Processing a Real Estate Purchase Agreement

Does this sound familiar? After spending weeks or even months working towards the notarization of the purchase agreement, suddenly “nothing” seems to happen after signing. However, the notary actually begins processing the real estate purchase immediately afterwards. We explain which steps are required until the final transfer of ownership.

1. First Steps After Notarization

Preparation of Certified Copies of the Agreement
After notarization, the agreement is first assigned a deed register number (formerly known as: deed roll number). The notary prepares certified copies, authenticated and simple copies of the agreement for the parties and for the further processing of the agreement. The original, including any handwritten additions and signatures, remains with the notary.

A copy of the agreement is also sent to the real estate transfer tax office of the tax authority, which then sends a real estate transfer tax assessment to the buyer.
Registering Land Charges (if financing)
If the buyer is financing the property, they generally arrange for one or more land charges to be registered for their bank immediately after notarization, with the same notary, in a separate deed. This is based on the encumbrance authorization granted to them by the seller in the purchase agreement. The registration of land charges can optionally also take place at a later, separate appointment.

2. Entries in the Land Register and Required Consents

Priority Notice of Conveyance – find out more about this topic here.
The notary applies for the entry of a priority notice of conveyance (§ 883 BGB) in the land register, if this has been agreed upon in the purchase agreement, which is typically the case. This is intended to protect the buyer from the seller selling the property to a third party or registering new encumbrances in the land register that could impair the buyer’s right to unencumbered ownership. Should such an entry occur nonetheless, it remains relatively ineffective against the buyer. The notary typically submits the application for entry of the priority notice immediately after notarization by sending a copy of the agreement to the land registry office.
Obtaining Consents & Cancellations
The notary obtains the consent of the entitled parties who are registered in the land register with rights to the property, if these encumbrances are not to be assumed by the buyer. In most cases, these are the mortgage creditors (“banks”) registered in Section III of the land register. They grant the notary a cancellation authorization, which is subject to certain escrow conditions.

For further processing, the notary often also needs to obtain waiver declarations regarding pre-emptive rights or declarations confirming the non-existence of pre-emptive rights, or, in the case of condominium ownership, the granting of the property manager’s consent, if the declaration of division provides for this.

3. Due Date Notice and Payment of Purchase Price

Once the priority notice of conveyance has been registered and all required consents and approvals for the execution of the purchase agreement are in place (with the exception of the tax clearance certificate from the tax authority), and no further conditions precedent to be reviewed by the notary have been agreed upon, the notary issues the due date notice.

In it, the notary confirms that all conditions precedent within their scope of review have been met, i.e.:

• the priority notice of conveyance has been duly registered,
• all consents and approvals for the execution of the purchase agreement are in place, and
• the cancellation authorizations for encumbrances not assumed by the buyer are available.

The buyer must therefore transfer the purchase price within the payment period stipulated in the purchase agreement to the seller’s account or – in the event of discharge of encumbrances – also partially to the banks’ accounts. For this purpose, the banks have specified in their cancellation authorizations the amount still to be paid to them.

The seller receives a copy of the due date notice. The seller is then asked to confirm to the notary the receipt of the purchase price.

If only the standard conditions precedent have been agreed upon, the conditions are typically met approximately 4 – 6 weeks after notarization and the notary issues the due date notice.

4. Handover and Economic Transfer of Possession

Upon full payment of the purchase price, the economic transfer of possession and the handover of the property take place. The notary is not involved in this process. The following applies:

• Keys, documents & rental and warranty securities are handed over.
• Costs & obligations transfer to the buyer. The buyer assumes any existing contracts of the seller (for residential building insurance, this is the standard case, § 95 VVG) and bears the ongoing costs and charges for the property. The risk of accidental loss of the property and the duty to ensure public safety pass to the buyer upon transfer of possession.

For rented properties, an actual physical handover is regularly waived. The transfer of possession takes place automatically at a point in time specified in the purchase agreement (e.g. 0:00 a.m. on the day following full payment of the purchase price / the first day of the following month). The parties inform the tenants of the transfer of possession and instruct them to pay rent to the buyer going forward.

5. Transfer of Ownership in the Land Register

Once the seller’s confirmation of receipt of the purchase price is available, the notary submits the application for transfer of ownership. However, ownership is only transferred once the tax clearance certificate from the tax authority is also available (confirmation of payment of real estate transfer tax).
Additionally, the notary submits the following applications:

• Cancellation of the priority notice of conveyance. Prerequisite: There were no interim entries, as the protective function of the priority notice is then no longer required.
• Cancellation of the encumbrances not assumed by the buyer
• If applicable, registration of the buyer’s land charge, if this has not already been done previously

The parties receive an entry notification and, if applicable, a new land register extract regarding the various registration and cancellation processes.

Attention! The issuance of the tax clearance certificate often involves longer processing times, as does the transfer of ownership itself, meaning that it can take several months after payment of the purchase price before the actual transfer of ownership takes place.

Upon transfer of ownership, any tenancy agreements are now also transferred to the buyer by operation of law pursuant to § 566 BGB. The seller should inform the tenants of this – even if they were already aware of the sale beforehand – again after the transfer of ownership, in order to discharge their liability (§ 566 para. 2 sentence 2 BGB).

6. Costs of Processing

During processing, various costs & fees arise, including:

• Notary fees for notarization & processing as well as, if applicable, for the registration of the land charge
• Advance invoices from the land registry office
• Real estate transfer tax (tax authority)

Since various authorities make their further processing partially dependent on receipt of payment, corresponding cost demands should be settled promptly so as not to jeopardize the smooth processing of the purchase agreement.

Our Conclusion: Be Patient

The processing of a real estate purchase takes several months. The notary coordinates the process and ensures that all legal requirements are met.

Do you have questions about the processing of a real estate purchase or do you need legal advice? Contact us – we are happy to support you with all aspects of buying or selling real estate.

Everything About the Special Protection for Real Estate Buyers

In a real estate purchase, a priority notice of conveyance is regularly entered in the land register in favour of the buyer, only to be deleted again immediately after the transfer of ownership in the ideal case. But why? We explain exactly what a priority notice of conveyance is and how it protects the buyer.

Why is a priority notice of conveyance entered?

After the notarisation of a real estate purchase, the notary generally applies without delay for the entry of the priority notice of conveyance in the land register. This entry fundamentally ensures that the buyer actually obtains ownership of the property once all contractual and legal requirements have been met.

The priority notice of conveyance is usually deleted again after the actual transfer of ownership, since the buyer’s claim to ownership is then fully satisfied by the entry in the land register, provided there have been no intervening disposals or encumbra§ 883 para. 1 BGB:

“To secure a claim for the granting or cancellation of a right in a piece of land or in a right encumbering a piece of land, or for the modification of the content or rank of such a right, a priority notice may be entered in the land register. The entry of a priority notice is also permissible to secure a future or conditional claim.”

As a sub-category of the general priority notice, the priority notice of conveyance is specifically intended to secure the – possibly also conditional – right to the transfer of ownership of a property. All claims to conveyance of ownership are capable of being secured, including those for retransfer.

If the intended acquisition concerns a partial area of a plot of land, the priority notice of conveyance may be entered even before the partial area has been formally separated from the undivided plot.

Accessory Security Instrument Sui Generis

The legal nature of the priority notice is disputed, as it has both proprietary and contractual elements. However, it is not a proprietary right in the strict sense, which means:

• The person entitled under the priority notice of conveyance has no claim against the owner for conveyance of ownership arising from the notice itself.
• The priority notice of conveyance protects the entitled person in relation to their debtor by preventing the debtor from otherwise encumbering or transferring the property in a way that would be contrary to their (unencumbered) claim to ownership.
• The priority notice of conveyance presupposes the existence of a valid – possibly also conditional – claim against the landowner for conveyance of ownership of the property.

The priority notice of conveyance is therefore accessory and passes – even without a separate declaration – pursuant to § 401 BGB to the assignee upon assignment.

How does the priority notice of conveyance protect the buyer?

The priority notice of conveyance protects the entitled person against:

1. Intervening disposals
   (§ 883 para. 2 s. 1, § 888 BGB). If the seller transfers the property to a third party, this transfer is relatively ineffective as between buyer and seller.

2. Insolvency of the debtor
   (§ 883 para. 2 s. 2 alt. 3 BGB; §§ 106, 254 para. 2 InsO, § 1971 s. 2 BGB). If the seller becomes insolvent, the buyer’s right generally remains intact.

3. Enforcement by other creditors
   (§ 883 para. 2 s. 2 alt. 1, 2 BGB, § 48 ZVG)
4. Limitation of liability of the heirs (§ 884 BGB).
   If the seller dies, the buyer can still enforce their right.

The Effect of the Priority Notice of Conveyance

The priority notice of conveyance takes effect retroactively from the date of its entry. Should a competing disposition subsequently be entered in the land register (e.g. another buyer or a land charge), the priority notice takes precedence. Full proprietary protection (acquisition of ownership) is, so to speak, brought forward in time.

Nevertheless, the priority notice of conveyance does not constitute a restriction on disposal or a land register block. This means:

• Competing/contrary encumbrances, such as the acquisition of ownership by a third party or the entry of a land charge in favour of a third party, are nonetheless effective and are also entered in the land register (ranking after the priority notice of conveyance).

Relative Ineffectiveness

The other disposal is, however, relatively ineffective to the extent that it conflicts with the security interest of the person entitled under the priority notice, but only in the relationship between that person, their debtor and the third party acquirer acting contrary to the notice. In other words: if the seller sells or encumbers the property despite the priority notice, these disposals are not absolutely ineffective, but only relatively ineffective as against the person entitled under the priority notice.

This means:

• The person entitled under the priority notice can still demand performance from the debtor, i.e. transfer of unencumbered ownership.
• The debtor cannot invoke relative ineffectiveness to argue that transfer of ownership has become impossible.
• The debtor remains correspondingly authorised to dispose and can have the encumbrances contrary to the priority notice removed.

There is no need to take action against the third-party acquirer, nor is this possible, since the priority notice does not give the person entitled under it any substantive legal claim against the third-party acquirer.

Upon performance by the debtor, the third-party acquirer then loses ex nunc, i.e. with effect for the future, the right initially validly acquired, and the person entitled under the priority notice obtains the legal position owed to them under the purchase agreement.

Costs and Notarial Obligation

Although the granting and entry of the priority notice of conveyance involves additional costs, it is in the vast majority of cases an indispensable security instrument. It protects the buyer from losing the purchase price, which is normally paid before ownership has been transferred. The notary therefore has a corresponding duty to advise.

Excursus: Protection Against Subsequent Letting?

It is disputed whether the priority notice of conveyance also protects against subsequent letting.

• Under § 566 BGB (“sale does not break lease“), an existing tenancy generally passes to the buyer. It is argued that subsequent letting is equivalent to the retrospective creation of a usufruct or a proprietary right of residence.
• The prevailing view, however, rejects this with reference to the protective purpose of social tenancy law. Unlike a usufruct or right of residence, the acquirer can unilaterally terminate the tenancy by giving notice (albeit under more onerous conditions) (cf. MüKoBGB/Lettmaier, 9th ed. 2023, BGB § 883, para. 65).

Lapse and Deletion of the Priority Notice of Conveyance

The priority notice lapses upon a declaration of cancellation by the person entitled thereunder and deletion from the land register.

It also lapses without a declaration of cancellation and deletion if the secured claim lapses, e.g. through

• Avoidance of the purchase agreement
• Withdrawal from the purchase agreement
• Satisfaction of the secured claim by transfer of ownership in the land register, provided there have been no intervening entries contrary to the priority notice.

As a rule, a real estate purchase agreement therefore also contains a provision whereby, at the time of notarisation, consent to deletion of the priority notice following the transfer of ownership is already granted and applied for – provided no intervening entries have been made to which the buyer has not consented.

Do you have specific questions about the priority notice of conveyance or do you require legal advice?