Every potential buyer of a property should obtain a so-called land register extract from the notary before signing the purchase contract. This provides information about who actually owns the property, whether third parties have rights to the property and to what extent banks or other lenders have security rights.
The owner in section I
in the first section of the land register the current owner is recorded. In addition, one can usually identify the previous owners. This applies in any case as far as the history of the land register sheet goes. If you are interested in the time before that, you have to go to the local land register archive. If necessary, this can easily be done with the help of a written power of attorney from the current owner.
The restrictions on ownership in section II
In Section II, usufruct, easement, succession, seizure by auction or even by insolvency proceedings are registered. Common to all these entries is that they provide information about restrictions on the current owner’s freedom of disposal over the property. In terms of content, easements can mean rights of way or pipeline rights, and subsequent succession can be an indication that the sale of the land plot depends on the consent of third parties. If the property has already been seized by an insolvency administrator or if an open auction procedure is pending, this will be noted in the land register with the consequence that the owner will then also no longer be able to sell the property without further ado.
The encumbrances on the property in section III
in Section III, mortgages (Hypotheken) and land charges (Grundschlden) are recorded in particular. These are security rights. They do not, in principle, restrict the seller’s freedom of disposal over the property. However, the security rights are transferred to the buyer in the event of sale. Since the security rights serve as a credit basis for a loan granted to the seller, the buyer is then liable with the object of purchase for the seller’s regular servicing and repayment of the loan. Since under normal circumstances the purchaser will not be ready to bear such a risk, the sale of the property is normally only carried out under the condition that third party security rights can be completely redeemed from the purchase price in Section III and deleted in the Grundbuch. A part of the purchase price does not then flow to the seller at all, but rather to the creditors secured by land charges or mortgages.
The good faith of the land register
The land registry is not liable for ensuring that the land register actually provides correct information about the rights to the property in every case. Under German law, however, good faith in the contents of the land register is protected in favour of the buyer of a property. In other words, if rights to the property exist but are not recorded in the land register, the buyer can acquire the property free of these rights in the event of a sale, because he was entitled to assume that the contents of the land register were correct and complete when he acquired the property.
Despite the principle of the protection of good faith, risks remain. In particular, many land registrations actually involve rights to an extent which is not easily apparent from the land registry entry. According to the so-called principle of authorisation, the content of a right registered in the land register is not only determined by the content of the land register, but also by the content of the authorising authority that was submitted to the land registry during the registration procedure. A further exception is found in the so-called priority principle. According to this principle, the right applied for first prevails over the right applied for later, even independently of an existing land register entry. It becomes even more complicated if, in connection with existing land register entries, there are uncertainties with regard to the underlying contractual agreements under the law of obligations with property neighbours, the financing banks or other third parties. As a rule, good faith in the land register entries does not help in a dispute over the content of these contractual agreements, even if these agreements refer to land register entries. At this point at the latest, no purchase of land should take place without legal advice.