A transfer agreement (“Überlassungsvertrag”) is a notarised agreement whereby real estate is transferred by way of gift or in parts by way of gift. Transfer agreements are used, for example, when real estate assets are to be passed on to the next generation within the family. The motives may be tax-related or may be based on the desire for a planned succession. Like all real estate contracts, a transfer agreement must be notarised. Since this type of contract can cover different scenarios and purposes, the provisions vary and must be adapted to each individual case. The following section presents typical motives and provisions that may be included in a real estate transfer agreement.

1. Typical use cases for a Real Estate Transfer Agreement

There are various reasons why a transfer agreement might be considered, and the motives may overlap:

• Gifts/partial gifts: The most common use case for a transfer agreement is gifts or partial gifts of real estate within the family or to persons close to the family. 

• Inheritance Law: The transfer of real estate can be part of succession planning or an overall inheritance plan, e.g. by way of avoiding compulsory portion claims, as consideration for a waiver of the compulsory portion or a waiver of gift agreement. 

• Tax Law: Tax allowances can be utilised by transferring real estate. In the case of valuable real estate, it is also possible to make tax-efficient staggered transfers in tranches, making regular use of allowances (so-called allowance management).

• Social Security Law: Finally, considerations arising from social security law also come into play. Since social security institutions can access private assets to cover care costs, for example, attempts are made to minimise these claims by transferring real estate assets.

2. Common provisions in a Transfer Agreement

The notarisation of a transfer agreement is always preceded by an analysis of the purposes pursued and the preparation of a draft agreement tailored to these purposes. Important aspects include the reservation of possible rights by the transferor, possible consideration or ancillary obligations of the transferee, and the transferee’s rights of recovery: 

• Reservation of rights of use: When transferring a property, a right of use (“Nutzungsrecht”) may be reserved in favour of the transferor. This is particularly conceivable if the transfer is to be made primarily for tax reasons, but the benefits of using the property are to continue to accrue to the previous owners or if they wish to continue living in the property. In such cases, it is conceivable, for example, to reserve a usufruct, a right of residence, a right of habitation or a life annuity. When reserving such rights, it is particularly important to consider who is responsible for maintenance in this case and how to deal with possible construction measures or renovation work. The reservation of rights of use results in a reduction in the value of the transferred property for tax purposes. It is particularly advisable to consult a tax advisor in such cases, especially if gift tax allowances are to be observed in the context of the property transfer.

• Payment obligations/consideration/ancillary obligations: Transfer agreements usually provide for the transfer of the property as a pure gift or the transfer of the property by way of a partial or mixed gift (purchase price below market value or other consideration). Other considerations and ancillary obligations are also conceivable. For example, a property transfer may be part of a comprehensive succession plan, which provides, for example, for the gifted property to be credited against the donee’s share of the inheritance or for a partial or complete waiver of the statutory share in respect of the gift. Care agreements (“Pflegevereinbarungen”) are also being concluded in consideration for the transfer of the property.

• Right of Recovery: Another relevant issue concerns the possible reclaim of the real estate. It is not mandatory to include such right of recovery in a transfer agreement. However, it often makes sense to do so in order to secure the property in predefined exceptional cases. 

Often, one or more of the following rights of recovery come into play:

• Resale of the property against the wishes of the donor
• Insolvency/foreclosure of the donee
• Premature death of the donee 
• The property gives rise to compensation claims in the context of equalisation of accrued gains in the event of divorce of the donee 
• Gross ingratitude on the part of the donee 
• Accrual of (unplanned) gift tax 

When reserving rights of recovery, it should be ensured that these do not conflict with other interests of the transfer (e.g. tax law). In addition, it must be considered how the transfer can actually be reversed (e.g. dealing with possible benefits of use). In order to reliably secure the rights of reclaim, it is also advisable to register a priority notice of re-transfer. Otherwise, these rights may effectively become void.

Conclusion

A property transfer agreement offers a flexible way to transfer real estate while responding individually to the needs of the parties involved. The specific provisions of the agreement will depend on the respective objectives and the legal and personal situation of the parties involved. It is therefore advisable to seek advice in advance in order to have the agreement drafted in accordance with your own ideas and objectives.