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Scope of use
• It is important to establish the legality of the intended use
of the property before concluding the contract, as buildings
may only be used pursuant to the terms of the respective
building permit. If the landlord leases out premises for a
specific purpose, he is subsequently responsible to ensure
that all necessary requirements relating to the building are
fulfilled, including the duty to obtain any necessary permits.
The landlord can transfer some of these responsibilities to the
tenant. The tenant also customarily assumes responsibility
for any subsequent changes in use and for fulfilling any
requirements which may derive from such changes. The
landlord cannot exempt himself – at least not by standard-
form contract – from liability, should the premises prove
unsuitable for the use agreed upon in the lease agreement.
Operational costs
• According to German lease law, the rent is a gross rent if not
otherwise agreed in the contract, i.e. the rent is deemed to
include all operational costs.
• However, the landlord can transfer such operational costs
to the tenant if this is specified in the lease agreement in
detail. Operational costs can be transferred to the tenant by
requiring the tenant to contract directly with the suppliers.
Alternatively the parties might agree that the landlord
contracts with the respective suppliers and allocates the
operational costs to the tenant. In this case the operational
costs to be borne by the tenant must be listed explicitly in
the lease agreement. Alternatively a reference to the German
Regulation on Operating Costs (Betriebskostenverordnung or
BetrKV) may be included into the contract.
• The costs for heating and consumption of warm water can
be partly transferred to the tenants according to the German
Regulation on Heating Costs (Heizkostenverordnung).
Repairs
• According to German statutory law, the landlord bears the
costs of keeping the lease object in good condition, including
the costs for repairs, maintenance work and replacements.
However, the parties may deviate from statutory law in
certain situations. Thus, in commercial lease agreements it is
usually agreed upon that the landlord shall be responsible for
repairs regarding roof and structure whereas the tenant shall
be responsible for repairs within the lease object. For common
areas used by several tenants (e.g. entrance hall, staircase,
etc.), costs for maintenance, repairs and renewals allocated
to the tenants must be limited (e.g. not more than 10 % of the
annual net rent).
TAX
Real Estate Transfer Tax (RETT)
• In Germany the disposal of a real estate asset is subject
to Real Estate Transfer Tax (“RETT”) which is levied by the
competent tax authority. The level of taxation was stable
all over Germany at 3.5% from 1997 to 2006. Since 2006
– except for the federal states of Bavaria and Saxony – most
of the federal states have raised the level of taxation which
is now either at 4.5%, 5.0%, 5.5%, 6% (Berlin, Hessen) or
even 6.5% (Schleswig-Holstein, North Rhine-Westphalia,
Saarland). The tax for asset deals is calculated on the value of
the purchase price plus other obligations to be fulfilled by the
buyer.
• A share deal may also be subject to RETT in the event that
(i) either at least 95% of the shareholdings in the property
holding company are acquired by the same buyer or (ii) the
total shareholding in the property holding company is trans-
ferred within the transaction. Taking these principles into
account, a transaction maybe structured in a way to avoid
RETT being triggered.
Value Added Tax (VAT)
• The sale of a real estate asset by way of an asset deal is not
subject to VAT in the event of a transfer of a business as a
going concern under German VAT law.
• In the event that the asset deal is not considered as a business
going concern but as a delivery of a real estate asset the
transaction is subject to VAT but tax exempt. In this event
the seller might opt for the transaction not to be VAT exempt
provided that the object of the transaction is a real estate
property with VAT-able leases. The seller could then collect
input VAT. In this case the reverse charge mechanism is
applicable. The applicable VAT rate is currently 19%.
• In the event of a share deal, the structure needs to be
analysed to establish whether it is subject to German VAT,
tax exempt or can be treated as a non‑VAT-able transfer of a
business as a going concern.
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Investors Guide to Europe 2015