Due Diligence - Investing in German Real Estates

Before you Buy:

Depending on the size of the investment a research (due diligence) should be undertaken. Therefore independent technical and legal advice shall be preferred than relying on the words of the estate agent or even the vendor. The price needs to be verifiedby checking the location, the technical standard of the building, upcoming repairs, the title and the lease contracts.

Any rental contracts are to be examined. The actual rental situation has to be examined carefully. Especially so-called non-payers amongst the tenants have to be verified. Non-payment rates can be as high as 20-25% sometimes in bad areas. Furthermore only the contract will tell the buyer who has to carry service charges and repairs in the apartments. By law the rent includes the costs for water, sewage, garbage, house keeping etc as well as the cost for painting the apartment. Only with a valid agreement in the contract, these costs can be forwarded to the tenant and the standards for a valid agreement are quite high at the German courts. A void agreement could result in a 30% lower rent. Learn more about the German lease law.

Any renovations or repairs of damages need to be checked into. The ground sometimes is wet and the house needs to be dried out in the cellar area which can become expensive. The roof should be checked by an expert or a good eye before buying. Age of the heating system is a very important point. Lots of restrictions and new laws have been passed over the last years. New standards have been set that must be met until 2005. It might be necessary to renew the whole heating system by then if it is older than 15 years.

Looking for a condominium the evaluation of the minutes of the annual owners meetings ist crucial. Any and all problems relating to the house community and the house itself which may incur future costs will be discussed in these meetings and will be reflected in the annual meeting report which needs to be done by the house manager responsible for holding these meetings. Even if you are quite fluent in German: these papers are written in German legal language which is even for natives hard to understand. Learn more about the German condominium act.

Due Diligence in General:

Persons involved in investing, buying, selling, lending, and managing commercial estates real such as whole commercial house but also single condominiums routinely need to perform a variety of types of commercial property due diligence. Due diligence is a term used for a number of concepts involving either an investigation of an investment (real estate or business) prior to signing a contract. A common example of due diligence is the process through which a potential acquirer evaluates a target real estate assets for acquisition


Together with our partners we provide for our clients who want to invest in German real estates a full due diligence, including legal and technical facts.

Legal Due Diligence:

As a law firm our work is focused on the legal work. A common due diligence in a commercial property (or a condominium) transaction includes securing a title insurance policy regarding the ownership of the property and the encumbrances to which it is subject, and requiring the owner to secure an attornment from each tenant establishing agreement as to lease terms currently in force. Under German lease laws (German Civil Code sec. 535 following) the wording of the contract decides if the landlord or the tenant has to cover the service charges or the repairs of the estate. This fact can have a impact on the profitability calculation of the whole deal. Under the provision of sec. 566 German Civil Code the acquisition of a property gives no right to the buyer to terminate an existing lease agreement with the tenant.

A must for condominiums is checking the resolutions of the owners meeting since they are binding for every buyer, however the resolution was made before aquiring ownership. Especially the existence of any resolutions regarding special levies or assessments applicable to the property shall be investigated.

For bigger real estates it can be sensible to research the zoning laws applicable to the property, building code compliance of the premises, and the sales price history of the property.

Technical Due Diligence:

By our partners an engineering or property condition assessment (PCA) which would include a review of building systems to evaluate deferred maintenance items that can materially affect the operation and value of a property. Building systems would include the foundation, roof, electrical, plumbing, and building envelope (windows and walls). One result of the report is often a cost table showing the immediate and necessary future repairs and their associated costs. These reports are good for negotiating the price of a property as well as financial planning.