It happens again and again that unmarried couples wish to acquire real estate together. This raises numerous legal questions: for example, whether to purchase as co-owners in equal shares or as a GbR (German civil-law partnership), how the purchase is to be financed, or how to proceed when the parties contribute differing amounts of equity capital, to name just a few examples.
A partnership agreement (also: articles of association or GbR agreement) is therefore advisable and frequently helps to avoid disputes when several persons jointly acquire and finance real estate – regardless of whether they are married or not.
The following article provides an overview of the most important points in this regard.
What is a partnership agreement in the context of a real estate purchase?
A partnership agreement governs the rights and obligations of the parties involved when several persons jointly purchase real estate. It protects all parties involved against legal and financial risks and ensures clear arrangements – for instance, in the event of withdrawal, separation or sale.
What are important components of a partnership agreement (explained in overview)?
1. Parties involved and ownership structure
o Who is involved?
o How are the parties entered in the land register – as co-owners with a one-half share each, or as a GbR? In the latter case, the shares can then be set out in the partnership agreement.
2. Equity and financing
o Who contributes how much equity?
o Who takes out how much in loans (jointly or individually)?
o How are principal repayments and interest payments allocated? How do the parties envisage the arrangement if, for example, one is the main earner while the other takes care of the children and the household?
3. Ongoing costs
o Who bears which costs for maintenance, insurance, property tax, etc.?
4. Use of the property
o Who lives in the property? Will it be rented out? Will it be used by both parties or only one?
5. Arrangements in the event of dispute / separation / sale
o What happens if the parties separate? Should it be stipulated, for instance, that the party caring for any minor children in such a case may continue to live in the property? If so, on what terms and for how long?
o How is a sale to be handled?
o Is there a right of first refusal?
o How is the valuation to be carried out should there be a dispute on this point?
6. Disposal or death
o What happens to the share if one party dies or wishes to sell?
7. Allocation of profits and losses
o If the property is sold or rented out – how are revenues or losses to be allocated?
Why is a partnership agreement advisable?
• Protection against conflict: Everything is regulated in advance.
• Legal certainty: Oral arrangements are often not legally effective.
• Avoidance of financial risks: For example, where one party pays more but the other is registered as owner of a one-half share in the land register.
An illustrative example:
If two persons are each registered as owners of a 50% share in the land register but only one of them contributed 80% of the equity, a significant financial disadvantage may arise in the event of separation in the absence of a contractual arrangement. A partnership agreement clarifies who contributed what and what they are entitled to.
Optional: What could be recorded by notarial deed?
• The real estate purchase agreement must in any event be recorded by notarial deed.
• The partnership agreement may likewise be recorded by notarial deed (for example, in the case of certain provisions under inheritance law or the law of obligations), but does not necessarily have to be, provided that it does not contain any provisions subject to formal requirements.
Should you wish to draw up a partnership agreement for the acquisition of your property, or require legal advice on other family law matters, attorney Ms Julia Gerstein-Thole will be pleased to assist you.
