Just having it in writing is not sufficient for a legally binding transfer of real estate.
Furthermore, German law differentiates between the contractual obligation to transfer land and the collateral transfer which must be declared by the so called conveyance of ownership (Auflassung).
If a real estate transaction consists of collateral agreements which are closely linked to a sale and purchase agreement where neither can stand alone, e.g. construction contracts, lease agreements, finance agreements etc., then the entire contractual package requires notarisation even if such collateral agreements have been concluded prior to the sale and purchase agreement. Notarial costs in a German real estate transaction depend on the value of the land and buildings.
The sale and purchase agreement shall contain a precise description of the object of purchase, i.e. the land to be sold and transferred. In addition, any fixtures (wesentliche Bestandteile) and fittings (Zubehör) of the building and encumbrances are also part of the description of the object of purchase. The most important document containing the required description of land is the land register (Grundbuch). It is divided into three sections (Abteilungen) and the reference list (Bestandsverzeichnis).
The reference list contains a detailed description of the real estate and should correspond with the cadastral plan, see below. Section I lists the former and current owner of the land. The ranking follows the historical sequence of ownership. Section II contains all relevant covenants and restrictions (Belastungen und Beschränkungen), e.g. hereditary building rights, easements, pre-emptive rights, etc. to the land and Section III lists the land charges and mortgages.
The land register is a public document granting public reliance (öffentlicher Glaube). Thus, for the benefit of the purchaser, the content of the land register is decisive since it is deemed to be correct. Consequently, title of land can be acquired from a person or entity registered as owner in the land register even if they are in fact no longer the legal owner. Given the public reliance on the land register, both parties are advised to review the most recent extracts of the land register prior to signing the sale and purchase agreement.
The cadastral plan (Kataster) indicates the location and size of the land. It is kept with the real estate offices (Liegenschaftsämter). Pursuant to German law, partial areas of cadastral units which have not been measured yet (Teilflächen noch nicht vermessener Grundstücke) may also form the object of a real estate sale and purchase.
The purchase price of real estate primarily depends on whether or not the property is leased, an undeveloped site, or developed real estate. If the object of the purchase is a developed site and has been accurately surveyed the parties will generally agree on a fixed purchase price.
In a German real estate transaction it is customary that the payment of the purchase price is not due until the purchaser has secured its legal position regarding the forthcoming ownership of the respective real estate. In order to protect the purchaser, and to ensure the purchase price becomes due, the parties usually apply for registration of a priority notice (Auflassungsvormerkung) in the land register and instruct the notary to provide for the registration process. The priority notice protects the purchaser’s claim to a correctly ranked entry in the land register and anticipates that a third party is able to acquire the respective real estate prior to the transfer of title. Alternatively, payment of the purchase price can be made immediately after the signing/notarisation and will then be deposited into an escrow account administered by the notary as trustee. However, the setup and administration of an escrow account generates additional costs.
Transfer of title/registration of owner Under German law the transfer of title to land is subject to two substantial criteria:
The conveyance of property is a mandatory agreement between seller and purchaser regarding the transfer of ownership of the real estate. It is required in addition to the sale and purchase agreement and must be declared by both parties in the presence of a notary. Commonly, the conveyance of ownership is declared within the sale and purchase agreement and hence does not require a separate notarisation.
The entry into the land register completes the sale and purchase of a real estate and makes the transfer of property effective in rem. By entry of the purchaser’s name in section I of the land register the transfer of title is completed and the purchaser becomes the owner of the property.
The registration process of the land register usually takes several weeks or even months to complete. In the time between the date of signing the sale and purchase agreement and the registration in the land register the purchaser’s claim to become owner of the real estate is unsecured and may even become unenforceable if the seller sells and transfers the respective property to a third party.
In order to protect the purchaser and its contractual claim, the parties to the sale and purchase agreement usually provide for the registration of a priority notice (Auflassungsvormerkung). The priority notice is a special German law focused security right which is registered in section II of the land register and protects the purchaser’s claim to obtain title to the real estate and to a correctly ranked entry in the land register. The registration process of a priority notice takes much less time than the actual transfer of title and can usually be obtained within a few days. The priority notice is valid until it is deleted from the land register.