How to sell inherited German Property

An English or American Executor finds that the Testator’s Estate comprises a Flat, House or Plot of Land in Germany. What now?

If the deceased owned real estate in Germany which the executor or the beneficiaries now wish to sell as soon as possible, this legal guide explains what needs to be done to sell an inherited home in Germany. The sale of the German property may be complicated further if the house or flat is currently leased to a tenant, because German law protects private tenants against termination of the lease agreement. But first things first:

(I) Obtain German Grant of Probate (Certificate of Inheritance)

From a German law perspective, the estate of the deceased is not administered by a personal representative. Instead, the estate passes directly to the heirs due to the principles of automatic inheritance (Vonselbsterwerb) and universal succession (Gesamtrechtsnachfolge). If there are several heirs, they form a community of heirs (Erbengemeinschaft) and must act unanimously. More on this here.

Unfortunately, due to the UK opting out of the EU Succession Regulation, an English Grant of Probate or a Scottish Letter of Confirmation are not accepted in Germany (and vice versa). Non-EU Grants of Probate are even less acceptable. Thus, in order to prove to the German Land Registry and to the potential buyers who is entitled to sell and transfer the German flat or house, the executors or beneficiaries will have to go through German probate. There are two options for this: (i) to apply for a Certificate of Inheritance (which is the standard approach) or (ii) to apply for a Certificate of Executorship (which is the exception in Germany). More on how to apply for German probate here.

However, since in most inheritance cases from Common Law jurisdictions the wills are usually very clear on the issue of who the executors are, but not necessarily very clear on who – in German terminology – the “heirs” are and what the heir’s respective shares and rights would be. Thus, in these Anglo-German or American-German succession cases, it is sometimes simpler to apply for a Certificate of Executorship. A Certificate of Executorship does, in contrast to the Certificate of Inheritance, not state who the beneficiaries are, but instead it only states who is entitled to administer the estate. Such a Certificate of Executorship is in most cases accepted as sufficient proof by German courts and the German land registry. However, there is a small risk that a Certificate of Inheritance (Erbschein) may be demanded to effect the sale. Still, in most international succession cases we suggest to opt for the Certificate of Executorship.

The application does involve a significant amount of paperwork and the Executor will have to swear an oath in the presence of either a German notary or – in the UK or the USA – before a German consular officer.

Our law firm prepares the necessary application wording, sends a list of required documents and arranges for certified translations of the English or American documents (wills, death certificates etc) into German. Once the executors have taken the oath, we shall send the application to the German probate court at the deceased’s last German residential address.

(II) Putting the Property on the Market / Resolve Tenant Issue

If the testator did not live in Germany himself then chances are that he or she has leased the property to tenants. Under German law, the flat can be sold even if it is currently being leased to a tenant. The lease agreement automatically transfers onto the new owner. The German legal buzz word is “Kauf bricht nicht Miete” (selling the property does not terminate lease). An investment buyer may even like the idea of the German flat being rented out. However, having a tenant inhabiting the German property does limit the number of potential buyers because, in reality, most buyers are looking to move in themselves, especially if it is a small apartment or small house in a rural German area, where no one is interested to purchase property for investment reasons.

Thus, executors and beneficiaries usually wish to end the lease agreement and remove the German tenant. Evicting such a tenant is, however, rather tricky in Germany, because private tenants are well protected under German civil law. Lease agreements are usually open ended in Germany and the owner (here the executor) needs a legitimate reason to terminate such lease agreement. The most common reasons being non-payment of the rent or a need of the owner to use the flat for himself or a family member.

The intention to sell a flat is, per se, not necessarily a reason to terminate the lease agreement, but if we can establish that with termination of the lease agreement, the owners cannot find a buyer, this should suffice. However, the burden of proof that this is indeed the case lies with the landlord.

This matter may prove difficult. The executor should therefore ask the tenants whether they would be interested to buy the flat or house themselves. If not, the best strategy is usually to simultaneously look for buyers (there may be a potential buyer who does not mind that the flat is leased out) and at the same time start the termination and eviction proceedings.

To find buyers for a German property the owners can either advertise the real estate themselves (the market leader on German internet for this is www.immobilienscout24.de), if the executor or a beneficiary is willing and able to show the flat to potential buyers. The more professional alternative will probably be to hire a local estate agent. The agent’s fees in case of a real estate sale in Germany are usually borne by the buyer. Our firm does assist with finding a reliable and English speaking German estate agent.

(III) Sale of German Property

The selling and transfer of any property in Germany must be effected through a German notary public who acts as a neutral (judge like) legal official ensuring that both parties are being protected (Legal guide to buying a house or apartment in Germany). We will be happy to find a bilingual notary and instruct him / her once we have a buyer. We will also be happy to assess the draft sale agreement and explain the content to you (Template of German Land Sale & Purchase Agreement).

The purchase price is usually paid into the notary’s fiduciary account and is distributed by the notary as soon as the new owner is registered in the Grundbuch (Local Land Registry). The sale deed also resolves any mortgage issues.

(IV) German Inheritance and possibly also Property Sales and Capital Gains Tax

Finally, there is the matter of German taxes. Whether “only” the German assets or the deceased’s global estate is subject to german Inheritance tax depends on the deceased’s nationality and residence at the time of death (The Perils of German IHT and Gift Tax). In addition, selling inherited German real estate may trigger capital gains tax (depending on how long the property had been held by the testator prior to his / her death) as well as property acquisition tax (usually only for the buyer).

– – – –

More information on buying property in Germany, the German Land Registry and conveyancing process and the rights and duties of tenants and landlords in Germany is available in these posts:

Or simply click on the sections “Property” or “Conveyancing in Germany” in the right column of this blog.

For more information on cross border probate matters and international will preparation see the below posts by the international succession law experts of Graf & Partners LLP:

– – – –

Solicitor_SchmeilzlThe law firm Graf & Partners and its German-English litigation department GP Chambers was established in 2003 and has many years of experience with British-German and US-German probate matters, including the representation of clients in contentious probate matters.

We also advise and represent foreign clients who wish to purchase, sell or lease property in Germany. In case you would like to obtain specific advice on a specific case or need assistance in buying, selling or leasing property in Germany, please contact German solicitor Bernhard Schmeilzl, LL.M. (Leicester) at +49 941 463 7070.

Tenants beware of Waiver Clauses in German Property Lease Agreements

Renting a House or Flat in Germany? Do not sign a “Kündigungsverzicht” Clause

The basic rule under German law is that tenants have the right to terminate an open-ended lease agreement by giving 3 months notice (see s. 573c German Civil Code in the chapter “property leases for an indefinite period” ). In contrast to the UK, such open-ended lease agreements are standard in Germany.

However, a tenant can waive this right by signing it away (Kündigungsverzicht). In our firm we regularly come across cases, where the German landlord includes such a termination waiver clause, without expressly discussing this with the prospective tenant. Since tenants from the UK are used to fixed term lease agreements, they are mostly not aware that they are signing something which is the rare exception in Germany and which is to their disadvantage compared to the default rule in the German Civil Code.

Again: The statutory rule is that a tenant (but not the landlord!) can always terminate by giving three months notice (without having to give a reason). The thinking behind this law is that a tenant must be flexible, in case he has to relocate to another town for job reasons. The landlord – in contrast – cannot freely terminate, but must be able to demonstrate “berechtigtes Interesse”, which can be translated as legitimate reason or justified interest.

In practice, a landlord in Germany can thus only terminate the property lease in three cases:

(i) because the tenant has breached his contractual obligations, or

(ii) if the landlord can credibly establish that he (or a close family member) wants to move into the flat or house himself. This rule annoys some landlords, thus the attempt to sneak in the waiver clause (Kündigungsverzicht); or

(iii) continuing the lease would prevent the landlord from making appropriate commercial use of the property.

Back to the tenant perspective: If you realise that you have signed such a clause which binds you for a longer period than you wish to be bound, all is not yet lost, because German courts still do protect tenants by finding those clauses void, which result in an unreasonably long commitment of the tenant.

Here is where it gets complicated, because the German courts distinguish between cases where the landlord has provided to the tenant a standard lease agreement template, which he does use or intends to use regularly. Such standard templates are called “Allgemeine Geschäftsbedingungen” (AGB), see sections 305 to 310 German Civil Code. AGB’s are subject to strict scrutiny, because the natural assumption is that the other party does not fully understand the implications of all these clauses with the user of the template had all the time in the world to fine tune in his best interest.

Thus, if a landlord has used AGB, such a waiver of the termination right (Kündigungsverzicht) is only legally permitted for a maximum of 4 years. If the period is longer, the clause is simply void and the general rules of German Civil Code apply.

If, however, the landlord can establish that the lease agreement (especially the termination waiver clause) was really intensely negotiated between lessor and lessee, then the agreement would no longer qualify as a “standard template”, but as an “Individualvereinbarung” (individually negotiated contract). In those cases, the courts tolerate longer periods, up to 10 years or longer, because the court takes the position that the tenant has thought about whether he actually wanted to accept this. If so, the tenant does not need to be protected.

Thus, be careful, if a prospective landlord wishes to discuss such a waiver clause with you. Chances are, he is planning on to later reason that you have explicitly wished such a clause to be included in the agreement. Sometimes, they use the argument that it is in your best interest to have such a long term lease agreement, so he cannot kick you out after one or two years. But remember: The landlord can only terminate for cause anyway. So, in general, the tenant is already well protected against termination.

– – – –

More information on buying or leasing property in Germany, the German Land Registry, the German conveyancing process and the rights and duties of tenants and landlords in Germany is available in these posts:

Or simply click on the sections “Property” or “Conveyancing in Germany” in the right column of this blog.

– – – –

Solicitor_SchmeilzlThe law firm Graf & Partners and its German-English litigation department GP Chambers was established in 2003 and has many years of experience with British-German and US-German probate matters, including the representation of clients in contentious probate matters.

We also advise and represent foreign clients who wish to purchase, sell or lease property in Germany. In case you would like to obtain specific advice on a specific case or need assistance in buying, selling or leasing property in Germany, please contact German solicitor Bernhard Schmeilzl, LL.M. (Leicester) at +49 941 463 7070.