Real estate in a company under german law
Property companies, joint ventures and family pools in Germany
In german practice, larger real estate portfolios are regularly not held by natural persons but by companies. In this way, real estate assets can be handled more flexibly as corporate assets and optimized for tax purposes. Our attorneys, certified specialists and tax advisors will assist you in all matters of german real estate law and german corporate law.
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The company as owner in Germany
In principle, any type of company can acquire real property in Germany, including a civil law partnership. Foreign companies can also acquire real estate in Germany. In project developments and fund structures, the holding of individual properties in a property company ("PropCo") has become established in german practice. Typically, this is a limited liability company. In this way, liability risks are reduced under german law.
If the majority shareholders are not also managing directors of the german real estate company, it must be ensured that the employed management is carefully monitored and that the majority shareholders can also take the helm if necessary. This can be secured, for example, by special rights, such as the right to exercise the office of managing director.
Transactions with german property companies
When selling or buying real estate in Germany, it may be opportune to first contribute it as company assets to a special purpose company and then sell the company shares, a so-called share deal. How sensible this procedure is (in comparison to the so-called asset deal) must be decided in each individual case. Of course, tax reasons also play an important role here in german practice.
The significantly higher tax and legal examination costs under german law associated with a share deal should not be underestimated. After all, it is not just a piece of real estate that is being purchased in Germany, but a "living" company with numerous legal relationships to other persons or authorities. In addition, there are the potentially much more far-reaching liability risks involved in the acquisition of a company compared to a pure land purchase. Therefore, with a view to reasonable transaction costs in german practice, a share deal will often only be worthwhile above a certain (million) amount. This also applies to the decision as to whether a partnership or a corporation should act as the german property company.
The use of real estate companies is also highly interesting from a real estate transfer tax perspective under german law. The German Real Estate Transfer Tax currently still privileges the indirect transfer of real estate. In principle, if no more than 89.9% of the shares in a real estate holding company are transferred, the transaction is exempt from german real estate transfer tax. By using this "real estate transfer tax blocker", transaction costs can be reduced significantly in german practice. This arrangement requires a high level of tax expertise; in particular, current developments in german case law as well as in legislation must always be monitored very closely.
Real estate joint venture/club deals in Germany
Many german real estate projects require several partners - whether to distribute risks among several players or to bundle different expertise under one roof. In german practice, project developers and investors in particular often enter into joint ventures and establish project companies for this purpose. These are legally independent under german law. Real estate joint ventures are often opportune for cross-border activities, when investors operate in foreign real estate markets and want to bring local partners on board.
In so-called club deals, several private investors pool their financial resources to acquire a property. The investors contribute the (balance sheet) equity via mezzanine financing. In this case, attention must be paid to regulatory restrictions in Germany (KAGB); it must be checked at an early stage whether the project requires a permit under german law (BaFin approval). Otherwise, there is a risk of severe sanctions.
Commercial law advice on real estate joint ventures and club deals is mainly aimed at corporate law structuring and tax optimization in Germany. In addition to german corporate law and tax law, however, aspects of competition law may also play a role.
Asset management real estate companies, family pool in Germany
In the case of significant real estate holdings in private ownership, structures under german company law lend themselves to managing the real estate assets and preserving them in the long term. If the individual properties are bundled in a partnership, german corporate law offers numerous possibilities to impede access, for example, by creditors, children-in-law or the tax office. This also prevents the family assets from being destroyed by initiating a partition auction. From this point of view, the asset-managing real estate company or the family pool or the family company is an ideal instrument in the structuring of the succession in Germany. In individual cases - from a liability point of view - a GmbH & Co. KG or GmbH can also be considered in german practice. This may be the case, for example, if the real estate is not only to be managed, but also partially developed or sold. In any case, the choice of a particular corporate form should only be made after intensive tax advice.
Further information on this subject:
- Asset management real estate company
- Family pool, family company