The International Comparative Legal Guide to:

A practical cross-border insight into real estate law

Published by Global Legal Group with contributions from:

Attorneys-at-Law Project Law Ltd BKA Attorneys at Law Brulc Gaberščik & Partners, Law Firm, Ltd. BSA Ahmad Bin Hezeem & Associates LLP Cordero & Cordero Abogados Cushman & Wakefield Gianni, Origoni, Grippo, Cappelli & Partners Greenberg Traurig Grzesiak sp.k Greenberg Traurig, LLP GSK Stockmann Gürlich & Co. Hogan Lovells Howard Kennedy Konečná & Zacha Kubes Passeyrer Attorneys at Law

Machado, Meyer, Sendacz e Opice Advogados Maples and Calder Meyerlustenberger Lachenal AG Nishimura & Asahi Norton Rose Fulbright South Africa Inc. Osler, Hoskin & Harcourt LLP PAV Law Offices Prieto Cabrera & Asociados SRL Ropes & Gray LLP Shepherd and Wedderburn LLP Simon Reid-Kay & Associates Tirard, Naudin Toronto CREW Tughans Ziv Lev & Co. Law Office

13th Edition

Real Estate 2018

ICLG

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The International Comparative Legal Guide to: Real Estate 2018

General Chapters:

Country Question and Answer Chapters:

1 Real Estate Joint Ventures: New Paradigm or Passing Fashion? – Iain Morpeth, Ropes & Gray LLP 1

2 Serviced Offices: The Changing Face of the Real Estate Market – Rebecca Davison & Nicky Stewart, Howard Kennedy 5

3 Toronto CREW and an Outlook on the Canadian Market for 2018 – Rosalyn Wallace, Toronto CREW & Stuart Barron, Cushman & Wakefield 9

4 Austria Kubes Passeyrer Attorneys at Law: Dr. David Kubes & Mag. Marko Marjanovic 12

5 Brazil Machado, Meyer, Sendacz e Opice Advogados: Maria Flavia Candido Seabra & Fatima Tadea Rombola Fonseca 20

6 Canada Osler, Hoskin & Harcourt LLP: Heather McKean & Stella Di Cresce 30

7 Costa Rica Cordero & Cordero Abogados: Hernán Cordero B. & Rolando Gonzalez C. 43

8 Czech Republic Gürlich & Co.: JUDr. Richard Gürlich, Ph.D. & Mgr. Kamila Janoušková 53

9 Dominican Republic Prieto Cabrera & Asociados SRL: Aimée Prieto 60

10 England & Wales Ropes & Gray International LLP: Carol Hopper & Partha Pal 70

11 Finland Attorneys-at-Law Project Law Ltd: Matias Forss & Sakari Lähteenmäki 81

12 France Tirard, Naudin: Maryse Naudin & Jean-Marc Tirard 89

13 Germany GSK Stockmann: Olaf Jacobsen & Sascha Zentis 99

14 Hong Kong Simon Reid-Kay & Associates: Simon Reid-Kay & Leslie Kaczmarek 109

15 India PAV Law Offices: Kiron Prabhakar & Navin B. Singh 119

16 Ireland Maples and Calder: Diarmuid Mawe & Craig Kenny 129

17 Israel Ziv Lev & Co. Law Office: Moshe Merdler & Ziv Lev 143

18 Italy Gianni, Origoni, Grippo, Cappelli & Partners: Davide Braghini 153

19 Japan Nishimura & Asahi: Hideaki Ozawa & Yujin Gen 163

20 Northern Ireland Tughans: David Jones & Luke Thompson 175

21 Poland Greenberg Traurig Grzesiak sp.k.: Agnieszka Stankiewicz & Barbara Pancer 183

22 Scotland Shepherd and Wedderburn LLP: David Mitchell & Scott Ritchie 192

23 Slovakia Konečná & Zacha: Mgr. Vladimír Kordoš, LL.M. 205

24 Slovenia Brulc Gaberščik & Partners, Law Firm, Ltd.: Damijan Brulc & Marjetka Kenda 216

25 South Africa Norton Rose Fulbright South Africa Inc.: Pieter Niehaus 224

26 Spain Hogan Lovells: Emilio Gómez Delgado 233

27 Switzerland Meyerlustenberger Lachenal AG: Wolfgang Müller & Christian Eichenberger 243

28 Turkey BKA Attorneys at Law: Göktuğ Can Burul & Onur Atakan 251

29 UAE BSA Ahmad Bin Hezeem & Associates LLP: John Peacock 258

30 USA Greenberg Traurig, LLP: Christina Braisted Rogers 268

Contributing EditorIain Morpeth, Ropes & Gray LLP

Sales DirectorFlorjan Osmani

Account DirectorOliver Smith

Sales Support ManagerToni Hayward

Senior EditorsCaroline Collingwood & Suzie Levy

Chief Operating OfficerDror Levy

Group Consulting EditorAlan Falach

PublisherRory Smith

Published byGlobal Legal Group Ltd.59 Tanner StreetLondon SE1 3PL, UKTel: +44 20 7367 0720Fax: +44 20 7407 5255Email: info@glgroup.co.ukURL: www.glgroup.co.uk

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Printed byAshford Colour Press LtdDecember 2017

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ISBN 978-1-911367-86-4ISSN 1749-4745

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DisclaimerThis publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice.Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication.This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

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Chapter 13

GSK Stockmann

Olaf Jacobsen

Sascha Zentis

Germany

2 Ownership

2.1 Are there legal restrictions on ownership of real estate by particular classes of persons (e.g. non-resident persons)?

In Germany there are no specific legal restrictions on ownership. Every natural or legal person is generally entitled to acquire and own real estate.

3 Real Estate Rights

3.1 What are the types of rights over land recognised in your jurisdiction? Are any of them purely contractual between the parties?

Regarding full ownership (Volleigentum) of real estate, German law differentiates between several titles of real estate. The most important kinds of such titles are co-ownership (Miteigentum), hereditary building rights (Erbbaurechte) and condominium owenership (Wohnungs-/Teileigentum). Besides these kinds of titles, German law recognises different rights in rem regarding real estate. The most important rights in rem are limited personal easements (beschränkte persönliche Dienstbarkeit), ground easements (Grunddienstbarkeiten), usufruct rights (Nießbrauchsrecht), registered leases (Dauernutzungsrecht), pre-emptive rights (Vorkaufsrecht), land charges (Reallasten), mortgages (Grundschulden), accessory mortgages (Hypothek) and annuity land charges (Rentenschulden). Generally, it is also possible to solely agree on contractual rights regarding a real estate; however in this case the rights do not provide an in rem effect.

3.2 Are there any scenarios where the right to a real estate diverges from the right to a building constructed thereon?

Under German law, ownership of land and ownership of buildings constructed thereon generally coincide. However, current German law recognises two scenarios in which the ownership of land and the ownership of the building constructed on the land differentiate: the first scenario is a hereditary building right in terms of the Hereditary Building Rights Act. In case of a hereditary building right, the beneficiary of the hereditary building right is the owner of

1 Real Estate Law

1.1 Please briefly describe the main laws that govern real estate in your jurisdiction. Laws relating to leases of business premises should be listed in response to question 10.1. Those relating to zoning and environmental should be listed in response to question 12.1. Those relating to tax should be listed in response to questions in Section 9.

The German real estate law is mainly governed by the Civil Code (Bürgerliches Gesetzbuch), the Hereditary Building Rights Act (Gesetz über das Erbbaurecht) and the Condominium Act (Gesetz über das Wohnungseigentum und das Dauerwohnrecht). The formal part is, inter alia, governed by the Notarisation Act (Beurkundungsgesetz) and the Land Registration Act (Grundbuchordnung). For certain kinds of regulated investors (such as investment management companies or insurance companies), special legal provisions, e.g. the Capital Investment Act (Kapitalanl-agegesetzbuch) or Insurance Supervisory Act (Gesetz über die Beaufsichtigung der Versicherungsunternehmen) apply for their investments in real estate.

1.2 What is the impact (if any) on real estate of local common law in your jurisdiction?

In Germany, an extensive codified legal system exists. Therefore, common law does not have a significant impact on the German real estate law. However, judgments of the higher regional courts (Oberlandesgerichte) and of the federal court (Bundesgerichtshof) are regularly taken into account regarding the interpretation of legal provisions.

1.3 Are international laws relevant to real estate in your jurisdiction? Please ignore EU legislation enacted locally in EU countries.

In general, international laws are not applicable to German real estate law. However, in case that one of the parties to a real estate transaction is governed by foreign law, this may have an impact on certain formalities.

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4.6 On a land sale, when is title (or ownership) transferred to the buyer?

The legal title is transferred to the buyer upon proper registration of the transfer of title in the land register. In general, the parties to a purchase agreement contractually agree that the application for the respective registration of ownership is not transmitted to the land register before payment of the purchase price. The maturity of the purchase price is regularly subject to a couple of conditions precedent, e.g. the registration of a priority notice of conveyance (Auflassungsvormerkung) in favour of the buyer or a waiver of the municipal pre-emption right (Negativatest zum gemeindlichen Vorkaufsrecht). Following the payment of the purchase price, the transfer of possession, benefits and burdens/risks (Übergang von Besitz, Nutzungen und Lasten) takes place and the notary files the application for transfer of title with the competent land register. The registration process itself could take a couple of weeks or even months.

4.7 Please briefly describe how some rights obtain priority over other rights. Do earlier rights defeat later rights?

The priority of registered rights is generally determined by the order and time of the registration. The priority of rights registered in each division of the land register depends on the timely order of registration whereby the rights are registered in order of the filing of the respective application for registration. However, by contractual agreement it is also possible to register different rights with the same rank. Moreover, the beneficiary of a right may also agree to step back in rank in favour of another right.

5 The Registry / Registries

5.1 How many land registries operate in your jurisdiction? If more than one please specify their differing rules and requirements.

In Germany, no central land register exists. The land registers are an organisational part of the lower courts (Amtsgerichte). Each land register is responsible to keep the register for the properties located within its district. However, the rules applying for the different land registers are identical throughout Germany as they are codified in the Land Registration Act which is a federal law.

5.2 Does the land registry issue a physical title document to the owners of registered real estate?

No. The land register does not issue a physical title document. However, it is possible to obtain an excerpt from the land register.For certain kinds of mortgages and accessory mortgages, so-called mortgage/accessory mortgage certificates (Grundschuldbrief/Hypothekenbrief) are issued; this does not apply to the more usual book-entry mortgages and accessory mortgages.

5.3 Can any transaction relating to registered real estate be completed electronically? What documents need to be provided to the land registry for the registration of ownership right? Can information on ownership of registered real estate be accessed electronically?

No. This is currently not possible. The registration in the land register in Germany is still a paper-based procedure. However, in certain districts there are pilot projects for an electronic land register.

the building, but the land is owned by the grantor of the hereditary building right; and the second scenario is a building that has only been constructed for temporary use by a person exercising a right over that land. This structure is often found in connection with wind power plants which are erected for a certain time on the basis of an easement.

3.3 Is there a split between legal title and beneficial title in your jurisdiction and what are the registration consequences of any split?

German law does not have a split between legal and beneficial title.

4 System of Registration

4.1 Is all land in your jurisdiction required to be registered? What land (or rights) are unregistered?

Generally, all land is registered. However, the law stipulates certain exceptions, e.g. for land belonging to public entities and churches, and for streets, waterways and railroad tracks.

4.2 Is there a state guarantee of title? What does it guarantee?

In Germany, no state guarantee of title exists. However, the land register is deemed to be correct and complete (“public faith in the land register”) so that any person can generally rely on the correctness and completeness of the land register unless the person knows about the incorrectness or incompleteness or an objection has been registered against an entry. Public faith does not apply to the description of the property; especially not to its size.

4.3 What rights in land are compulsorily registrable? What (if any) is the consequence of non-registration?

All titles and all rights in rem have to be registered. In case of a non-registration, the right does either not come into effect or does not have any in rem effect.

4.4 What rights in land are not required to be registered?

Sole contractual rights (such as lease agreements) are neither required to be registered nor can be registered. Moreover, certain statutory rights and restrictions under civil or public law do not have to be registered (e.g. pre-emptive rights under the public building law).

4.5 Where there are both unregistered and registered land or rights is there a probationary period following first registration or are there perhaps different classes or qualities of title on first registration? Please give details. First registration means the occasion upon which unregistered land or rights are first registered in the registries.

Probationary periods as well as different classes or qualities of registration do not exist.

GSK Stockmann Germany

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Legal and tax advisors will also be entrusted by the parties. If the seller decides to sell the asset by way of a structured bidding process, it is more and more common that the legal advisors of the seller prepare a legal fact book to facilitate the bidding process. Usually, also the sale and purchase agreement is drafted by the seller’s advisors. Real estate brokers and investment banks are also a common part of such a sale process.

6.2 How and on what basis are these persons remunerated?

Notaries are remunerated according to the statutory provisions of the Code on Court and Notary Costs (Gerichts- und Notarkostengesetz). Even if legal and tax advisors are usually remunerated by hourly fees, it is more and more common that the parties agree on lump sum fees or caps. Real estate brokers and investment banks usually agree on a lump sum calculated as a percentage of the deal volume.

6.3 Do you feel there is a noticeable increase in the availability of capital to finance real estate transactions in your jurisdiction, whether equity or debt? What are the main sources of capital you see active in your market?

Capital flows into real estate in Germany remain very strong: in 2017, acquisition levels have already matched the already very high levels of 2016 and 2015. Activity on the buyer-side continues to be dominated by open-ended real estate funds/special funds. Approximately 50% of capital is invested by foreign investors, especially foreign private equity funds or sovereign wealth funds. We have also seen a large number of high-net-worth individuals and family offices providing equity or mezzanine capital.

6.4 What is the appetite for investors and developers in your region to look beyond primary real estate markets and transact business in secondary or even tertiary markets? Please give examples of significant secondary or tertiary real estate transactions, if relevant.

The trend for investment in development projects is likely to continue, underpinned by robust economic growth, increasing take-up, declining vacancy and market conditions largely in favour of landlords. Very low yields show no sign of softening. Former B-Cities as, for example, Nuremberg seem very attractive.

6.5 Have you observed any trends in particular market sub sectors slowing down in your jurisdiction in terms of their attractiveness to investors/developers? Please give examples.

Even if some argue we could now be at the peak of the cycle, we see no slowing down of activity. With investors still looking to maintain or increase their allocation to property, we believe this will keep yields at their current low levels in the year ahead.

7 Liabilities of Buyers and Sellers in Real Estate Transactions

7.1 What (if any) are the minimum formalities for the sale and purchase of real estate?

Any sale and purchase agreement for real estate needs to be

In order to be registered as new owner of a property, at least the following documents are required:■ notarised conveyance of ownership (Auflassung);■ declaration by the competent public authorities that either a

statutory pre-emptive right does not exist or is not exercised; and

■ clearance notice by the relevant tax authority regarding the payment of the real estate transfer tax.

In certain cases, further documents may be required (e.g. approvals of certain authorities if the property is located within certain urban areas; approval of the depositary or the trustee if the property is held by an investment fund or an insurance company).In nearly all cases it is possible to have electronic access to the land register extracts; however, there is no electronic access to the land register files (Grundakten).

5.4 Can compensation be claimed from the registry/registries if it/they make a mistake?

In case of mistakes made by the land register, compensations can only be claimed on the basis of the so-called government authority liability (Amtshaftung). Generally, claims on the basis of the government authority liability are difficult to enforce as the legal requirements for such claims are strict.

5.5 Are there restrictions on public access to the register? Can a buyer obtain all the information he might reasonably need regarding encumbrances and other rights affecting real estate?

The land register is generally not publicly accessible. The inspection of the land register is only permitted for the owner of a property, for those persons who either have been granted a power of attorney by the owner of the property and for persons who have a legitimate interest for the inspection of the land register. The legitimate interest has to be based on objective reasons and has to be proved towards the land register or towards the notary who shall grant access to the land register. The access for persons who claim a legitimate interest can and has to be limited to such information which is relevant in view of the claimed interest. Generally, the interest in acquiring a property is not a sufficient legitimate interest for an access to the land register. In real estate transactions it is usual that either the seller provides an up-to-date extract from the land register or that the seller grants to the buyer a power of attorney to inspect the land register.

6 Real Estate Market

6.1 Which parties (in addition to the buyer and seller and the buyer’s finance provider) would normally be involved in a real estate transaction in your jurisdiction? Please briefly describe their roles and/or duties.

If the transaction is concluded as an asset deal or a share deal involving a German GmbH (Limited Liability Company), notarisation of the sale and purchase agreement is mandatory. In Germany, notarisation takes place before a notary public. The notary also supervises the satisfaction of conditions precedent to the validity of the agreement and the maturity of the purchase price and will file the necessary declarations with the public register for the transaction to become effective.

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land register. The notary is under an obligation to check the land register shortly before the notarisation so that the buyer would be aware if the seller is not registered or if there has been an objection made against the ownership of the seller. In case the seller is not yet registered as the owner at the time of the sale, the seller would usually warrant ownership in the purchase agreement. Also, in case of a share deal it is common that the seller warrants to be the owner of the shares.

7.6 What (if any) are the liabilities of the buyer (in addition to paying the sale price)?

Besides the obligation to pay the purchase price, the buyer usually has to pay the transaction-related costs of the notary and the land register (other than those arising in connection with the deletion of existing mortgages) as well as the real estate transfer tax. Moreover, the buyer may have the obligation to initiate or to support the merger control procedure if the transaction is subject to merger control.

8 Finance and Banking

8.1 Please briefly describe any regulations concerning the lending of money to finance real estate. Are the rules different as between resident and non-resident persons and/or between individual persons and corporate entities?

The German Civil Code contains the main regulations regarding real estate law, loan contracts and the respective security. The Banking Act (Kreditwesengesetz) contains regulatory rules regarding lending business and bank supervision. There are no different rules for resident and non-resident persons, but there are substantial differences for loans granted from corporate entities to consumers (“consumer loans”).

8.2 What are the main methods by which a real estate lender seeks to protect itself from default by the borrower?

The typical security package for a real estate lender comprises land charge(s), rental assignments, assignments of insurance claims and often account pledges, share pledges and assignments of third party guarantees. In case of real estate project financings, the security package usually also contains assignments of claims against contractors and the agreement of step-in rights to main project contracts.

8.3 What are the common proceedings for realisation of mortgaged properties? Are there any options for a mortgagee to realise a mortgaged property without involving court proceedings or the contribution of the mortgagor?

The lender is entitled to realise the mortgage by way of enforced administration (collecting the rents) and/or enforced sale (sale by way of public auction). The lender typically obtains the enforcement title (vollstreckbarer Titel) as part of the mortgage deed so that no additional court proceedings are required in this respect. The enforced administration and enforced sale are conducted by the court in accordance with the Compulsory Auction of Immovable Property Act (Zwangsversteigerungsgesetz).

notarised. The sale and purchase agreement has to contain all agreements between the parties regarding the sale of the property; side agreements may lead to an invalidity of the sale and purchase agreement. The declaration of transfer has to be made in front of a notary; this declaration is usually included in the sale and purchase agreement; however, it could also be declared in a separate notarial deed. In addition, the transfer of the property has to be registered in the land register.

7.2 Is the seller under a duty of disclosure? What matters must be disclosed?

The Civil Code does not explicitly provide any duties of disclosure. However, based on the principle of good faith, which under German law is a generally applying provision, the German courts have deduced a duty of disclosure for sellers. Generally, the seller is obliged to disclose all information which is of significance for the reasonable buyer’s decision to acquire the property and which the buyer may expect to be disclosed by a seller under the usual commercial practice (e.g. disclosure of hidden defects, known environmental contaminations, missing building permits, disputes regarding the property).

7.3 Can the seller be liable to the buyer for misrepresentation?

Yes, the seller can be liable for misrepresentation. This applies especially in case of wilful or gross negligent misrepresentations, but also for cases of simple negligence. Especially in a market situation in which the demand exceeds the offer, sellers often try to limit the liability for simple misrepresentation; however, this is generally not accepted by buyers.

7.4 Do sellers usually give contractual warranties to the buyer? What would be the scope of these? What is the function of warranties (e.g. to apportion risk, to give information)? Are warranties a substitute for the buyer carrying out his own diligence?

The scope of warranties depends on various factors such as the market situation, the location and situation of the property and the quality of the documents and information provided by the seller in the due diligence. Generally, sellers try to exclude contractual warranties as far as possible; however, it is common that the seller accepts certain warranties. This applies especially to tax-related issues and to the non-transfer of employees. Warranties relating to the non-existence of encumbrances and lease agreements and to public law matters and environmental issues, are typical. Most purchase agreements contain limitations of liability. Warranties are a means to apportion the risks.Warranties do not substitute a proper due diligence, as it is unlikely that the buyer can reach far-reaching warranties in the purchase agreement. Moreover, most purchase agreements exclude warranty claims of the buyer if the buyer could have been aware of the underlying risks by performing a due diligence.

7.5 Does the seller warrant its ownership in any way? Please give details.

In Germany, it is generally not necessary to grant a warranty regarding ownership, as the buyer can rely on the correctness of the

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9 Tax

9.1 Are transfers of real estate subject to a transfer tax? How much? Who is liable?

The transfer of real estate situated in Germany is subject to real estate transfer tax (RETT; “Grunderwerbsteuer”) pursuant to the real estate transfer tax act (RETT Act; “Grunderwerbsteuergesetz”). RETT has to be paid for the transfer of real estate, for the transfer of at least 95% of the interests in a partnership within five years (if the partnership holds real estate) and for transactions of the interests of companies (if the company holds real estate). The tax rate depends on the federal state where the real estate is located. The tax rate currently varies from 3.5% (Bavaria and Saxony) to 6.5% (Brandenburg, North Rhine-Westphalia, Saarland and Schleswig-Holstein). The tax is to be calculated according to the value of the consideration. In case of an asset deal, the consideration is the purchase price. Normally, the purchaser and the seller are liable for the payment of RETT; however, the parties are able to contractually stipulate that RETT shall be borne only by one of the parties (usually by the purchaser). In case of a change of the partnership of a real estate holding partnership, the partnership itself is liable for the payment of RETT. In case of transactions of the interests of real estate holding companies, the legal entity which holds the economic exposure is liable for the payment of RETT.

9.2 When is the transfer tax paid?

A transfer of real estate has to be notified to the local tax office. The obligation applies to the purchaser, the seller, the courts, the authorities and the notary. After notification, the local tax office will issue a tax assessment notice. The purchaser will not be registered in the land register until the tax office has issued that RETT was paid. RETT becomes due one month after announcement of the tax assessment notice. Generally, RETT arises upon conclusion of the sale and purchase agreement (i.e. payment of the purchase price is not necessary). If the transfer of real estate is subject to the occurrence of a condition precedent, RETT arises upon fulfilment of the condition. In case of the transfer of at least 95% of the interests in a real estate holding partnership, RETT arises upon the transfer of partnership interests. In case of RETT-able transactions of the interests of companies, RETT arises upon fulfilment of the statutory articles.

9.3 Are transfers of real estate by individuals subject to income tax?

If an individual holds the real estate as part of his private assets for a period of 10 years or less, income from the sale of the real estate is subject to income tax and the solidarity surcharge (“Solidaritätszuschlag”). The tax rate depends on the individual tax rate of the seller (maximum 47.475%). If an individual holds the real estate as part of his private assets for a period of more than 10 years, the sale of the real estate is income tax-free. The transfer of real estate could be subject to trade tax (TT; “Gewerbesteuer”), if three or more properties are sold within a period of five years. The tax rate depends on the municipality and currently varies from 7% to 18%. If an individual holds the real estate as part of his business assets, income from the sale of the real estate is subject to income tax (tax rate maximum 47.475%). Additionally, the sale is subject to trade tax. There will be no trade tax if the taxpayer is able to fulfil the prerequisites of the extended trade tax deduction. A non-resident is not subject to TT if he does not have a permanent establishment in Germany.

8.4 What minimum formalities are required for real estate lending?

In general, there are no special formalities for loans; however, land charges need to be notarised and registered in the land register. Furthermore, consumer loans need to be in writing and contain special revocation rights.

8.5 How is a real estate lender protected from claims against the borrower or the real estate asset by other creditors?

The lender as the land charge beneficiary is granted preferential treatment vis-à-vis the unsecured creditors even in cases of pending insolvency proceedings. Proceeds from the realisation of the land charge are disbursed to the land charge beneficiaries in the order of the ranking of the land charges or mortgages registered in the land register.

8.6 Under what circumstances can security taken by a lender be avoided or rendered unenforceable?

The acts of any person including the creation and enforcement of security as well as the creation and enforcement of other creditors’ rights and remedies are subject to the legal principles and limitations generally applying to finance and other agreements and their enforcement under German and foreign law. Any agreement or creditor’s rights arising therefrom may, therefore, be invalid, voidable or unenforceable (in whole or in part) under the applicable bankruptcy, insolvency, moratorium, liquidation, fraudulent conveyance, creditor protection or other legislation of general application, in particular the German Act of Avoiding Transactions (Anfechtungsgesetz) or the German Insolvency Code (Insolvenzordnung/InsO). Enforcement of security interest will not necessarily be enforced in all circumstances in accordance with the terms of security documents, in particular under the applicable insolvency laws, e.g.:■ Under Section 166 (2) of the Insolvency Code, the security

agent (Sicherheitennehmer) may be barred from enforcing the receivables assigned to it and the insolvency administrator has the right to realise receivables assigned by way of security on behalf of the security agent.

■ In the case of realisation of such receivables by the insolvency administrator, the insolvency administrator may deduct his costs of determination and realisation from the proceeds of enforcement.

Where the insolvency administrator waives such right of realisation in favour of the security agent, the security agent is nevertheless obliged to transfer to the estate out of the enforcement proceeds an amount equal to the costs of determination as well as the amount of any value added tax, if applicable (Section 171 (2) of the Insolvency Code).

8.7 What actions, if any, can a borrower take to frustrate enforcement action by a lender?

The borrower may delay the process by disputing court valuations in the course of the enforced sale or commence insolvency proceedings to increase enforcement costs (see details above).

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(“Abgabenordnung”). The purchaser could be liable for so-called operational taxes (“betriebliche Steuerschulden”) and withholding amounts (“Steuerabzugsbeträge”) due from the seller. The purchaser can also be held liable for land taxes in respect of the property. Therefore, the purchase agreement should contain indemnities in favour of the purchaser. Real estate could contain some operating facilities. These operating facilities should be identified. Otherwise, the non-identification poses the risk of excessive RETT and VAT. Additionally the lease of operating facilities could jeopardise the extended trade tax deduction.

10 Leases of Business Premises

10.1 Please briefly describe the main laws that regulate leases of business premises.

The Civil Code provides for the authoritative regulations regarding leases of any kind, also including special statutory provisions with respect to the law of General Terms and Conditions (Recht der Allgemeine Geschäftsbedingungen). Further special statutory provisions besides the Civil Code exist, such as the regulation of operating expenses (Betriebskostenverordnung) or the regulation on price clauses (Preisklauselgesetz), the latter stipulating the legitimacy of indexation clauses.

10.2 What types of business lease exist?

Any kind of business premises can be subject to a lease pursuant to the Civil Code including commercial interim leases with respect to residential leases. This also includes usufructuary leases (Pachtverträge) where the tenant is also entitled to enjoy the fruits of the lease object as income under the rules of proper management.

10.3 What are the typical provisions for leases of business premises in your jurisdiction regarding: (a) length of term; (b) rent increases; (c) tenant’s right to sell or sub-lease; (d) insurance; (e) (i) change of control of the tenant; and (ii) transfer of lease as a result of a corporate restructuring (e.g. merger); and (f) repairs?

(a) Term: Business leases in general provide for a fixed term together with the tenant’s right to prolong the lease by a fixed term as stipulated in the lease agreement. The maximum term of a lease is limited by the Civil Code to 30 years. A lease agreement has to comply with the requirements of written form (Schriftform) pursuant to Sec. 550 Civil Code if its fixed term exceeds one year.

(b) Rent increases: In general, business leases provide for an indexation of the rent linked to the development of the consumer price index. Such indexation is only valid if the lease is binding for the landlord for at least 10 years (it is sufficient if the fixed term and tenant’s potential prolongation options together exceed a term of 10 years) and if increases and decreases of the rent are covered equally. Alternatively, stepped rents are also – but more rarely – common business practice.

(c) Tenant’s right to sell or sub-lease: Statutorily the tenant is not entitled to sub-lease without landlord’s prior consent. Such consent must not be withheld without good reason. Otherwise the tenant might be entitled to extraordinarily terminate the lease. The tenant’s obligation to request the landlord’s prior consent can be contractually waived. The tenant’s right to terminate the lease can only be waived by way of a particular contractual regulation (Individualvertraglich) and not by way of general terms and conditions.

9.4 Are transfers of real estate subject to VAT? How much? Who is liable? Are there any exemptions?

If the transfer of real estate is qualified as transfer of a business as a whole, it is not subject to VAT. In the case that the transfer of real estate is qualified as supply of real estate, it is VAT-exempt. However, the seller usually may opt for the application of VAT and waive the VAT-exemption for the part of the real estate which is used for sales which do not exclude input tax deduction. The tax rate is 19%. Due to the reverse charge procedure, the purchaser is liable for VAT. However, the purchaser is able to deduct input tax. Therefore, VAT is a pass-through item.

9.5 What other tax or taxes (if any) are payable by the seller on the disposal of a property?

If the seller of the real estate is an individual, there should be no taxes other than income tax (plus the solidarity surcharge and church tax) and RETT. The tax rate depends on the individual tax rate of the seller.If the seller is a partnership, the transfer of real estate should be subject to income tax (plus the solidarity surcharge) and trade tax (if the partnership is not able to fulfil the prerequisites of the extended trade tax deduction.If the seller is a corporation, the transfer of real estate should be subject to corporate income tax (CIT; “Körperschaftsteuer”) plus the solidarity surcharge. The total tax rate is 15.83%. Furthermore, the seller is subject to TT.

9.6 Is taxation different if ownership of a company (or other entity) owning real estate is transferred?

In case of transfers of real estate by the transfer of shares of a real estate holding company, RETT become due if 95% or more of partnership interests in a real estate holding partnership are directly or indirectly transferred to new partners within a period of five years (Section 1 Para. 2a RETT Act). If only 94.9% of the partnership interests in a partnership are transferred to new partners within a period of five years, RETT will not be triggered in the case at hand. After the five-year period, the outstanding 5.1% of the partnership interests could be transferred; nevertheless, RETT will be due on this 5.1%, but the transfers of 94.9% of the interests are RETT-free.Furthermore, in case of transfers of real estate by the transfer of shares of a real estate holding company, RETT becomes due if 95% or more of (corporation) shares or (partnership) interests in a real estate holding company are directly or indirectly transferred (Section 1 Para. 3, 3a RETT Act).

9.7 Are there any tax issues that a buyer of real estate should always take into consideration/conduct due diligence on?

If the transfer of real estate is qualified as transfer of a business as a whole, the purchaser will continue the legal position of the seller for VAT purposes. Therefore, the purchaser assumes existing periods that are relevant for the adjustment of input VAT claimed by the seller. The purchaser needs a necessary documentation within the meaning of Sections 15a Para. 10, 22 Para. 4 Value Added Tax act (VAT-Act, “Umsatzsteuergesetz”). Furthermore, if the transfer of real estate qualifies as transfer of a business as a whole, there is a high probability that the transfer will also qualify as a transfer of a business within the meaning of Sec. 75 general tax code

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such obligations assumed by the buyer/new landlord. The former landlord also remains liable regarding pre-sale non-compliance. The same applies for the tenant.The old landlord can gain release from its “post-sale liability” if it informs the tenant of the transfer of ownership after the registration of such change in the land register. The liability is released in such case if the tenant does not terminate the respective lease at the earliest possible opportunity.Such release does not encompass the old landlord’s liability regarding rent securities assumed by the buyer.

10.7 Green leases seek to impose obligations on landlords and tenants designed to promote greater sustainable use of buildings and in the reduction of the “environmental footprint” of a building. Please briefly describe any “green obligations” commonly found in leases stating whether these are clearly defined, enforceable legal obligations or something not amounting to enforceable legal obligations (for example aspirational objectives).

The market has not yet developed a “green lease” standard. However, the Civil Code and a number of lease agreements cover “green” issues. The Civil Code, for example, provides for regulations according to which the landlord is entitled to conduct modernisation measures with respect to energetic modernisation, to reduce the use of non-renewable energies or to reduce consumption of other resources, etc.

11 Leases of Residential Premises

11.1 Please briefly describe the main laws that regulate leases of residential premises.

The Civil Code provides for the authoritative regulations regarding residential leases. Further special statutory provisions besides the Civil Code exist, such as the regulation of operating expenses (Betriebskostenverordnung).

11.2 Do the laws differ if the premises are intended for multiple different residential occupiers?

No such statutory regulations exist.

11.3 What would typical provisions for a lease of residential premises be in your jurisdiction regarding: (a) length of term; (b) rent increases/controls; (c) the tenant’s rights to remain in the premises at the end of the term; and (d) the tenant’s contribution/obligation to the property “costs” e.g. insurance and repair?

(a) Residential leases in general provide for an unlimited term. Limited terms are only permissible within the scope of statutorily defined reasons (Zeitmietvertrag).

(b) An adjustment of the rent is only permissible within the scope defined according to the Civil Code; e.g. indexation according to the consumer price index, a stepped rent or an increase in rent up to the reference rent customary in the locality.

(c) In general, there are no specific provisions in a lease agreement stipulating a right of the tenant to remain in the premises at the end of the lease term.

(d) Operating expenses can contractually be transferred to the tenant. This is regularly done by referring to the regulation of operating expenses (Betriebskostenverordnung).

(d) Insurance: Generally business leases stipulate the landlord’s obligation to provide for property insurance (Sachversicherung) and building liability insurance (Gebäudehaftpflicht). Tenants regularly have to provide for public liability insurance with respect to the conducted business (Betriebshaftpflicht).

(e) (i) Change of control of the tenant: regulations with respect to a potential change of control on tenant’s side are rather unusual; and (ii) Transfer of lease as a result of a corporate restructuring: leases are statutorily transferred in such cases. Additional regulations are accordingly scarce.

(f) Repairs: Statutorily the landlord is obliged to provide maintenance of the lease object on his own expenses. The parties are entitled to deviate from this principle within the framework of legal admissibility. Regarding the majority of business leases, the obligation to maintain the lease object – exclusively used by the tenant – (including minor repairs) is generally transferred to the tenant at its own cost. Maintenance and repair of the roof and structure generally remains with the landlord.

10.4 What taxes are payable on rent either by the landlord or tenant of a business lease?

The rent of real estate is generally exempt from VAT. However, the landlord might waive the tax-exemption and opt to pay VAT if and insofar the tenant is an entrepreneur for VAT purposes who uses (or intends to use) the real estate to generate turnover which does not exclude the deductibility of input tax. Please note that the landlord might be obliged to correct claimed input taxes if and insofar as he leases real estate which was leased with a waiver of the tax-exemption in the past, without such a waiver in the future.

10.5 In what circumstances are business leases usually terminated (e.g. at expiry, on default, by either party etc.)? Are there any special provisions allowing a tenant to extend or renew the lease or for either party to be compensated by the other for any reason on termination?

The parties are entitled to terminate a business lease within the statutory termination periods if the lease has been conducted for an indefinite term or if – in case of a potential fixed term – the lease agreement does not comply with the written form (see question 10.3 (a)). A lease agreement with a fixed term can only be terminated in case of default as provided by statutory regulations (e.g. Civil Code). In case a party is in default regarding a lease agreement, it might also be obliged to compensate the other party in case of any damages relating to or following the default. A statutory prolongation right of the tenant does not exist. Anyhow, contractual prolongation options in favour of the tenant are common business practice.

10.6 Does the landlord and/or the tenant of a business lease cease to be liable for their respective obligations under the lease once they have sold their interest? Can they be responsible after the sale in respect of pre-sale non-compliance?

A lease agreement is statutorily transferred to the buyer as per registration of the buyer as a new owner in the land register. The buyer/new landlord assumes the rights and obligations arising under the lease agreement for the time of its ownership. The former landlord remains liable – like a guarantor (Bürge) – regarding

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12.5 Are building/use permits and licences commonly obtained in your jurisdiction? Can implied permission be obtained in any way (e.g. by long use)?

In case a construction measure complies with the relevant planning and building law, a permit must be granted. This permit is granted irrespective of neighbouring rights determined under civil law.

12.6 What is the appropriate cost of building/use permits and the time involved in obtaining them?

The costs related to a permission procedure are governed by state law (e.g. Baugebührenordnung Berlin). The absolute costs depend on the extent of the construction measure. In principle, the time to obtain a building permit also depends on the extent of the construction measures which shall be realised.

12.7 Are there any regulations on the protection of historic monuments in your jurisdiction? If any, when and how are they likely to affect the transfer of rights in real estate?

Each state has governed the law of monumental protection within the Monument Protection Acts (Denkmalschutzgesetze). Besides requiring a mandatory permit to change or remove a protected monument under the applicable Monument Protection Act, construction measures in the neighbourhood of a protected monument may also require a permit under the applicable Monument Protection Act.

12.8 How can e.g. a potential buyer obtain reliable information on contamination and pollution of real estate? Is there a public register of contaminated land in your jurisdiction?

The state laws provide a public register of contaminated land. During the standard legal and environmental due diligence procedure, an excerpt from this register is applied for to gain reliable information on (potential) contamination issues.

12.9 In what circumstances (if any) is environmental clean-up ever mandatory?

It depends on the individual case whether an environmental clean-up is mandatory. In principle, the competent authority may, inter alia, obligate the polluter and the current legal owner of a property to remediate if, with a sufficient degree of probability in an unhindered course of events, the current situation will result in damage.

12.10 Please briefly outline any regulatory requirements for the assessment and management of the energy performance of buildings in your jurisdiction.

Based on the Energy Saving Ordnance (Energieeinsparverordnung), energy certificates assess the energy performance of a building. These certificates include information on the energy performance compared to other buildings and on the energy source used for heating. In principle, energy certificates are mandatory within the transfer of a property.

11.4 Would there be rights for a landlord to terminate a residential lease and what steps would be needed to achieve vacant possession if the circumstances existed for the right to be exercised?

The landlord’s rights to terminate a residential lease are statutorily restricted. To achieve vacant possession – if the lease has been validly terminated – the landlord has to legally enforce an eviction order by the competent court.

12 Public Law Permits and Obligations

12.1 What are the main laws which govern zoning/permitting and related matters concerning the use and occupation of land? Please briefly describe them and include environmental laws.

Public planning law is determined by federal law and mainly governed within the Federal Building Code (“Baugesetzbuch”) and the Federal Ordinance on Land Use (“Baunutzungsverordnung”). These laws determine the zoning and planning requirements a construction project must comply with. Besides, the relevant building law is governed within federal state law, mainly within the Building Ordinances (“Landesbauordnungen”). These regulations refer to requirements concerning the actual construction. The relevant environmental law is governed within federal and state laws. On the one hand, the Federal Soil Protection Act (“Bundesbodenschutzgesetz”) aims to protect and restore the soil’s function. On the other hand, this federal law is supplemented by state laws.

12.2 Can the state force land owners to sell land to it? If so please briefly describe including price mechanism.

In principle, expropriation measures (“Enteignung”) can be permissible under certain, strict requirements. As a consequence of the right of property, which is governed in Art. 14 GG, such expropriation must be determined by statutory law. According to Art. 14 GG an expropriation may only be justified if the public interest overrides the interest of those affected. If this prerequisite is met, the legal owner must be indemnified by the state via remuneration payments.

12.3 Which bodies control land/building use and/or occupation and environmental regulation? How do buyers obtain reliable information on these matters?

As a consequence of the federal state system, the competent bodies to control the land/building use and/or occupation and environmental regulation are in general the local/municipal building or environmental authority.

12.4 What main permits or licences are required for building works and/or the use of real estate?

The required permits are in general determined by state law. In principle, any construction measures, change of use or removal measures require a building permit. For certain measures which are determined by statutory state law, the state laws also govern exceptions from this principle, e.g. for minor changes. Nevertheless, this exception does not release the builder from his duty to comply with the relevant planning and building law.

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13.2 Are there any national greenhouse gas emissions reduction targets?

Germany aims to cut greenhouse gas emissions by 40% by 2020, 55% by 2030, 70% by 2040 and 95% reduction by 2050, compared to 1990 levels. In addition, the share of renewables in gross final energy consumption is to rise to 60% by 2050. Renewables are to make up a minimum of 80% of the country’s gross power consumption by the middle of the century.

13.3 Are there any other regulatory measures (not already mentioned) which aim to improve the sustainability of both newly constructed and existing buildings?

For example, there are various energy efficiency requirements imposed by the Energy Saving Ordinance. The objective of these requirements is to save energy consumption in buildings that are both newly constructed and already existing. The Ordinance contains provisions on building energy performance certificates. The certificates provide guidance to tenants and buyers informing them of the energy-related data of the building.

13 Climate Change

13.1 Please briefly explain the nature and extent of any regulatory measures for reducing carbon dioxide emissions (including any mandatory emissions trading scheme).

Germany assumed the obligation to reduce greenhouse gas emissions as a contractual party to the Paris Agreement. There are various national regulations and incentive programmes to achieve the reduction of greenhouse gas emissions, e.g. the Renewable Energies Act (Erneuerbare-Energien-Gesetz) and the National Climate Protection Initiative. Germany’s electricity supply is becoming “greener” every year as the contribution made by renewable sources is constantly growing. In 2016, renewable energy already covered roughly 29% of gross electricity generation (total volume of electricity generated in Germany).

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Olaf JacobsenGSK StockmannTaunusanlage 2160325 FrankfurtGermany

Tel: +49 69 710003-0Email: olaf.jacobsen@gsk.deURL: www.gsk.de

Sascha ZentisGSK StockmannTaunusanlage 2160325 FrankfurtGermany

Tel: +49 69 710003-0Email: sascha.zentis@gsk.deURL: www.gsk.de

Olaf Jacobsen is a Local Partner in GSK Stockmann’s Frankfurt office and a member of the Real Estate Practice Group. With 12 years’ experience as a transaction counsel, his practice focuses on the representation of real estate investors encompassing all aspects of German and cross-border real estate transactions (share and asset deals, portfolio transactions). His practice also involves the set-up of transaction structures and processes as well as corporate real estate matters. Before joining GSK he spent several years with two international law firms.

Olaf Jacobsen specialises in real estate transactions with a focus on advising German investment companies (Kapitalverwaltung-sgesellschaften) and open-ended funds, including regulatory and investment law matters regarding real estate transactions in Germany. A further focus of his practice is the consultancy of clients regarding asset management.

GSK Stockmann is a leading independent law firm in Germany and Luxembourg, focusing on real estate, corporate, banking/finance and projects & public sector. Today, more than 160 lawyers and tax advisers work at our offices in Berlin, Frankfurt, Hamburg, Heidelberg, Munich and Luxembourg and regularly advise on national as well as cross-border transactions.

GSK Stockmann has one of the largest real estate teams, comprising more than 80 lawyers to advise international and domestic clients on the great diversity of real estate issues like real estate transaction and financing, project development, private and public construction, investments funds and tax-driven investment structures, asset management, joint ventures as well as crisis management, real estate restructuring and notarial services.

Our clients range from open-ended and closed-end funds, to banks, insurance companies, pension funds, project developers and construction companies, public sector and international asset managers as well as providers of private equity and opportunity funds. GSK Stockmann focuses on sectors like infrastructure and energy, hotel and leisure, healthcare and student housing as well as on real estate capital markets and investment funds.

For cross-border transactions and international projects, GSK works closely with a select group of highly respected partner law firms abroad. www.gsk.de

Sascha Zentis is an Equity Partner in GSK Stockmann’s Frankfurt office and member of the Real Estate and Banking Practice Groups. With 14 years’ experience as a lawyer and four years as a notary, his practice focuses on the representation of professional real estate investors and on advising regulated investment companies as well on real estate as investment law matters.

Sascha Zentis specialises on advising German investment management companies (Kapitalverwaltungsgesellschaften) in terms of the German Capital Investment Act and open-ended funds.

GSK Stockmann Germany

59 Tanner Street, London SE1 3PL, United KingdomTel: +44 20 7367 0720 / Fax: +44 20 7407 5255

Email: info@glgroup.co.uk

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