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building authority. Since public building encumbrances
registers do not exist in the federal states of Bavaria and
Brandenburg, public building encumbrances are registered in
the land registers in these two federal states.
• Public building encumbrances ensure that particular demands
of public building law, are met. In many cases the issuance
of a building permit is made conditional to the creation of a
public building encumbrance by the applicant.
ACQUISITION OF REAL ESTATE
IN GERMANY
Types of transactions: asset deal and share deal
• Real Property can be acquired by direct purchase of title to the
asset itself (asset deal) or by purchase of shares in the entity
which holds title to property (share deal). Asset deals are
often perceived as being less complex than share deals and
may cause lower transaction and advisory costs. However,
share deals are often advantageous for tax and other reasons.
If appropriately structured, taxation of capital gains from the
sale as well as real estate transfer tax can be avoided and the
consequential benefits can be and often are shared by the
seller and the buyer.
Notarisation requirements
• Under German law, agreements concerning land or interests
in land, including offers and options, are only effective if they
have been executed by notarial deed. The entire agreement
including all ancillary agreements must be entered in the
notarial record. Hence, in case of an asset deal the sale and
purchase agreement regarding the real estate property always
requires notarisation.
• In case of acquisition of shares in a property holding company,
no real property is sold as such. Hence, in general the
notarisation requirement does not apply. However, if in the
context of the acquisition of shares, obligations to buy or sell
real property are established, this may lead to a notarisation
requirement also for the share sale and purchase agreement.
Further, a notarisation of the share sale and purchase
agreement is required if a share deal includes a sale of shares
in a German limited liability company (Gesellschaft mit
beschränkter Haftung – GmbH).
Key stages of the acquisition process
• Usually the acquisition process commences with the
signature of a preliminary agreement (heads of terms, letter
of intent or memorandum of understanding) fixing the key
terms of the transaction and granting the buyer exclusivity
for a certain period of time. In general such preliminary
agreements are – with the exception of provisions regarding
confidentiality and exclusivity – non binding. They are usually
executed in simple written form.
• On a confidential basis the seller will provide the buyer
with information and documentation regarding the object
of purchase in order to enable the buyer to carry out a due
diligence exercise. Documentation is generally made available
in an electronic data room.
• Based on the preliminary agreement and the results of the
due diligence the parties will negotiate the sale and purchase
agreement. Once the parties have come to an agreement the
sale and purchase agreement will be notarized (in the event of
an asset deal or sale of shares in a GmbH) or signed in written
form as required by law.
• In the event of an asset deal the notary will apply for
the registration of a priority notice of conveyance
(Auflassungsvor-merkung) in the land register right after
the notarisation. By registration of such priority notice of
conveyance the buyer’s right to be registered as legal owner is
protected vis-à-vis any third party buyer.
• In the event of an asset deal the sale and purchase agreement
will provide for certain conditions precedent to the payment
of the purchase price such as the registration of the priority
notice of conveyance, the waiver of the statutory pre-
emptive right of the local municipality and the deletion of
encumbrances that are not taken over by the buyer (esp.
existing financing land charges).
• The payment of the purchase price usually occurs once
the conditions precedent agreed in the sale and purchase
agreement have been satisfied. Unless otherwise agreed,
the possession, including all rights and obligations is
transferred to the buyer upon payment of the full purchase
price (“completion”). After the payment of the full purchase
price the notary will apply for the registration of the buyer as
owner of the property in the land register (asset deal), or as
shareholder in the commercial register (share deal).
COMMERCIAL LEASES
• Under German law, leases are not estates in land but
contracts. This is important, since these contractual leases
cannot be agreed in a fully binding way for a period of longer
than thirty years. Hereditary building rights and registered
leases (Dauernutzungsrechte) are the only property interests
in Germany which are similar to leaseholds (leases in rem).
• The German Civil Code (Bürgerliches Gesetzbuch – BGB)
contains a number of provisions concerning both residential
tenancies and commercial leases. The following comments
refer to commercial leases only.
General remarks on commercial leases
• Commercial leases are subject to statutory provisions to the
extent to which they are not governed by an agreement indi-
vidually negotiated between the parties. However, detailed
written contracts are generally used for commercial leases.
Leases which contain the general terms and conditions of
one party (Allgemeine Geschäftsbedingungen) will also be
reviewed under the statutory provisions regarding general
terms and conditions. Any violation of these statutory
provisions usually renders the respective provision of the
lease agreement void because these statutory provisions,
broadly speaking, aim to protect the tenant. Thus, the
aforementioned provisions should be duly considered
whenever contracts contain provisions not individually
negotiated by the parties.
Requirements of written form
• A lease agreement with a term of more than one year
must comply with the statutory written form and must
include all the agreements between the parties, including
any amendment agreements and annexes such as building
descriptions, plans, lists of ancillary charges, etc. within the
same contractual document. If the parties fail to comply with
the written form, the term of the lease is – despite the fixed
term mentioned in the lease agreement – presumed to run for
an indefinite period and may be terminated with a statutory
notice period of six to nine months. There is a large body of
case law setting extensive requirements for compliance with
the written form.
42 Investors Guide to Europe 2015