Commercial real estate in Germany: overview

A Q&A guide to corporate real estate law in Germany.

The Q&A gives a high level overview of the corporate real estate market; real estate investment structures, including REITs; title; tenure; sale of real estate; liability; due diligence; warranties; real estate tax, including VAT and stamp duty/transfer tax; climate change targets; restrictions on foreign ownership; real estate finance; commercial leases; and planning law.

To compare answers across multiple jurisdictions, visit the Corporate Real Estate Country Q&A tool

This Q&A is part of the global guide to corporate real estate law. For a full list of jurisdictional Q&As visit

Philipp Schön and Helge Schubert Rose & Partner LLP

The corporate real estate market

1. What have been the main trends in the real estate market in your jurisdiction over the last 12 months? What have been the most significant deals?

The German real estate market has continued to rise over the last 12 months. Deals with an aggregate volume exceeding EUR55 billion were closed in 2015. Foreign investors are highly attracted to German real estate investments, driven by the perception of the German market as a safe haven. About half of the investors have been foreign. Frequently, large portfolios have changed hands.

As a general trend, the high demand for real estate has caused price increases, and as a consequence yields are decreasing. Rent levels have remained stable, and have increased in the most sought-after locations, such as Munich, Hamburg and Berlin.

Office spaces were the prevailing asset class in 2015, followed by retail and hotel properties.

A significant trend has been the rise of mezzanine financing to bridge any financing gap.

Some of the most significant deals included:

  • The sale of the Trianon tower in Frankfurt by Morgan Stanley and Madison Real Estate to North Star for EUR540 million.

  • The sale of Kaufhof department stores by Metro Group to Hudson Bay for EUR2.8 billion.

  • The sales of the Lanxess Arena in Cologne by Oppenheim Esch Fonds to Junson Capital und Mirae Asset Global Investments for EUR400 million.

  • The sale of the Eurotower in Frankfurt (former seat of the European Central Bank) by RFR Holding to IVG Institutional Funds for EUR480 million.

  • The sale of a 51 object-strong portfolio by D&R Investment to Deka Immobilien for EUR700 million.


Real estate investment

2. What structures do investors typically use for real estate investment in your jurisdiction and what are the main advantages and disadvantages of each (for example, flexibility and tax transparency)?

Typically, real estate investments are held through one of the following structures:

  • Limited liability company.

  • Co-ownership.

  • Civil law partnership.

  • Commercial law partnership (general or limited partnership).

  • Stock company.

It is also possible to acquire German real estate through a foreign entity such as a Dutch private limited company.

Real estate investment trusts (REITs) exist under German law, but at present there are only a handful of REITs in Germany.

Investors and project developers have ample organisational scope to set up joint ventures.

The rise of alternative investment structures, in particular mezzanine investments, has become a major trend in the German real estate market. Junior subordinated loans or profit participation loans can serve to close developers' financing gap and provide investors with a highly attractive return on investment.

Close-ended and open-ended funds are available and regulated under the German Investment Code, the domestic legislation that enacted Directive 2011/61/EU on alternative investment fund managers (AIFM Directive).

3. What are the main sources of finance and types of investors for real estate investment in your jurisdiction? Does your government encourage overseas investment into real estate in your jurisdiction, for example through real estate investment legislation?

The main sources of finance are banks, institutional investors and family businesses.

There are no explicit incentives for overseas investors. However, foreign investors do benefit from Germany's network of double taxation agreements.


Restrictions on foreign ownership or occupation

4. Are there restrictions on foreign ownership or occupation of real estate (including foreign ownership of shares in companies holding real estate)? Are there restrictions on foreign guarantees or security for ownership or occupation and on lending for the purchase of real estate?

There are no restrictions on foreign individuals or entities owning or occupying real estate. However, from a practical point of view, restrictions may result from land registers refusing to acknowledge foreign entities as having legal capacity, and therefore refusing their registration as legal owner of property in the land register. Again, from a practical point of view, involving a foreign entity in the acquisition process can lead to issues with a German senior lender.


Title to real estate

5. What constitutes real estate in your jurisdiction? Is land and any buildings on it (owned by the same entity) registered together in the same title, or do they have separate titles set out in different registers?

Real estate consists of land and the buildings built on it. On acquisition of land the buildings on the land are therefore also acquired. There is no separate register for title to buildings.

In exceptional cases, ownership of buildings and land can be separate, for example, when hereditary building rights are involved, or if the building was constructed by a tenant.

6. How is title to real estate evidenced? What is the name of the public register of title and the authorities responsible for managing it? Is electronic access and electronic conveyancing available?

Legal title to real estate is evidenced in the public land register (Grundbuch) which is kept at the local court (Amtsgericht). German notaries have electronic access to the register and can obtain excerpts.

7. What are the main information and documents registered in the public register of title? Can confidential information or documents be protected from disclosure in the public register of title?

The Land Register displays property information in the land register directory (Bestandsverzeichnis). The directory provides general property information, such as:

  • Cadastral details.

  • Postal address.

  • Use.

  • Size.

There are also three sections providing additional information, as follows:

  • Section 1. Legal owner of the property.

  • Section 2. Property encumbrances, such as:

    • easements;

    • priority notices; and

    • public notices.

  • Section 3. Mortgages (Hypotheken) and land charges (Grundschulden).

While the land register is a public register, access is only granted if the interested party has a legitimate interest in reviewing it. However, a legitimate interest is assumed where serious negotiations for a lease or an acquisition are taking place.

8. Is there a state guarantee of title? Is the authority that manages the public register liable to pay compensation for any errors it makes in relation to title registration? Is title insurance available and is it commonly used?

There is no state guarantee of title. Registration of title is carried out by notaries and the land register. Notaries are subject to statutory liability to the parties.

However, if the Land Register is at fault, parties can claim compensation from the relevant federal state (Land) for wilful or negligent acts or omissions relating to the Land Register. A buyer who relies in good faith on the content displayed in the Land Register is considered a bona fide purchaser under statute.

Title insurance is generally not available in Germany and usually not offered by German insurance companies.

9. How can real estate be held (that is, what types of tenure and other main ownership rights exist over land)?

The most common way to hold real estate is land ownership; that is, buying the land with the buildings on it. Generally, title to buildings and land are not legally separate, except in special circumstances, for example in:

  • Condominium ownership (Wohnungseigentum), where title is to specific, legally separate premises, with a co-ownership share in common areas and installations.

  • Hereditary building rights (Erbbaurechte), where buildings are constructed and remain legally separate for a certain period, so that the buildings can be sold separately from the land.

As an alternative to buying real property directly, an investor can buy shares of a special purpose vehicle company that owns the property (indirect purchase).


Sale of real estate

Preliminary agreements

10. What types of preliminary agreements are typically used in the sale of real estate? Are they legally binding?

Typically, at some point in the deal process the seller and purchaser agree on a letter of intent/memorandum of understanding. In principle, these documents are not legally binding under German law. However, they are very useful as they provide clarity on key deal elements and have a certain degree of persuasive power, as unilateral deviations from the deal set out in the memorandum of understanding require significant explanation.


Sale contract

11. Briefly outline the typical main provisions of a corporate real estate sale contract and main real estate provisions of a typical share purchase agreement.

A corporate real estate contract typically contains the following provisions:

  • Precise description of the real estate to be sold, including easements, if any.

  • A priority notice (Vormerkung), to be registered with the land register, is usually agreed on. The priority notice protects the purchaser from dispositions the vendor makes regarding the property between signing and closing.

  • Purchase price, and conditions precedent for maturity of purchase price.

  • Date for transfer of benefits and burdens of the property (Nutzen- und Lastenwechsel). This date is required, as registration as new holder of title in the land register may take several months. As the parties usually do not wish to wait, it is common practice to agree that the purchaser can use the property as if it were the legal owner once it has paid the purchase price, despite not having yet acquired good title.

  • Provisions regarding seller's liability, disclosure, limitation of liability, basket, thresholds, caps and so on.

  • Power of attorney granted to the acting civil law notary authorising him to make the required filings with the land register on behalf of the parties.

A share purchase agreement for a real estate holding partnership/company typically contains representations and warranties relating to the special purpose vehicle to be acquired. As only the shares in the owner of the real estate are acquired, the holder of legal title to the property remains unchanged. Therefore, there is no need to convey title to the property.


Due diligence

12. What real estate due diligence is typically carried out before an acquisition and what key areas does it cover? Which documents are typically reviewed? Which specialist advisers are usually involved and which reports do they typically produce?

Real estate due diligence can be divided into four different subject areas:

  • Legal due diligence.

  • Technical/environmental due diligence.

  • Tax due diligence.

  • Financial due diligence.

The following documents are reviewed, among others:

  • Deeds.

  • Land registry records.

  • Loan documents.

  • Lease and employment agreements.

  • Service and advertising contracts.

  • Insurance policies.

  • Permits.

  • Zoning.

  • Environmental and engineering inspection and surveys.

  • Financial and tax records.

Typically, attorneys, tax advisor and technical and/or environmental specialists are involved.


Sellers' warranties

13. What real estate warranties are typically given by a seller to a buyer in the sale of corporate real estate and what areas do they cover? What are the main limitations on warranties, for example are they typically qualified by disclosure?

The seller typically warrants that:

  • It holds title to the property.

  • The property is not subject to easements other than those disclosed.

  • It knows of no environmental damages inflicted on/by the property other than those disclosed.

Warranties are typically qualified by disclosure carried out during the due diligence.



14. Does a seller have any statutory or other liability to the buyer in a disposal of real estate?

The seller must provide full legal title to the property and must deliver a property which is free of defects. This statutory liability can be confined by mutual agreement in the purchase contract. However, the seller must, even without being asked for it, disclose information to the purchaser that is substantially relevant to the purchaser's purchase decision. Typically, this includes informing the purchaser of contamination or of disputes with neighbours. If the seller fails to duly inform the purchaser, the purchaser can void the contract on the grounds of wilful deceit.

15. Briefly outline the environmental legislation and potential liability for a buyer in a purchase of real estate. Is it common to carry out environmental surveys and searches and to obtain environmental insurance? How is environmental liability typically dealt with in the sale contract?

It is quite common to carry out environmental surveys before acquiring commercial real estate.

Environmental insurance is commonly taken out if the acquired property constitutes an elevated environmental risk (such as a petrol station). Under German environmental legislation, both the former and the current owner of a property can be subject to environmental liability for the same event of damage. In sales contracts a balance must be struck between the seller's interest in being relieved from liability and the purchaser's interest in not being held liable for damages caused by the seller or even by the previous owner. This is usually intensely negotiated.

16. Can an owner or occupier inherit liability for other matters relating to the real estate even if they occurred before it bought or occupied it? Can a seller or occupier retain any other liability relating to the real estate after it has disposed of it?

An owner can inherit liability for environmental damages caused by, for instance, a previous owner or tenant. A seller or occupier remains in principle liable for environmental damages even though the real estate has been transferred.


Completion arrangements

17. What are the typical arrangements and main documents required for completion of the sale? When does title transfer and what are the formal legal requirements to execute the sale documents, transfer the real estate and register the change of title? Is notarisation required?

The main transaction document is the purchase contract, which must be concluded before a notary. The acting notary is commissioned by both parties to submit the required declarations to the land register to create the land charge and duly register the conveyance of title.

Title does not transfer before payment of the due real estate transfer tax. The land register will not register the new owner unless an affirmative certificate from the tax authority is presented.

The conveyance of title can take several months. Commonly, the parties prefer not to wait until proper registration has been completed. Therefore, typically, it is agreed that the purchaser can take over the property once the purchase price is paid. The seller provides the purchaser with all required documentation so that the purchaser is in a position to exercise all property rights and conversely bears all property burdens before being registered as owner of legal title to the property.


Real estate tax

18. Is stamp duty/transfer tax (or equivalent) payable on the purchase of real estate? Who pays, what are the rates and are there any exemptions? Does it apply to the transfer of shares in a company holding real estate and at what rate?

The acquisition of real property is subject to real property transfer tax (RETT). However, transfer tax can also apply in an indirect purchase of real property. An indirect purchase of real property takes place if either:

  • At least 95% of the shares in a corporation holding real estate are transferred direct or indirectly or accumulated.

  • At least 95% of the interest in a partnership holding real property is transferred during a period of five years.

There are statutory exemptions from RETT. For example, for real estate transfers between spouses, divorcees or close relatives, or for gifts.

Both parties are jointly liable to the tax authorities for the RETT. The parties usually agree that the buyer bears the RETT. The current tax rates are (as a percentage of the purchase price):

  • Baden-Württemberg: 5%.

  • Bavaria: 3.5%.

  • Berlin: 6%.

  • Brandenburg: 6.5%.

  • Bremen: 5%.

  • Hamburg: 4.5%.

  • Hesse: 6%.

  • Mecklenburg-Western Pomerania: 5%.

  • Lower Saxony: 5%.

  • North Rhine Westphalia: 6.5%.

  • Rhineland-Palatinate: 5%.

  • Saarland: 6.5%.

  • Saxony: 3.5%.

  • Saxony-Anhalt: 5%.

  • Schleswig-Holstein: 6.5%.

  • Thuringia: 5% (an increase to 6.5% becomes effective 1 January 2017).

19. Are any methods commonly used to mitigate real estate tax liability on acquisitions of large real estate portfolios? What is the general approach of the tax authorities in your jurisdiction to such schemes?

There are acquisition structures aiming at the avoidance of RETT (known as "RETT-blockers"). Frequently, the purchaser acquires only 94 % percent of the shares in a property holding company, while the remaining 6 % of the shares either remains with the seller or is acquired by a third party purchaser. While in principle permitted, these structures are under increasingly strict scrutiny of the tax authorities.

20. Is value added tax (VAT) (or equivalent) payable on the sale or purchase of real estate? Who pays? What are the rates? Are there any exemptions?

Generally, the sale and purchase of real estate is VAT exempt. However, the parties may decide to subject the transaction to VAT, provided that both parties qualify as an entrepreneur for VAT purposes. The current VAT rate is 19 %.

21. Are municipal taxes paid on the occupation of business premises? Are there any exemptions?

Real estate tax (Grundsteuer) is a municipal tax, assessed annually on 1 January and based on a property's value. The applicable tax rate varies between different cities in Germany. The real estate tax rate ranges from 0.8% to 2.8% of the tax base, depending on the location of the property. The average effective tax rate across Germany is approximately 1.5%. Real estate tax can be used as tax-deductible expense for income, corporation and trade tax purposes.


Climate change issues

22. Are there targets or incentives to reduce greenhouse gas emissions from buildings in your jurisdiction? Is there legislation requiring buildings to meet certain minimum energy efficiency criteria?

Germany aims to reduce greenhouse gas emissions by 40% compared to 1990 levels before 2020. The Renewable Energy Heating Law (Erneuerbare-Energien-Wärmegesetz) obliges owners of new buildings to use a certain percentage of renewable energy to heat their buildings. In addition, the Energy Conservation Act (Energieeinsparungsgesetz) and Energy Conservation Regulation (Energieeinsparverordnung) require a reduction in energy use and set out technical standards to be complied with (for instance, in relation to heat insulation and facility technology). Further, a so called energy pass (Energieausweis) must be obtained if a building is newly developed, substantially altered or sold. German environmental legislation therefore can lead to a significant increase in building costs.

23. Are provisions relating to the energy efficiency of buildings commonly included in contracts for the sale of real estate or in leases (for example, green leases)?

Green leases are a relatively new concept in Germany and are not yet widespread. However, energy efficiency is a hot topic and is to be expected to increasingly shape lease contracts.


Real estate finance

Secured lending involving real estate

24. Briefly outline the typical security package required by lenders in relation to real estate lending. How are the most common forms of security interest relating to real estate created and perfected (that is, made valid and enforceable)?

Typically, property financing is secured by a mortgage (Grundpfandrecht). Being a charge on the property, it gives the lender a power of sale in rem against the property (dingliches Verwertungsrecht). There are two types of mortgage:

  • The Hypothek.

  • The Grundschuld (land charge).

However, the practical use of a Hypothek is very limited and a land charge is the typical mortgage instrument used. Frequently, in addition to providing a land charge, project developers are requested to provide a surety (Bürgschaft).

The creation of a land charge requires a loan agreement, a security purpose agreement and the establishment of a land charge in rem against the property by registration in the land register, applied for by a civil notary. A surety can be validly agreed on in simple written form.

25. What other real estate related measures do lenders typically take to protect themselves against default by the borrower?

Lenders impose conditions precedent in financing agreements (for example, that the necessary public permits have been obtained or that equity contributions are in place).

In addition, it is common to agree on real estate and financial covenants (such as regular reporting on the financial situation of the borrower, or refraining from terminating lease contracts without prior consultation with the lender). Future lease or sales proceeds are also often assigned to the lender as collateral.

26. Can lenders incur environmental liability? What measures do lenders typically take to manage potential environmental liability?

The person causing environmental damages is subject to environmental liability, as are the polluter's legal successors and even the (innocent) owner/occupant of the concerned property in some circumstances.

However, as a general rule, lenders are not potentially subject to environmental liability as long as their role is confined to lending and does not include acquiring the real estate concerned directly or indirectly via a shareholding in a special purpose vehicle.

27. Briefly outline the main remedies for lenders in relation to the secured real estate if the borrower defaults on the loan. What is the effect of the borrower's insolvency on the lender's remedies?

Senior lenders typically have a first-ranked land charge on the real estate. The land charge itself constitutes an enforceable title. On termination of the finance agreement they can enforce the land charge, which then leads to public auction proceedings, the proceeds of which are used to offset the remaining loan amount.

Typically, the senior lender ties his commitment to a first-ranked land charge. A first-ranked land charge means that the holder of the land charge has privileged access to the proceeds of an auction/sale of the encumbered property. The insolvency administrator must distribute the proceeds from the disposal of the property first to the senior lender in order to (ideally) fully pay off the senior lender's claim against the insolvent borrower.

28. Briefly outline key additional issues for lenders in relation to construction and development projects.

Lenders are protected by a range of conditions precedent for disbursement of the loan. Lenders are typically provided with forecasts on costs as well as with regular reporting on construction status. Step-in clauses are known.


Other real estate financing techniques

29. Are other real estate finance techniques commonly used in your jurisdiction? For example, real estate securitisation and sale and leasebacks.

Sale and leasebacks are a common finance technique in Germany. The same applies for real estate securitisation. In addition, small and mid-caps bonds are occasionally issued (by private placement or via the stock market) to finance real estate projects. Mezzanine financing is on the rise in Germany.


Real estate leases

Negotiation and execution of leases

30. Are contractual lease provisions regulated or freely negotiable? Which legislation applies?

Generally, rent is freely negotiable. However, excessive rent above the usual level of rent is prohibited. Agreeing on excessive rent, or taking advantage of and exploiting the other party's economic plight, are also prohibited.

The parties enjoy ample liberty to deviate from statutory lease law. However, general terms and conditions (such as standard contractual terms imposed by one party) are under strict court scrutiny, even if both tenant and landlord are commercial parties.

Residential lease contracts are highly regulated and have recently become even more regulated with the introduction of a brake on rent rises (Mietpreisbremse).

31. What are the formal legal requirements to execute a lease? Does the lease have to be executed by certain parties or as a deed? How do the formalities differ for a company, partnership and for individuals?

Generally, there are no specific formal legal requirements to execute a lease. A valid lease simply requires a mutual agreement between landlord and tenant, which can be concluded orally. However, leases with a fixed term must be in line with the written form requirement under section 550 of the Civil Code to avoid triggering statutory termination rights. Any and all amendments to a lease contract must be made in writing; otherwise the parties run the risk of triggering statutory termination rights allowing for premature termination of a fixed term lease contract.

If the lease object is located in a redevelopment area (Sanierungsgebiet), or other specifically designated zoning areas, then consent from the competent redevelopment authority is required. A lease concluded or extended without this consent is invalid. In addition, a lease must be notarised if it includes, for example, a pre-emption right regarding real property.

If a company or partnership enters into a lease, either an authorised representative of that entity or a third party based on a written power of attorney must sign the lease.


Rent payments

32. How are rent levels usually reviewed and are there restrictions on this? Is stamp duty and VAT (or equivalent) payable on rent? Is a rent security deposit required and does it have to be managed in a certain way?

Commonly, the tenant provides a security deposit. This is done by way of either:

  • A cash payment to the landlord, who in turn must keep the deposit in a separate interest bearing bank account.

  • A bank surety.

Interest accumulated on the rent security deposit is for the benefit of the tenant. On termination of the lease the deposit must be returned to the tenant, unless the landlord finds that the tenant has not left the premises in the agreed state.


Length of term and security of occupation

33. Is there a typical length of lease term and are there restrictions on it? Do tenants of business premises have security of occupation or rights to renew the lease at the end of the contractual lease term?

The parties can freely negotiate the length of the lease. However, if a rental contract is concluded for a period exceeding 30 years, each party can terminate the rental contract by giving the statutory notice period after 30 years have elapsed.

Often, a fixed lease term of several years is agreed on. The term of a lease is often combined with an option right for one party to renew the lease for a further fixed term, and/or a tacit extension of the lease if neither party terminates before expiry. If no fixed term is agreed, the lease can be terminated by either party giving the statutory notice period.

An additional tool to protect the tenant's interest in having certainty as to the long-term use of a property is a limited personal encumbrance (beschränkte persönliche Dienstbarkeit) in favour of the tenant. This is a proprietary right in rem, to be registered in the land register. Effectively, it provides the tenant with an additional right to use the property in addition to the lease right. Such a right proves extremely beneficial if of the landlord becomes insolvent, as, unlike a lease, an insolvency administrator cannot terminate a limited personal encumbrance.

There is no statutory right of renewal at the end of term, although the parties are free to agree otherwise.

34. What restrictions typically apply to the disposal of the lease by the tenant? Can the tenant assign or sublet the lease with the landlord's consent? Can tenants share their premises with companies in the same group? What is the effect of a legal reorganisation or transfer/sale of the tenant on the lease and on a guarantee of the lease?

A tenant cannot freely dispose of the lease and requires the landlord's consent for subletting, even if the sub-lease is in favour of one of tenant's group entities. The same applies for sharing the premises with another group entity.

If the tenant carries out a reorganisation measures, such as a spin-off or a merger under the German Transformation Act (Umwandlungsgesetz), the lease is automatically transferred to the new entity. However, the lease contract may include protection for the landlord resulting in a veto right even in these cases of general succession. In principle, a sale of the tenant (amounting to a change of shareholders) does not have any effect on the lease. However, it is not uncommon to find change-of-control clauses in lease contracts which provide the landlord with a termination right if a change of control occurs.

35. Does a landlord or tenant retain any liability under the lease after the lease is assigned?

Both landlord and tenant can be subject to environmental liability even if they longer are party/parties to the lease contract.

If a rented property is sold, the former owner must assign the rent deposit to the new owner.


Repair and insurance

36. Who is usually responsible for keeping the leased premises in good repair and for insuring the leased premises? Are there provisions for the ownership of lease improvements?

In principle, the landlord alone is responsible for maintaining the leased premises. However, in commercial lease contracts the parties enjoy ample liberty to agree otherwise. Frequently, it is agreed that the tenant must bear minor repairs until a yearly threshold amount has been reached. Typically, insurance contracts are entered into by the landlord, and insurance costs are passed on to the tenant as part of the running costs of the property.

On termination of the lease, the tenant must return the premises in the state in which the premises were handed over at the start of the lease, meaning improvements must be removed. However, in practice, the landlord often insists on a provision which provides him with the right to choose between keeping the improvements or requesting the tenant to undo the improvements. The tenant is not entitled to compensation payments for improvements made during the lease term.


Landlord's remedies and termination

37. What remedies are available to a landlord for a breach of the lease by the tenant? On what grounds can the landlord usually terminate the lease and what restrictions and procedures apply? What is the effect of the tenant's insolvency under general contract terms and insolvency legislation?

If the tenant breaches the lease, the landlord can claim indemnification for all losses caused by the tenant. In addition, if the tenant's contractual infringements are substantial, the landlord can terminate the lease for cause. Generally, the landlord must provide the tenant with a warning letter before terminating for cause. Payment default constitutes good cause.

In principle, the lease continues if the tenant becomes insolvent. Once insolvency proceedings have been applied for, the landlord cannot terminate the lease due to default in payments or deterioration of the tenant's financial situation. However, the landlord can terminate once insolvency proceedings have begun and the tenant again defaults in payment. The insolvency administrator can terminate the lease at any time by observing the statutory notice period, irrespective of the agreed fixed term. If the insolvency administrator does not exercise this termination right, the landlord is entitled to rent payments falling due after the start of insolvency payments. The insolvency estate must be used to settle this claim as a priority before the assets are distributed to creditors.

A landlord's claim for rent that accrued before the commencement of insolvency proceedings is not settled in advance. Therefore, these rent claims are only paid if sufficient assets are available.

38. Can the tenant withhold rent payments in certain circumstances, for example for serious damage to the leased premises? Can the tenant terminate the lease in certain circumstances?

The tenant can withhold rent payments if the landlord does not carry out measures to restore the premises. In addition, the tenant can unilaterally reduce the rent for a period during which premises were not usable as contractually agreed. Like the landlord, the tenant can terminate the lease contract prematurely for good cause. The tenant's right for termination for cause cannot be waived.


Planning and development controls

39. In what circumstances can local or state authorities purchase business premises compulsorily? Is the purchase price market value?

The authorities can expropriate real property. Typically, this happens in case of infrastructure planning. Any and all expropriation is subject to indemnification at market value. In addition, the relevant local authority has a statutory pre-emption right for a real estate purchase to, for example, secure land for infrastructure projects.

If the local authority exercises the statutory pre-emption right, it must in principle pay the purchase price agreed by the buyer and seller.

40. What authorities regulate planning control and which legislation applies? Is there specific protection for special categories of buildings such as historic buildings?

The local building authority is the competent authority for planning law.

Planning law encompasses federal, state and local law, including the:

  • Federal Building Act, as amended on 20 October 2015 (Baugesetzbuch), which sets out the rules and guideline for urban planning.

  • Building Codes of the Federal States (Bauordnungen der Länder), which set out permission procedures as well as technical, safety and fire protection requirements.

  • Development plan issued by the municipal authorities, which sets out if and to what extent industrial, commercial and residential buildings in a certain area are permitted.

To obtain a building permit, the individual project must comply with the local development plan and the requirements of the Building Code of the relevant Federal State.

However, the building authority has discretion to grant partial relief from the restrictions set out under the plan and the code. If no development plan exists for the concerned property, the building authority bases its decision on whether the building project fits into the already existing development.

41. What planning consents are required for building works and the use of a building?

Many types of residential buildings or buildings under a certain height are regulated by a simplified permission process under the Building Codes of the Federal States. In these cases, an architect or construction engineer must confirm in writing that the building complies with the relevant building regulations. In addition, the local authorities can also verify compliance during construction.

42. What are the main authorisation and consultation procedures in relation to planning consents?

The relevant municipal building authorities have authority to decide applications for building permits. The local development plan and certain intended industrial uses may require a public consultation regarding the intended project. Usually, a permit is granted or denied within three months. However, the authorities may extend this period.

Third parties may have a right to object to a building permit, based on alleged violations of their property rights by the project. Usually, this third party right is confined to adjacent neighbours.

The owner can appeal the building authority's decision within one month by filing an objection with the municipal authority. If the objection is denied, the owner can take the matter to the administrative court.



43. Are there proposals to reform real estate law and are they likely to come into force and, if so, when?

From 1 January 2016, the next level of the Regulation on Energy Saving (Energieeinsparverordnung) (EnEV) sets out higher energetic requirements for new buildings. The primary energy requirement must at least be 25% lower as has previously been required by law. In addition, heat insulation must improve by 20%.

In addition, a first draft amendment of the German Civil Code regarding the regulation of constructions contracts has been presented. The goal of the draft is, among other things, to refine the currently very rudimentary statutory rules on construction contracts and thereby promote transparency and legal certainty for the parties involved.

Several federal states have also announced caps on rent rises in residential lease contracts.


Transfer tax on the sale of real estate


Is substantial transfer or registration tax payable on the sale of real estate? Who pays and what is the rate?

Is notarisation required? Who pays and what is the typical notary fee?

Are there any exemptions or methods to mitigate corporate real estate tax liability?


The seller and purchaser of real estate are jointly liable for tax. In practice, the purchase contract imposes the tax obligation on the purchaser.

Tax rates vary among the federal states between 3.5% and 6.5%

Notarisation is required. Seller and purchaser are jointly liable towards the notary. Usually, the purchaser bears the notary fees in full.

The notary fees are calculated based on a statutory fee table. Large real estate transactions can easily trigger notary fees in a five or even six figure Euro amount.

Yes, there are structures which allow for avoidance of real estate transfer tax. Typically, these structures involve a special purpose vehicle which owns the property, while the special purpose vehicle is owned by two legally and commercially independent parties. These structures are under strict scrutiny of the tax authorities and require advance legal and tax advice.


Online resources

German Federal Ministry of Justice


This is the official website of the German Federal Ministry of Justice. Some acts and ordinances are translated into English. However, only the German version is authoritative.

Contributor profiles

Philipp Schön

Rose & Partner LLP

T +49 30 2576 1798 0
F +49 30 2576 1798 9

Professional qualifications. Rechtsanwalt, Germany

Areas of practice. Corporate law; real estate law; corporate and real estate finance

Recent transactions.

  • Legal due diligence and advice on the acquisition of several retail centres across Germany.

  • Advice on raising mezzanine capital for real estate investments.

  • Structuring inbound real estate investments for foreign private clients.

Languages. German, English, Spanish

Helge Schubert

Rose & Partner LLP

T +49 40 4143 759-0
F +49 40 4143 75689-10

Professional qualifications. L.LM (Taxation), Attorney at law, Tax adviser

Areas of practice. Tax structuring, real estate taxation, inheritance tax, tax

Recent transactions

  • Tax due diligence for a share deal acquiring real estate in Bielefeld.
  • Tax structuring for several inbound investments in real estate.
  • Tax structuring for a real estate development.

Languages. German, English


  • Corporate Succession - Practical guide for entrepreneurs and consultant - – NWB - Verlag.

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