Purchase German Property by Online Auction?

Beware of buying German real estate through the internet. It does not work that way in Germany!

Our firm specalises in German-British and German-Amercian legal matters. Thus, we are sometimes contacted by non-German clients who proudly tell us that they have just successfully bought German property by way of online auction, for example from “MIDLAND ASSET MANAGEMENT LTD” or another online auction service provider.

There is just one small problem with this: In order to be valid, German law requires any agreement regarding property transactions (sale of real estate) to be recorded by a German notary (or a German consular officer abroad), see section 873 German Civil Code (Conveyancing):

Section 873 Acquisition of Property by Agreement and Registration in the German Land Registry

(1) The transfer of the ownership of a plot of land, the encumbrance of a plot of land with a right and the transfer or encumbrance of such a right require agreement between the person entitled and the other person on the occurrence of the change of rights and the registration of the change of rights in the Land Register, except insofar as otherwise provided by law.

(2) Before the registration, the parties are bound by the agreement only if the declarations are notarially recorded, or made before the Land Registry, or submitted to the Land Registry, or if the person entitled has delivered to the other person an approval of registration that satisfies the provisions of the Land Register Code [Grundbuchordnung].

 

Thus, any “only auction” of German real estate (plots of land, apartments, houses) is not legally binding at all. It can merely be regarded, at best, as a non-binding letter of intent. If the owner changes his mind, for instance because he found another bidder who is willing to pay more, the online buyer has zero rights.

However, the online auction service providers usually do not explain this non-binding nature of the auction at all. To the contrary, they make it sound as if the “online buyer” is legally entitled to demand property transfer or that the buyer even automatically becomes the owner upon completion of the auction.

Midland Asset Management, for example, only hints at “certain formal requirements” which need to be taken care of. Well, no kidding! The seller and the buyer must appear in person before a German notary (or a consular officer) to actually sign the real sale deed. Everything else is just an empty promise. Buyers usually are not aware of these formal conveyancing requirements and the travel costs, notary fees and translation costs connected with all that.

But, and this is the risky and potentially fraudulent aspect, the online auction service providers do require the “buyer” to pay the full purchase price for the German property up front, i.e. before the sale is officially recorded by a German notary. See, for example, the auction ad by Midland Asset Management on Bidspotter.co.uk:

If, for any reason, the actual sale at the notary’s office does not happen, then the buyer has only a rather weak “undue enrichment” claim against the online auction provider, unless fraud can be proven. Let alone the fact that these providers are often limited companies with virtual offices.

Therefore, do NOT try to purchase German real estate online. But if you absolutely must, do not pay the full purchase price upfront. Instead, inform the online service provider that you are aware of the German conveyancing laws and formal requirements of seeing a notary and discuss with the service provider how this can be effected. If the service provider then runs or tries to avoid this issue, you know that you deal with a shady or incompetent partner.

– – – –

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.

Template of German Land Sale & Purchase Agreement

When you wish to sell or buy a house or apartment in Germany the agreement must be signed before a German notary (see sections 873 and 925 German Civil Code) because the German Land Registry will only accept instructions from such notary (details). We have explained the legal procedure of conveyancing in Germany here.  

The parties must be extremely careful that the notarial agreement does contain the entire understanding between the parties. There must be no verbal side agreements as far as the land transaction is concerned because this would lead to (i) the contract being void and (ii) tax fraud investigations. An example: the parties have actually agreed on a sale price of 400,000 EUR but they tell the notary 300,000 EUR to reduce legal fees and property acquisition tax (the remaining 100,000 EUR are paid by the buyer outside of the agreement). If this comes to light – even decades later – the entire land transfer is void, i.e. the property still belongs to the vendor. And German tax authorities will not consider this a laughing matter.

Because of this, and because the technicalities of payment, mortgages, registration are described in detail, the notarial deed is usually quite long. A typical example of such a real estate sale and purchase agreement under German law regarding private property is available here: Template_German_House_Sale_Agreement

In case you would like to obtain specific advice on a specific case or need assistance in buying, selling or leasing property in Germany, feel free to contact the lawyers of the German firm Graf & Partners who specialise in British-German legal issues. Attorney Bernhard Schmeilzl has many years of experience acting in cross border cases.

– – – –

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.

Legal Guide to buying a House or Apartment in Germany

Compared with the UK and the USA, relatively few Germans own their own home. As Guardian recently titled: “Brits buy homes, Germans rent”. To rent an apartment or even a house is much more common in Germany, especially since a tenant (lessee) is extremely well protected by German law. A landlord cannot simply terminate a residential rental agreement but must have legitimate cause (Sec 573 German Civil Code). These protection against eviction laws are sometimes abused by unfair tenants to delay their move for months or even years. The relevant statutes of the German Civil Code are available here in English translation. So, in short, being a tenant in Germany is quite attractive from a legal perspective. But still:

Continue reading