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Land Registry
Table of Contents

The land register is a public register for which the legal presumption of its absolute accuracy and completeness applies. What is recorded in the land register is therefore of utmost importance for the owners as well as for the creditors and holders of other rights.

Table of Contents

What is a land register?

It is a register with three divisions, which are explained below. There is a hierarchy within these registers. The rights in Division II take precedence over the rights in Division III, unless otherwise agreed in individual cases and also recorded in the land register. There is also a hierarchy within the departments. In case of doubt, the higher-ranking rights suppress the following entries. For example, in the event of a foreclosure auction, the priority secured claims are serviced first. In case of doubt, the subordinated land charges are lost.

Anyone who enters into financing secured by a mortgage should know that they are actually entering into three independent liabilities. The loan agreement is one thing. A land charge is then agreed upon, which can be enforced even if you no longer have any liability at all, or if the land charge does not secure the existing liability. The third contract is the security purpose declaration. It determines which specific claim of the creditor the mortgage is liable for.

German legal practice allows the property to be enforced solely on the basis of the mortgage deed. The fair ones do not check whether the creditor or holder of the deed actually has a claim against the owner of the property. The courts also do not examine whether a declaration of security purpose exists and what its contents are. Rather, the owner was advised that he could bring an action to prevent enforcement. This is very expensive and usually takes longer than foreclosure proceedings. This highly unsatisfactory situation is unlawful in any case when the owners are consumers. This is what the European Court of Justice decided. But the lower German courts don't care about this; If in doubt, as a consumer you have to take the matter to the Federal Court of Justice. Such a procedure is currently underway and can only be invoked in the instance of a higher regional court.

Land Register Department I

In Department 1 of the land register, the property is listed with the description of the location in the city or municipality, location register number, parcel number, completely unimportant field name (e.g. “Won Deer look“), size and type of property. This is generally considered “true”, even if it is obviously false, for example because of the type of property “Factory property“, But there has long been no factory there because it was demolished. The entry "Construction site“ does not mean that you can ever build on the property. This already shows how antiquated and backward the land register is, and how unsuitable the legal presumption of truth is. 

If former rental properties on a property are converted into condominiums, a new, separate land register is created for each of these apartments instead of the former land register for the apartment building. The basis is the so-called declaration of division, which has a written and a graphic part. Both parts were certified by a notary and submitted to the land registry office. Neither the notary nor the land registry office check whether the apartments have already been built or still exist as shown in the drawings. Nobody checks the living space, according to which the shared costs are divided according to the written part. Nobody checks whether the space under the roof, which was previously planned as a dry storage facility, has not since been converted into a chic loft. Nobody checks how the cellar or garden is designed and used. However, everyone entitled to a property, be it the owners or creditors, can rely on the fact that the condition recorded in the declaration of division is created. 

In addition to the name of the property, the owners are registered in the first section of the land register. It is very important to work towards meticulously identifying the owners and, in the case of companies, their location and composition. This is also in view of the fact that the registered persons not only have rights, but may also be liable for liabilities of which they were previously unaware.

Who can be the owner?

The owner can be any natural person; A newborn child can also be the owner of a property or a share in the property, for example because his grandfather gave him a building site when he was born or because he was already an heir before his birth. Owners can also be several natural or legal persons who do not own the property or condominium as a company (GbR), but rather hold co-ownership shares or fractional ownership. The owner can also be any domestic or foreign company. This can also be a legal entity (e.g. Limited, GmbH, SE, REIT) or a partnership (e.g. GbR, OHG, KG). A community of heirs can also be registered as owners. 

Communities of heirs and partnerships as well as co-ownership communities must either be in absolute agreement or establish their ability to act through a notarized power of attorney. Otherwise, problems arise, among other things, when selling if someone does not have the time or desire to participate in the sale of the property. There are cases where the notarial purchase contract had to be reversed because in the end consent was not given for whatever reason. 

Ownership of the property always includes ownership of everything that is firmly connected to the property. This applies not only to the building standing on it, but also to the permanent fixtures within it, including the fitted kitchen. The trees and other plants in the ground, the outdoor areas including the fence are also connected to the ownership of the property. Ownership also gives rise to corresponding obligations, for example to protect against damage caused by falling branches, etc.

Rent property

Only the owner or owners can rent out a property. For tax purposes, the income is attributed to the owner. If there are several natural or legal persons, the income is determined uniformly for all owners in a tax return to be submitted specifically for this purpose, but each owner is allocated a share based on his or her shareholding, which is included in the personal tax return. Neither is responsible for the other's taxes, even if they are spouses. If the property is rented or leased subject to VAT, then the community is the owner of the VAT entrepreneur and is therefore liable for the VAT. With regard to sales tax, each co-owner is personally liable for the full amount of tax. 

Ownership of the property and the building only falls apart if a hereditary building right is established or apartment ownership or partial ownership is established within a building.

Land register department II

The conveyance notice is entered in this department when purchasing a property. It remains in effect until all requirements for the transfer of ownership have been met and the notary or the previous owner has given the land registry office permission to transfer the ownership. The conveyance notice therefore serves as a security measure so that, on the one hand, the owner cannot sell the property again, but on the other hand, he does not lose his property before he is certain of the purchase price. The beneficiary listed in the notice of conveyance, ie the future owner, can request the transfer on his own initiative if he can prove that he has fully fulfilled his obligations. This is important, among other things, when purchasing a condominium from a developer to whom payments have already been made. The conveyance notice is also secure in the event of the previous owner or developer becoming insolvent. Although registration costs additional fees, it should not be avoided.

List of building loads

Most, but not all, real encumbrances on the property or a co-ownership share are also recorded in the second section of the land register. Not listed, but important for development and use Construction loads in favor of neighboring properties are not entered here, but in a separate building encumbrances register. At least that's how it is in most federal states. In Bavaria, building encumbrances are also entered in Section II of the land register. Brandenburg had a similar regulation for a time, which is still reflected in the land registers in old cases. The directory kept in the other federal states Construction loads contains the public law obligations to tolerate or refrain from certain actions by the property owner. For example, a property may be burdened by a construction burden that means the owner has to tolerate crossing to another property, distances from neighbors must be maintained, or conversely an exemption has been granted. Walking rights, rights of way and management rights can also be entered in Section II of the land register.

Right of residence - right of usufruct - right of first refusal

This section also includes residential rights, usufruct rights and pre-emption rights. Anyone who acquires a property that contains entries in Section II of the land register assumes these burdens from the previous owner. The owner can have these encumbrances deleted if the obligation has expired because the beneficiary is no longer alive or has declared in the necessary form, usually in a notarial document, that he no longer exercises his right. Caution is advised if the person entitled to a usufruct right, for example, agrees to the deletion but receives nothing in return. This is then a taxable gift from the (new) owner to the beneficiary. If the donor cannot pay the gift tax, then the donor and therefore the owner owe the tax.

Leasehold

Division II also contains the obligations arising from one Leasehold registered. These can only be appointed to the first rank; According to the respective state law, the rank can only be changed in exceptional cases if the rights that then apply do not endanger the existence of the hereditary building right.

For the hereditary building right, a second land register is created on the part of the beneficiary. This is then a property-equivalent right, which is entered there in the inventory in Section I. In Section I, it is not the owner who is named, but rather the person entitled to the leasehold. The ground rent and other rights and encumbrances with the exception of mortgages are entered in Section II of this land register. Like a piece of land, the leasehold can also be encumbered with mortgages in Section III.

Land register section III

Mortgages, land charges and pension debts are entered in this section. This should not be confused with loans, as these are not recorded anywhere in the land register. While a registered mortgage is strictly dependent on the existence of the loans secured by the mortgage, this does not apply to the land charge.

Nevertheless, the mortgage remains in effect even after the loans have been paid off in full Land Registry  registered. However, it turns into a hidden owner's mortgage. By granting one Cancellation approval The owner can convert this into an open owner's mortgage. Mortgages are rarely registered in Germany; banks prefer land charges.

mortgage

The way food is mortgage is a charge based on a notarized Land charge deed is entered in Section III of the land register. Unlike the mortgage, the land charge is not dependent on the existence of a liability or loan. Therefore, a land charge can be enforced and a compulsory auction can be carried out even if the owner owes nothing to the holder of the land charge or if there is an obligation but the land charge cannot be used as security for this claim.

The mortgage is registered with a certain amount, which usually corresponds to the original loan. In addition, the mortgage is expanded by “One-off costs" and "annual interest“ of 10, often even 15%. and more. This does not mean that such high interest rates have to be paid on the loan. However, it means that the mortgage is already on the first day for the “one-time costs“and also increased interest rates. If a mortgage is for 100.000 euros plus one-off costs of 10.000 euros and 15% interest per annum, then after four years the mortgage amounts to 170.000 euros.

Submission Clause

The land charge deed is usually supplemented by a submission clause. A distinction must be made between material and personal subjection to compulsory enforcement. Most of the time both will be “vereinbart“i.e. presented to the owner for notarization.

  1. Foreclosure in rem
    this works against the respective owner of the property 
    and refers to the property and its accessories.
  2. Personal enforcement
    This acts personally against the debtor or debtors named in the document, who by no means have to be identical to the borrower and also do not have to be identical to the owner. Subjection to personal enforcement applies to all assets.

This means that enforcement cannot be carried out immediately from the land register, but from the notarial deed. It is not necessary to establish that the owner owes anything at all to the holder of the mortgage deed and, if so, whether this claim is due. The only way to defend yourself is to file an enforcement action. Because of the high value of the property, the legal and court costs are so high that many people cannot afford to defend themselves. In any case, you first have to find a lawyer who is familiar with this area of ​​law. By the time the anti-execution action is filed, the enforcement process will probably have long since ended. The German courts don't help you at all, even though the European Court of Justice has made a very clear ruling. More on that later.

Security Agreement - Security Purpose Declaration

In order for a mortgage to be legally considered as security for a loan, a separate security agreement is required, also known as Declaration of security purpose, or. "Declaration of intended purpose“. This is not notarized and is not entered in the land register. But it is absolutely important and must be kept safe. Only in this declaration, which is actually a security agreement, is it regulated by which mortgage and in what order it is intended as security for which specific claim. However, the declaration of security purpose per se does not help to ward off foreclosure. When ordering enforcement, the courts do not check whether there is a claim at all; Consequently, they do not care about the question of whether the mortgage deed from which enforcement is being carried out was created to secure a claim.

The belief that this security mortgage is only liable for liabilities from the concluded loan agreement is only true if it is a “close security agreement. However, if the text states that the mortgage is liable for all current and future obligations of the debtor towards the holder of the mortgage (who does not have to be the same as the lender), then it is referred to as one widen Security agreement.

Exception

The Federal Court of Justice (BGH) declared the clause that the mortgage is liable for all existing and future claims against the borrower to be “surprising” and therefore ineffective if the third security provider, who was not the borrower, did not have to reckon with liabilities that were established later. 

Can be entitled to one and the same mortgage different Security declarations can be agreed. Then, according to the case law of the BGH, the latest one always applies. The old ones expire and do not come back to life even if the last agreement has become invalid. However, the omission of a security declaration (SE) does not lead to the mortgage being deleted. However, if there is no SE, the owner is entitled to consent to the deletion or transfer to himself or to another person.

Jürgen Bächle
Jurgen Bachle

has been working as an independent tax consultant and expert in international tax law since 1989 and has been a member of the board of the German Association of Tax Consultants Baden-Württemberg, DSTVBW, for over 20 years.

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