TRANSFER OF PROPERTY IN GERMANY What is transfer of property in general? General principles of german property law Transfer of movables according to bgb transfer of immovables according to bgb

Transfer of property consensual transaction obtaining an interest in property under a trust established for the benefit passing from one person to another independently

German property law Bürgerliches Gesetzbuch (or BGB) The Property Law ("Sachenrecht"), sections 854 - 1296, describing: possession, property, other rights persons have relating to property (movable property and real estate), how those rights can be transferred

General principles numerus clausus, absolute effect, publicity, specification, so-called Abstraktionsprinzip – principle of abstraction

Principle of abstraction DISTINCTION contract containing the obligation to transfer the property the transfer itself

German transfer system – tradition system Art. 929 BGB requires a transfer of possession the will of the transferor to make the acquirer possessor corresponding will of the transferee to acquire possession from the transferor Possession in not only a fact but also a right  legal act Art. 854 subs. 2 BGB In practice - transfer of possession is seen as no more than a factual act

German transfer system – tradition system Valid transfer  the transferor should be privileged to dispose No longer is the person privileged if he is declared bankrupt (non-owner may, by law or by legal act, be given the privilege to dispose though) Valid transfer  acquirer is in good faith, and all other requirements for third party protection are met This ability to transfer - ‘the power to dispose’ ‘Identity of defect’ - between contract and conveyance

Transfer of movables Section 929 Agreement and delivery Section 930 Constructive delivery   Section 931 Assignment of claim for possession Section 932 Good faith acquisition from a person not entitled

Agreement and delivery The owner is required to deliver the thing to the acquirer They both need to agree that the ownership is to be passed If acquirer possesses the thing – the transfer is valid.

Constructive delivery delivery may be replaced by a legal relationship agreed between the owner and the acquirer the acquirer obtains indirect possession

Assignment of claim for possession delivery may be replaced by the owner assigning to the acquirer the claim to delivery of the thing.

Good faith acquisition from a person not entitled The acquirer becomes the owner even if the thing does not belong to the alienor, unless the acquirer is not in good faith at the time when under these provisions he would acquire ownership The acquirer is not in good faith if he is aware, or as a result of gross negligence he is not aware, that the thing does not belong to the alienor.

Transfer of immovables Sale of Real Estate among Private Persons (consumers) Procedure in general Real Estate Sales Contract Transfer of Ownership and Payment

German immovables transfer – in general Two parts: a contract obligation to transfer ownership of the property (Kaufvertrag) and disposition activity (Auflassung) German principle of separation The validity of disposition activities (transfer of property) is not dependent from a validity of transfer of ownership agreement "The contracting parties agree that the ownership of the property above is transferred to the buyer in its exclusive meaning."

Sale of real estate among private persons Procedure in general  Main steps of a real estate sale – The parties ask a notary to draft the contract. The sales contract is concluded in an oral hearing at the notary’s office in the presence of both parties and laid down in a notarial document. – Notary applies for registration of a priority notice (Vormerkung) in the land register (Grundbuch). – Now, the buyer pays the purchase price to the seller. – After payment, the seller allows the buyer into possession and the notary has the transfer of ownership registered in the land register. The registration entails the transfer of the property.

Sale of real estate among private persons  Time frame The time necessary varies according to the time needed by the land register. – On average, the priority notice is registered within several days. Normally, the notary or the parties receive the information about the registration of the priority notice about two weeks after the demand. – The registration of the transfer itself might take longer, up to some weeks – However, some land registers have a serious backlog. There, even the priority notice might take some months, the registration of transfer half a year or even a year, in some cases even longer.

Sale of real estate among private persons Real Estate Sales Contract Form In Germany, the real estate sales contract has to be concluded by notarial instrument; otherwise it is invalid (§ 311b BGB) – If the sales contract is formally invalid, the formal defect is cured, if the transfer of property has been declared and has been registered (§ 311b BGB). However, the registration does not cure any material defects of the sales contract. Also the transfer of property has to be declared to a notary (§ 925 BGB) – The declaration of transfer requires a German notary. – The transfer has to be declared with both parties present at the same time (§ 925 BGB). Offer and acceptance must not be notarized separately. However, the transfer is valid, even if the notarial instrument has not been validly notarized (§ 925 BGB).

Sale of real estate among private persons Transfer of Ownership and Payment Requirements – valid obligation contract (causa) - no – payment of the purchase price - no – consent on the transfer of ownership (Auflassung) - yes – registration with the land register (Eintragung) – yes In the German system, transfer of ownerhsip requires only a declaration of consent and the registration with the land register.

Sale of real estate among private persons Payment due It is impossible to make the transfer contingent on the payment of the purchase price . The transfer of property is split up in two steps: – First, the priority notice is registered - buyer is secured that nobody else can acquire property validly against him - buyer now may pay the purchase price to the seller. – After payment, the seller allows the buyer into possession and the notary has the transfer of ownership registered in the land register . – An escrow account is necessary to secure the seller, if the parties agree to transfer possession before payment is due. In Germany, no insurance is used for the risks of the payment.

Sale of real estate among private persons Ways of enforcing the payment A notarial instrument is enforceable only if the debtor explicitly declares submission to direct enforcement in the contract. In almost all contracts on the sale of real estate, such submission is declared by the buyer. Transfer of possession to the buyer The seller declares submission to direct enforceability concerning his duty to vacate the premises and to transfer possession to the buyer.

Heirs need to prove their title of succession Inheritance no special rules Principle of succession – the heirs become owners after the decedent’s death Heirs need to prove their title of succession Section 943 – 945 bgb

Principle of succession Acquisition by prescription and succession in title If as a result of succession in title the thing enters the proprietary possession of a third party, the prescription period that has passed in the possession of the predecessor in title benefits the third party. Possessor of an inheritance The prescription period that has passed for the benefit of a possessor of an inheritance counts in favor of the heir. Extinction of third party rights On the acquisition of ownership by prescription, the third-party rights in the thing that arose before the acquisition of possession are reduced, unless the proprietary possessor is not in good faith with regard to these rights or he learns of their existence only later.

Bibliography (all checked 27/11-06/12) http://www.globalpropertyguide.com/Europe/germany/Landlord-and-Tenant http://www.eui.eu/Documents/DepartmentsCentres/Law/ResearchTeaching/ResearchThemes/EuropeanPrivateLaw/RealPropertyProject/Germany.PDF http://en.wikipedia.org/wiki/Law_of_Germany http://www.doingbusiness.org/data/exploreeconomies/germany/registering-property/ http://www.iuscomp.org/gla/literature/rahmatian.htm http://www.google.pl/url?sa=t&rct=j&q=&esrc=s&source=web&cd=9&ved=0CGgQFjAI&url=http%3A%2F%2Flaw.huji.ac.il%2Fupload%2FSchutte.doc&ei=yJ6FVOnnLYj1UOishNgJ&usg=AFQjCNHiOvLQGOJ7pZvfjuwsDkAnaZN2zQ&sig2=cLIr5wVaeQMVDx3-5tOL0w&bvm=bv.80642063,d.d24

THANKS FOR THE ATTENTION Aleksandra Mierzejewska