a strong economy and a stable political environment, Germany is the perfect place for real estate investments of companies and private individuals. Real estate investment in Germany is a safe long-term investment. That is why we often receive requests asking for support on German real estate investments. Even in-house counsel need support from a real estate investment lawyer when planning to invest in Germany.
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 on real property in Germany since its inception.
While the Civil Code provisions for SPAs are dispositive, they provide the starting point for all negotiations in the German real estate market. Depending obviously on
- the nature of the real estate investment,
- the particular circumstances of the property and
- the needs of the parties,
the SPA will be extensively negotiated between the parties and their advisors. The SPA is the operative document when purchasing real estate in Germany. It determines every aspect of the deal from signing to closing.
After the execution of the SPA by the parties in the form of the notarial deed the German notary (Notar) will enter a note into the real estate register (Grundbuch). This note is an entry into the real estate registry that protects the buyer by disallowing any other entries into the 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 German notary 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 investment 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 for example the case in the U.S. - the investor will have to take into account local zoning rules and regulations on the municipal level, which will vary from city to city and from location to location, also depending on the 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 differs considerably from that for a manufacturing plant, for example.
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.
For the long-term success of your real estate investment in Germany, we advise you on topics such as:
- Real estate purchase agreements
- (Commercial) lease agreements
- Rent adjustments
- Maintenance condition and related legal aspects
- Planned conversions
Consult a real estate investment lawyer to successfully facilitate the process of buying, selling or leasing real estate in Germany. Our attorneys for all issues related to German real estate investment law are happy to help.
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