Understanding partial ownership: What every property owner should know

In the world of real estate, there are many terms and concepts that are important for owners and prospective buyers. One of these concepts, which often raises questions and is sometimes misunderstood, is partial ownership (Teileigentum). But what exactly is hidden behind this term? The significance of partial ownership in the real estate sector is of great importance. It enables the flexible use of real estate and opens up diverse opportunities for both owners and investors. Understanding this concept is therefore essential for anyone who deals more intensively with real estate or is considering investing in partial ownership.

Part-ownership: Legal foundations and distinction from separate ownership

In Germany, partial ownership refers to the exclusive right to use specific non-residential rooms of a building. This is a specific form of ownership that is defined and shaped by various legal principles and statutory regulations.

Legal basis: The main law that establishes the regulations for partial ownership in Germany is the Condominium Act (Wohnungseigentumsgesetz – WEG). The WEG not only provides a clear definition of partial ownership, but also sets out the rights and obligations of partial owners. Pursuant to Section 1 (3) of the WEG, partial ownership is „the ownership in severalty of rooms in a building not serving residential purposes, combined with a fractional share of the common property to which it belongs.“ This means that partial ownership is the exclusive right of an owner to use certain rooms of a property that are not intended for residential purposes. At the same time, the partial owner holds a share in the common property of the building.

Differences between partial ownership and separate ownership: While both terms are often used synonymously, there are clear distinctions between partial ownership (Teileigentum) and separate ownership (Sondereigentum). Separate ownership generally refers to the exclusive possession of specific parts of a property assigned to a particular owner. This can be an apartment, a basement, or an attic. The main characteristic of separate ownership is that it is intended for residential purposes.

Part ownership, on the other hand, refers specifically to rooms that are not intended for residential use. These can be, for example, business premises, garages, storage areas, or other commercially used spaces. Another important difference is that part ownership is always tied to a share of the property's common property, which means that the part owner has rights not only to their specific rooms, but also to the common areas of the building.

It is important to understand the differences between partial ownership and separate ownership, especially for property owners and investors, to ensure they know their rights and obligations regarding their property.

Historical background of partial ownership in Germany

The history of partial ownership in Germany is closely linked to the development of the real estate market and changing social needs over time. The origins of partial ownership can be traced back to the post-war period in Germany. After the Second World War, the country faced the monumental task of rebuilding destroyed cities and infrastructure. There was an acute shortage of housing, and solutions were sought to meet housing demand quickly and efficiently. In this context, the idea emerged to divide larger building complexes into individual units that could be sold or rented independently of one another. This was the birth of separate ownership.

Development of part ownership: With the economic recovery and the growth of cities in the 1950s and 1960s, the demand for commercial space also grew. It was recognized that the concept of separate ownership could also be applied to non-residential spaces. Thus, partial ownership emerged as a special form of separate ownership that related to commercially used spaces.

The Condominium Act (WEG) of 1951 played a decisive role in the legal anchoring and definition of partial ownership. The law established clear regulations for the formation, management, and transfer of partial ownership, thereby contributing to its popularity and acceptance. In the following decades, partial ownership experienced steady development. With the increase in mixed-use real estate, in which residential and commercial spaces were united under one roof, partial ownership became an important instrument for investors and real estate developers.

Partial ownership: Characteristics and differentiation from other forms of ownership

Part ownership is characterized by specific features that distinguish it from other forms of ownership. These features are crucial to fully understanding the concept of part ownership and applying it correctly in practice.

What can be part ownership? Partial ownership can encompass a variety of premises within a building. The most common examples are:

• Business premises: These can be offices, retail spaces, medical practices, or studios. They typically serve commercial or freelance activities.
• Garages: Individual parking spaces or entire garage complexes can be designated as partial ownership.
• Storage areas: Rooms used for the storage of goods or materials.
• Workshops: Rooms in which artisanal or industrial activities are carried out.
• Open spaces: In some cases, undeveloped areas, such as parking lots or garden areas, can also be defined as fractional ownership.

Demarcation from other forms of ownership: While partial ownership is a specific form of special ownership, there are other forms of ownership that must be clearly distinguished from it:

• Separate ownership As already mentioned, separate ownership generally refers to living spaces within a building. It is the exclusive possession of certain parts of a property that are assigned to a specific owner. The main characteristic of separate ownership is its use for residential purposes. Therefore, separate ownership is also referred to as apartment ownership.
• Common property: This refers to parts of a property that are jointly owned by all owners. This typically includes the plot of land, the building's foundation, the roof, the exterior walls, as well as all central supply and disposal facilities.
• Full or sole ownership: This is the exclusive right of an individual or legal entity to own and use a property. Unlike partial ownership or sole ownership, there are no other co-owners.

Prerequisites for the establishment or creation of partial ownership

In principle, the creation of partial ownership follows the legal requirements that are also associated with the creation of separate ownership. Here is a brief insight into the process.

• Intended use: The room or premises must be expressly designated for a non-residential purpose. This can be commercial, industrial, or for other special purposes.
• Self-employment: The space must be capable of being used independently of other parts of the building. This means it must have its own entrance or its own demarcation.
• Work-life balance: The creation of partial ownership must be compatible with the interests of the other co-owners and must not unreasonably impair them.

Procedure for the formation of partial ownership: The creation of partial ownership generally requires a notarized contract between the involved parties. This contract determines the exact conditions and scope of the partial ownership.

Role of the land register: The land register is a public register in which all rights to plots of land and real estate are recorded. When partial ownership is established, a new land register sheet is created in which the partial ownership and the associated rights and duties are entered. This serves legal certainty and ensures that the partial ownership is legally recognized and protected.

The Declaration of Division: The declaration of division is a central document in the creation of partial ownership. It defines which parts of the building are considered as separate property, which as partial ownership, and which as common property. The declaration of division must be notarized and entered in the land register. It generally also contains regulations on the use, management, and maintenance of the partial ownership as well as the distribution of costs.

The formation of partial ownership is a legally complex process that requires careful planning and precise knowledge of legal regulations. Through entry in the land register and the creation of a declaration of division, it is ensured that the rights and obligations of all parties involved are clearly defined and legally protected. A subsequent modification of the declaration of division or the division agreement generally requires the consent of all owners.

Rights and duties of the fractional property owner: use, administration and joint responsibility

Commercial property ownership not only offers advantages and opportunities, but also entails certain rights and obligations. As a commercial property owner, one has both individual and communal responsibilities toward other owners. In this section, we will explain the key rights and obligations of a commercial property owner.

Use of partial ownership:

• Exclusive right of use: The part-owner has the exclusive right to use their premises for the purpose specified in the declaration of division. This can be, in particular, use as an office, warehouse, or workshop.
• Limitations: Although the fractional owner has the exclusive right of use, this use must not impair the rights of other owners or violate legal regulations.

Management and maintenance:

• Personal responsibility The fractional co-owner is responsible for the maintenance and administration of their own premises. This includes regular servicing, repairs, and any necessary modernization.
• Joint responsibility: For measures affecting the entire building or common parts, all owners are jointly responsible. This can concern the maintenance of the roof, the facade, or common facilities.

Joint rights and obligations with other owners:

• Right of co-determination Every co-owner has the right to participate in decisions affecting the community. This can take place via owners' meetings or other agreed-upon mechanisms.
• Cost sharing: Co-owners are required to contribute to the costs of communal measures. This can include, among other things, the cleaning of common areas or major renovation projects.
• Consideration All owners, including part-owners, are obliged to respect the rights and interests of the other owners. This means, for example, that one should not carry out activities that cause noise or endanger the safety of the building.

Sale and Transfer of Partial Ownership: Process, Particulars, and Tax Aspects

The sale of partial property ownership is a significant step that entails both legal and tax implications for both the seller and the buyer.

The process of selling partial property ownership:

• Rating: Before the sale, the commercial unit should be evaluated by an expert or broker to determine the market value.
• Sales offer: After the valuation, the commercial unit can be offered for sale, whether through a real estate agent, online platforms, or other sales channels. The sale is a complex process that should not be underestimated and requires a great deal of expertise.
• Notarial certification: A sale of partial ownership requires a notarized purchase agreement. The notary ensures that all legal requirements are met and both parties understand their rights and obligations.
• Land Register Entry: After conclusion of the purchase agreement, the buyer is registered as the new part-owner in the land register.

Special aspects of selling partial ownership:

• Right of first refusal: In some cases, other owners or the homeowners association may have a right of first refusal. This means they can purchase the partial ownership under the same conditions before it is sold to an external buyer.
• Declaration of Division Potential buyers should carefully review the declaration of division, as it contains important information about the partial ownership and the community.

Tax aspects and fees when selling partial ownership:

• Capital gains tax: If the partial ownership is resold within ten years of purchase, speculation tax may apply. However, there are exceptions, such as if the partial ownership was used for personal purposes. It is advisable to consult a tax advisor before selling to avoid any unpleasant surprises.
• Real estate transfer tax: The buyer generally has to pay real estate transfer tax on the purchase price. The tax rate varies depending on the federal state.
• Notary and Land Registry Fees: Both the seller and the buyer can be responsible for notary and land registry fees. The exact breakdown of these costs is determined in the purchase agreement.

Conclusion

Part-ownership is a central and complex concept in German real estate law. It offers flexible use of real estate and opens up diverse opportunities, but it also entails legal and tax challenges. A deep understanding of the legal principles, the differences from other forms of ownership, and the specific rights and obligations is therefore essential.

When considering selling or purchasing commercial property, one should always seek professional advice to ensure that all aspects are correctly taken into account. In this context, Rogers Immobilien has been operating as a successful real estate agency in Munich and the surrounding area since 2004 and represents the ideal contact person for the sale of commercial property. With their many years of experience and expertise in the real estate market, they are ideally positioned to guide both sellers and buyers through the complex process of commercial property sales.