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Real Estate Legal Issues

Half of the world’s literature on taxes is published in German and doing business here can sometimes be extremely stressful. It is advisable that you use the services of a German lawyer or your own solicitor who has a good knowledge of the German property market.

Before buying, you should carry out a full inspection of the location and price of the property. It is most important to have the house thoroughly inspected, if not by you, then by a knowledgeable person in the area. This can be a broker or someone with relevant expertise.

Any renovations or repairs of damages need to be checked. Before buying, the roof’s condition should be inspected with a sharp eye or preferably by an expert. Also, the age of the heating system is a very important point. Lots of restrictions and new laws have been passed over the last few years. It might be necessary to replace the whole heating system if older than ten years.

In the case of a flat, it is useful to study the minutes of the annual meetings of flat occupants of the building. The importance of these minutes cannot be underestimated. Any and all problems relating to the tenant community, the building’s condition and potential future expenses are discussed in these meetings and will be reflected in the annual meeting report. The building’s management company is responsible for the reports.

Once you have reached agreement with the seller, a contract is drawn up and submitted to a local notary. The notary is a state-licensed official and legally bound to act as an impartial middleman between buyer and seller. He or she checks the land register to ascertain whether the property is free of encumbrances and if so, whether there are any restrictions in its use. Always ask for a copy of the contract before seeing the notary. Amongst other details, the contract must include all vital property data, agreed-upon prices and payment conditions and clauses specifying what will occur in the event either party fails to consummate the contract. Review and check the contract carefully and have it translated if necessary. Prepare any questions you have in advance, don’t hesitate to ask them and allow sufficient time for getting full answers.

At the actual time of closing the transaction, the notary reads out loud the sales contract verbatim and will make certain both parties fully understand its content. In most cases, buyers and sellers are not single persons but couples or even groups of owners. All persons involved must be present at the signing. All of them must bring their passports in order to identify themselves. The buyer may ask questions and interrupt the proceedings if a clause isn’t completely understood. Since the recitation must be in German, the buyer has the right to have a professional interpreter present, though this will incur an additional cost. Furthermore, the buyer has to furnish at this time proof of his equity and/or bank financing records. Upon executed signatures, the notary lists the change of ownership with the municipal government and enters the property in the land register.

The land register is located at the district courthouse and entry in the land register is the central document (deed) for a piece of property, with all necessary information as to ownership. An actual change in ownership can only occur if an entry has been made in the land register, and only if previous mortgages have been extinguished and the tax office has certified that the seller has no property taxes outstanding.

Very often, the purchase price is at first paid into an account maintained by the notary (Notaranderkonto) and transferred to the seller only with the land register entry complete. It is a protective measure, benefiting both parties.

The notary is not responsible for the accuracy of the owner’s property description. That is the buyer’s job to verify. The seller isn’t obliged to point out every glaring defect that should have been obvious to the buyer, though he is required to disclose any hidden defects.

A copy of the most recent land register entries can be obtained from the district court through application. However, only persons with a legitimate need to know, such as the owner or notary, are eligible to file such application.

The law spells out the rights of any third parties, for example, renters of the property. Such renters can’t bar the sale of the property, but the new owner is bound by any rental arrangements to which the previous owner had agreed. Hence, the new owner can’t evict a tenant prior to lease expiration (except in cases of owner-occupation).

Tip: The purchase or construction of a house for personal use qualifies under certain circumstances for a subsidy by the German government. Basically, the persons most likely to benefit from these subsidies are people with modest income and minor children, likely to buy or build moderately priced housing. Seek advice from your lawyer, bank or tax consultant.