Real estate transactions of commercial buyers and sellers
Legal and tax advice for owners and investors in Germany
The real estate market in Germany continues to boom. Domestic and, increasingly, foreign investors are investing in residential and commercial units. We advise commercial sellers and buyers in Germany, including investment companies, throughout the entire transaction period. Our clients benefit from our one-stop legal and tax advice.
For a non-binding inquiry, please contact one of our contacts directly by phone or e-mail or use the contact form at the bottom of this page.
German real estate law for commercial and institutional market participants
We support transactions by providing the following services of our attorneys, specialist lawyers and tax advisors:
- Preparation and management of purchase and sale processes (preparation of a data room, negotiation of letter of intent and exclusivity and confidentiality agreement; brokerage agreement)
- Corporate structuring of real estate investments (property companies, holding structures, joint ventures)
- Tax structuring (real estate transfer tax optimization, trade tax optimization)
- Advice to real estate entrepreneurs on acquisition financing through conventional and alternative financing instruments
- Due diligence, in particular with a focus on german landlord and tenant law for commercial properties
- Acquisition financing (equity and debt, mezzanine financing, collateral)
- Drafting and negotiation of purchase agreements (asset deal/share deal)
- Execution of purchase agreements including subsequent advice on german commercial leasing law
- Conflict resolution (out of court and in court)
We advise in German and English and represent our clients in contract negotiations. We are familiar with the specific interests of buyers and sellers and with market practices. We provide clearly formulated reports and make specific recommendations to eliminate or minimize any legal or tax risks we find.
Germa real estate law is interdisciplinary. In addition to real estate law, landlord and tenant law, etc., questions of corporate law or tax law, for example, are also relevant for commercial players. Therefore, the appropriate team of lawyers, certified specialists and tax advisors is available to our clients for every issue in Germany.
Background information on the commercial purchase and sale of real estate in Germany
Regardless of whether a property is sold by way of an asset or share deal, commercial buyers will regularly conduct a due diligence, i.e. check the object of purchase for risks (tax, legal, structural). It is customary in german practice for the seller to make available a so-called data room, which provides the buyer with all the information required for his due diligence. Increasingly, the data is provided in electronic form (DVD, browser-based data rooms).
Often in german practice, unnecessary transaction costs are incurred when the data room is unorganized and incomplete. This results in numerous queries and misunderstandings. The seller should have structured his due diligence information already at the beginning of the sales process in german practice. Our attorneys can assist by reviewing the data room for meaningfulness and completeness. Typically, at the beginning of due diligence, the seller and buyer agree to keep the information provided confidential.
At the beginning of a transaction in Germany, the seller and buyer often record the results of negotiations to date in a so-called Letter of Intent, or alternatively Memorandum of Understanding or Heads of Terms. Typically, a letter of intent contains an enumeration of the parties, the object of purchase, the purchase price and the further course of the sales process. Often, a sole negotiating right (exclusivity) is also granted to the buyer and confidentiality is agreed upon. Through an agreed exclusivity, the seller is actually legally bound and risks being liable for damages if he negotiates in parallel with a third party and possibly also sells to this third party. However, the enumeration of the key data of the intended transaction is not legally binding in Germany. It merely expresses the intention of both parties.
Both parties can therefore in principle demand a lower or higher purchase price at a later date, for example, without thereby violating a legal obligation. However, the psychological and negotiating effect of a letter of intent should not be underestimated in german practice. Once both sides have put certain key points on paper, the side that later wants to deviate from these key points is under pressure to explain. Sellers and buyers in Germany are therefore well advised to draft a letter of intent carefully and to set out key negotiating positions as precisely as possible in this document.
In german practice, the buyer often demands that the seller grant him exclusivity in writing, i.e. that the seller undertakes to negotiate exclusively with the buyer for a certain period of time and, above all, not to sell to any other interested party.
Of increasing importance for german commercial real estate buyers and sellers are corporate structures. For reasons of liability limitation and above all for tax reasons, it is advisable for commercial real estate sellers and buyers in Germany to acquire and sell properties by means of companies (e.g. GmbH & Co. KG or GmbH). In this way, noticeable tax relief can be achieved (keywords: extended trade tax reduction, real estate transfer tax avoidance).
We advise real estate entrepreneurs in Germany on the financing of acquisitions, with a special focus on alternative financing instruments (e.g. participation loans, bonds, dormant partner's interests) in view of the current restrictive lending policies of banks.
In the case of leased commercial real estate, a transaction stands or falls with the question of whether effective long-term commercial leases are in place. Commercial real estate should therefore not be acquired without prior due diligence with regard to german tenancy law. We advise buyers on acquisition financing with regard to both "classic" bank financing and alternative forms of financing (e.g., participation loans, dormant equity holdings, subordinated loans, bonds). In the context of mezzanine financing in german practice, we also review potentially applicable banking supervisory law (e.g. the provisions of the German Banking Act - KWG or 'Securities Prospectus Act - WpPG). We routinely advise on asset and share deals in Germany. Therefore, we are familiar with the usual contractual structures and discussion points.
Asset Deal or Real Estate Share Deal in german practice
Regularly the question arises whether a real estate or not better a company, which is the owner of the real estate, is sold/acquired. The avoidance of real estate transfer tax under german law, which is in principle possible through a share deal, and the extremely favorable treatment of the capital gain on the part of the seller (see, for example, Section 8b KstG) are certainly the main drivers for real estate share deals.
In german practice, the auditing effort (legal and tax due diligence) required with regard to the target company will, of course, be higher than the auditing effort required for a pure real estate purchase agreement. After all, the buyer acquires the target company together with its contractual and legal liability risks. Therefore, only after a certain economic order of magnitude the additional expenditure resulting from a real estate share deal is worthwhile.
The following issues should be carefully addressed in any real estate transaction under german law:
- Down payment, securing the purchase price claim
- Preparation and review of closing date balance sheets (for share deals)
- Warranty catalog
- Purchase price retention Liability limitation (de minimis, basket and cap clauses), if necessary deposit in escrow account
- Risk sharing with regard to liability for soil contamination in accordance with the German Federal Soil Protection Act (Bundesbodenschutzgesetz)
- Shortening of the statutory limitation period
On our homepage you will also find brief information on real estate and taxes in Germany