36 | Investor Guide to Europe 2014
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.
Î
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 com-
pany, 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 agree-
ment is required if a share deal includes a sale of shares in a
German limited liability company
(Gesellschaft mit beschränk-
ter Haftung - GmbH)
.
Î
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 parameters 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 the
purchase in order to enable the buyer to carry out a due dili-
gence 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 regis-
tration of a priority notice of conveyance in the land register
right after the notarisation. By entering a 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 encum-
brances 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 («comple-
tion»). After the payment of the full purchase price the notary
will apply for the registration of the buyer in the land register
(asset deal), or 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 (short-term leases). 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.
Î
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 writ-
ten contracts are generally used for commercial leases. Leases
which contain the general terms and conditions of one party
(Allgemeine Geschäftsbedingungen)
will also be reviewed un-
der the statutory provisions regarding the 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.
Î
Requirements of written form
•
A lease agreement for a period of more than one year must
comply with the statutory written form. The contractual docu-
ment of such lease agreement shall include all the agreements
between the parties, including any amendment agreements
and annexes such as any building descriptions, plans, lists of
ancillary charges, etc. If the parties fail to comply with the
written form, the lease agreement providing for a longer fixed
lease term is presumed to run for an indefinite period and may
be terminated with only a short regular statutory notice period
of six to nine months. There is an ample range of case law of
the German Federal Court
(Bundesgerichtshof)
construing the
requirements of the written form rather extensively.
Î
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 buil-
ding 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 lan-
dlord 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
