Purchase and sale of real estate

The acquisition of a property can be classified into three basic types:

  • The purchase of an undeveloped property (building site), e.g. for development; the purchase
  • of a property including existing (used) buildings, e.g. a single-family house, or a single apartment, e.g. a residential apartment, but also multi-family or commercial buildings; and
  • the purchase of the fabric of a building (house or flat), a so-called developer contract.

In each case, the conclusion of a real estate purchase contract is a legally significant and complex transaction for the parties involved. It requires expert advice in preparation and execution.

Numerous legal considerations have to be taken into account that shape the procedure employed in real estate purchases in real estate law practice as standard. 

During contract preparation, an audit takes place, in respect to both parties to the contract as well as in respect to the contractual property. For example, the personal circumstances of the parties to the contract determine specifics within the contract. Are private persons or contractors negotiating? Are several people selling or buying together? Are foreign legal relations to be taken account of due to the parties’ nationalities? If, for example, several persons act jointly on the buyer’s side, this may already give rise to tax or – potentially – inheritance law questions, which may also be decisive in the drafting of a sales contract and the legal relationship between the buyers. Furthermore, property-specific special features must be taken into account. What is the situation with the land registry? For example, are existing third-party mortgages (land charges, mortgages) still to be resolved and should the discharge of such rights be made against the purchase price? Is it an old or new building? Is only a part of a whole plot being sold? Is the property rented or vacant? Are there any known material defects?

Depending on the individual circumstances in any given case, the parties may have set expectations that must be taken into account in the drafting of the contract. For example, it might have to be clarified whether the sale is to take place without legal guarantees for material defects or whether certain factors that are particularly important to the buyer are to be subject to a guarantee made by the seller, e.g. regarding a certain building permit or rental status. Further provisions may be required if there are special protection interests for the fulfilment of certain expectations that the contracting parties might have with regard to the property. For example, the validity of the contract or the purchase price’s payment date can be made dependent on the occurrence of certain conditions, e.g. the securing of a certain development potential or the attainment of a certain letting status, or the provision of collateral, e.g. in the form of purchase price retentions or guarantees. 

The question of how the buyer finances the purchase also affects the drafting and execution of the contract. Is the buyer paying from his or her own funds or does he or she need financing through credit? If a loan is taken out for (partial) purchase price financing, the lender usually expects securities to be provided. As a rule, this occurs in real estate financing in the form of a land charge on the purchase property, amongst other options. In this case, provisions in the purchase contract are necessary (so-called charge powers or financing powers). These make the land charge order possible even before the buyer becomes the owner. Depending on the type of lender – usually a bank or insurance company, but also non-institutional lenders may be considered – the seller’s interest in the land charge must be safeguarded in different weightings, so that it is not used by the lender before the purchase price has been paid.

Despite all the standardisations of real estate purchase contracts and their execution, it is therefore always necessary to take a case-by-case view in order to grasp the special features of specific configurations and, as a result, to recognise what is required in drafting contracts and for setting the correct priorities within them.

The notaries at LEONHARDT RATTUNDE are familiar with real estate purchase contracts of all types and sizes and offer comprehensive notarial support in the preparation and execution of real estate purchase and sale contracts.

The drafting and execution of contracts for the purchase of real estate always depends on the factors specific to each individual case.

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