skip to Main Content

The importance of having a specialized attorney review a real estate purchase contract ahead of time

  • RA Kuo
  • Immobilienrecht
Beitrag

Why does it make sense to have an attorney review a draft purchase contract and other documents before you buy an apartment or home? In Germany,a notary, who prepares and certifies deeds in accordance with German law, plays a prominent role in carrying out a real estate transaction. Butthere are critical issues that a notary is unable to deal with, and that only a qualified attorney can address.

These issues become clear with a proper understanding of the notary’s role in a real estate transaction. The notary serves an importantfunction, but one that is very limited in scope. A notary is responsible for making sure that an agreement is properly executed in legal andfactual respects – that the buyer becomes an owner and that the seller maintains the purchase price. This is not always a straightforwardprocess, and the notary must take concurrent steps to ensure that the buyer only becomes the owner once the seller receives the purchase price,and vice versa. For example, the notary examines in advance whether the seller is in fact the owner and ensures in the context of thetransaction that a reservation is entered that allows the buyer to receive property without encumbrances. The seller is only then paid thepurchase price once the buyer’s acquisition of the property has been sufficiently secured. The notary is also responsible for answeringquestions that arise during this process and is obliged – either in advance or during the certification process – to clarify the content of thedeed and to explain to both parties the meaning of the individual provisions it contains. This, of course, is all very important, therebyjustifying the notary’s role.

But, for buyers and sellers, this is not enough to ensure more fundamental interests are protected. A notary, for example, is not able to giveadvice on whether a purchase is a good idea in the first place. In fact, by virtue of the notary’s statutorily mandated neutrality, he or sheis prohibited from advising parties on whether the purchase makes sense in economic and practical terms. The notary (unless acting in violationof the law) is not allowed to express any judgment concerning the sale price or to point out possible disadvantages that may pertain to aparticular piece of real estate. For instance, disputes or quarrels involving the apartment owner’s association (membership of which iscompulsory for any apartment buyer) is beyond the purview of a notary and therefore the notary won’t volunteer to bring up such issues ahead ofa transaction. Yet, a review of logs from apartment owner’s meetings – even seemingly trivial details about a seller’s attendance and votingrecord — can reveal a great deal about the condition of a particular property and can help indicate whether there are impending or future costsassociated with a property that are not indicated on the draft contract.

Further problems can arise due to common notarial practice of using standardized forms when creating draft contracts. On one hand, there’snothing objectionable about this practice, since the required neutrality creates an obligation to generate a balanced and fair contract forboth parties. But, because of the frequent use of standardized forms, both parties have an incentive to optimize a purchase contract to fittheir desires. Inevitable changes to the contract leave a great deal of room for negotiation about the details. If, for example, the buyer in aparticular transaction wishes to have a right of withdrawal in place (e.g., „the purchase price will not be paid within four weeks of the duedate“), and the other party agrees the to the change despite being disadvantaged by it, a notary is obliged to include the line in the deed.
Yet, the notary would not volunteer to insert such a provision, since it would violate the required neutrality. There are additional provisionsa notary won’t bring up, but which could prove beneficial for either party. For instance, having pre-installed kitchens and furniture includedin the sale price may result in a lesser amount going in to calculate the real estate transfer tax. However, such provisions must becommunicated to the notary; otherwise, they won’t be included.

For these reasons, it’s advisable to have an experienced attorney supplement the work of a notary and comb through a draft contract in order tolook for red flags, to search for ways the draft can be optimized and, if necessary, to start negotiations with the other party. It’s alsoworth keeping in mind that, even if the sale price is attractive and other parameters of a contract appear to be advantageous, there are otherpossible negatives that a qualified lawyer can detect. For instance: Do you want to be part of a living community in which there is constantlegal wrangling, as might be indicated from the apartment owner’s association meeting notes? Such an issue would be completely irrelevant tothe purchase contract, and it would therefore be wise to have an attorney check more records that just the draft contract itself.

Even if, ultimately, a hoped-for deal falls through, I believe a bad end is far better than bad news without end. The investment it takes tohire a qualified attorney to spot potential warning signs, when taken in relation to the sale price and the likelihood of future troubleaverted, is in my view money very well spent.

Back To Top