In a nutshell, real estate is acquired by entering into and executing a purchase agreement and subsequently registering the new owner in the Land Registry. However, there are a number of legal procedures to complete ahead of a German property changing hands and being registered in a new name.

Below are the steps in detail. 

The first step is to make an offer. 

If an offer is accepted, usually a Letter of Intent confirms the general terms of the agreement. The Letter of Intent should not be negotiated carelessly. Although it is not legally binding, it is German custom of not changing the provisions of the Letter of Intent later in the purchase agreement without good reason.

However, an offer may be subject to a condition that legal and technical due diligence will not reveal any material issues or effects. For the exclusivity period agreed upon in the

Letter of Intent, the seller will take the property off the market. 

Whether you have arranged a Letter of Intent or not, technical and legal due diligence should be carried out, to ensure that the purchaser is sufficiently informed of the legal and physical state of the property.

These documents evaluate e.g. the legal situation of real estate, lease agreements, risks with respect to public law (such as building permissions, situation under construction planning law, contaminated sites) and environmental risks such as asbestos, lead content, termites, fungi, natural risks (floods, etc.). Legal and technical due diligence are not mandatory in any case in Germany but are advisable in all cases. 

Once an offer has been made and legal and technical due diligence are carried out, the purchase agreement is typically drawn up between the seller and the purchaser. For the execution, usually, a number of closing conditions have to be satisfied, including the clearance of any statutory or contractual rights of

first refusal belonging to third parties or public-law entities and the registration of a priority notice of conveyance (Auflassungsvormerkung) to protect the purchaser at early stage and to place him in a position equivalent to ownership.

Furthermore, all risks identified in the legal or technical due diligence will, as far as possible, be covered by the purchase agreement. Lawyers must ensure that any agreement secures and contains provisions safeguarding their clients’ objectives and requirements. In general, two to three months will elapse between the purchase agreement and the transfer of ownership in the Land Registry.

Please note that under German law, purchase agreements regarding real estates must generally be certified by a notary in order to be valid. The notary is usually chosen by the purchaser. Please note that a German notary should not be confused with a notary public in some common law jurisdictions. A German notary holds a government appointment and bears extensive responsibilities, far beyond signature authentication. 

In the acquisition of real estate, notary fees and court costs (for the Land Registry) are incurred as well as Real Estate Transfer Tax; typically, these are assumed by the purchaser. Both the notaries and the courts (Land Registry) are subject to uniform and transparent fee schedules. These costs usually amount to approx. 1.5 % of the purchase price. 

The amount of land transfer tax in Germany depends on the Federal State and varies between 3.5 and 6.5 % of the purchase price. The Real Estate Transfer Tax in Berlin is 6 % of the purchase price.

The real estate fees in Germany is split equally between the buyer and seller. Prior to the legislation changes on December 2020, it was the buyer who paid the real estate agency fees on resale properties. In general, buyer’s brokerage fees now range from 2% to 3% of the purchase price, plus VAT.

After payment of the purchase price, the notary will apply for the registration of the purchaser as new owner in the Land Registry. With registration, the purchaser acquires ownership of the property. 

A great feature of the German taxation system is that no capital gains taxes (CGT) apply on the sale of investment property by individuals who have owned property for more than 10 years. If a property is sold by an individual within the taxable 10 years period, capital gains are taxed as part of the personal income tax.

If property is sold by a corporate entity, capital gains are taxed at a rate of approx. 16% corporate income tax.

Additional German trade tax (up to approx. 17% of the capital gains) may often be avoided, e.g. by non-German companies (subject to certain conditions). CGT may also be avoided if capital gains are reinvested into other real estate within a certain timeframe.