Which contracts are transferred to the buyer when purchasing a property? What about insurance contracts?

When it comes to real estate, there are typically a large number of contracts related to the use, management, rental, etc. of the property. It is important to know that such contracts do not automatically transfer to the buyer. The assumption of such contracts must therefore be contractually agreed. This only differs when the automatic transfer is regulated by law, for example in the case of tenancy agreements or insurance contracts. Even in these cases, however, we at KFR Kanzlei für Real Estate frequently recommend more extensive contractual arrangements. We provide a brief overview of what to consider. by Anneke Durrer A. Specific Statutory Provisions

1. § 566 BGB – “Sale Does Not Break Lease”

Pursuant to § 566 BGB, tenancy agreements transfer to the buyer upon sale following handover of the residential premises (and pursuant to § 578 para. 1 BGB also other land and premises). Nevertheless, contractual provisions will typically still need to be made for two reasons:

a) Registration in the Land Register vs. Transfer of Possession

Pursuant to § 566 BGB, the tenancy only transfers upon registration of the change of ownership in the land register, whereas the seller and buyer typically wish to treat the transfer as having already occurred upon handover of possession.

b) Handed-Over and Not Yet Handed-Over Rental Premises

Second, this only applies to tenancies where the rental premises have already been handed over. For premises not yet handed over, the transfer pursuant to § 567a BGB requires an explicit assumption of performance by the buyer vis-à-vis the seller. 2. § 95 VVG – Sale of the Insured Property For property insurance policies (including building insurance), § 95 VVG provides that the buyer steps into the insurance contract upon transfer of ownership. For certain liability insurance policies, this rule applies accordingly.

a) Co-Insurance of the Buyer for the Period between Transfer of Possession and Transfer of Ownership

During the period between transfer of possession and transfer of ownership, the buyer’s interest in preserving the property is co-insured, meaning the seller holds an insurance policy for the account of another. It is therefore advisable to already assign claims under the insurance contract for losses occurring between the transfer of possession and the transfer of ownership to the buyer, so that the buyer can assert claims without the seller’s involvement.

b) Rights of Termination

Both the insurer and the buyer may, however, terminate the insurance contract following the transfer of ownership (§ 96 VVG). The insurer may only declare termination within one month of becoming aware of the sale (exclusion period). The buyer, on the other hand, may only terminate the insurance within one month of the transfer of ownership (exclusion period) or of becoming aware of the existence of the insurance, either with immediate effect or with effect at the end of the current insurance period. The buyer should clearly state in their notice of termination the date on which the termination is to take effect.

c) Duty to Notify

The acquisition of the property must be reported to the insurer without delay (§ 97 VVG), as otherwise there is a risk that the insurer will not be required to provide coverage in the event of an insured loss.

d) Blanket Insurance Policy

In the event that the seller has taken out a so-called blanket insurance policy (covering multiple properties), which typically provides for a right of special termination by the seller or an automatic exclusion of the property from the policy, the purchase agreement should contain a corresponding notice and require the buyer to take out their own insurance. 3. § 613a BGB – Transfer of Employment Relationships The purchase of a (tenanted) property may in certain circumstances constitute a transfer of business, which results in the employment relationships also transferring to the buyer and any dismissals in connection with the transfer of business being invalid. From the buyer’s perspective, it is therefore important that the seller warrants in the purchase agreement that no employment relationships exist that could transfer to the buyer pursuant to § 613a BGB. B. Otherwise: No Automatic Assumption of Contracts Otherwise, there is no automatic assumption of contracts. This must instead be explicitly agreed between the parties. 1. Seller’s Interest The seller generally has an interest in transferring, in particular, the following contracts to the buyer:

• Contracts with long durations that cannot be terminated without further ado
• Contracts with an obligation to pass on to a successor (frequently neighbourhood agreements, obligations under easements, agreements from acquisition contracts, etc.

2. Buyer’s Interest The buyer generally has an interest in assuming, in particular, the following contracts:

• Contracts with favourable terms and conditions
• Contracts with neighbours or other third parties that are necessary for the smooth use of the property (e.g. in relation to rights of way, etc.)
• Warranty claims under construction contracts, but generally not the contract itself

In conclusion, it is important to review the contractual situation of the property and to make specific arrangements in this regard. Do you have further questions about contractual assumption in purchase agreements? Or do you need general assistance with a property acquisition? We would be happy to advise you. Ihre Ansprechpartnerin: