Background to the decision of the Federal Court of Justice
By decision of April 12, 2023 (Ref.: V ZB 64/21), the Federal Court of Justice (BGH) addressed the question of under what circumstances an insolvency administrator is authorized to have a right of residence entered in the land register in favor of the insolvent debtor on their own property deleted. This ruling has implications for the administration and realization of properties encumbered by the debtor’s right of residence in insolvency proceedings.
Problem: Is the right of residence protected in insolvency?
Overview of rights of residence
The right of residence according to § 1093 BGB grants a specific person the right to reside in a building or part thereof. This is generally a strictly personal right of use, which is neither transferable nor inheritable. In practice, such rights are often used in the context of real estate transfers to grant the former owner or third parties a secured right of residence.
Classification under insolvency law
If insolvency is opened over the assets of the beneficiary, the question arises as to how the right of residence secured in the land register affects the insolvency estate. It must be differentiated whether the right of residence exists in favor of the debtor or third parties and which courses of action are available to the insolvency administrator to ensure the marketability of the property.
Powers of the insolvency administrator
§ 80 InsO: Asset management powers
Pursuant to § 80 (1) InsO, upon commencement of insolvency proceedings, the right to manage and dispose of the assets belonging to the insolvency estate passes to the administrator. The insolvency administrator is obliged to realize these assets in the best possible way for the benefit of the creditors.
The debtor’s right of residence as an obstacle to realization
A right of residence entered in the land register can hinder the sale of the property, as it may significantly reduce the sales proceeds. Against this background, the question arises as to what extent the debtor’s right of residence can itself be ‘realized’ or deleted.
The key issue: Deletion of one’s own right by the insolvency administrator
The BGH had to decide whether the insolvency administrator is authorized to initiate the deletion of a right of residence belonging to the debtor on their own property. This concerns cases in which the debtor, prior to insolvency, established such a right in favor of themselves.
Reasons for the decision by the Federal Court of Justice
Allocation of the right of residence to the insolvency estate
The BGH clarified that the debtor’s right of residence on their own property is to be regarded as an asset belonging to the estate. Under § 80 InsO, the insolvency administrator has the power of administration and disposition—including the authority to cancel or have the right of residence deleted. This can facilitate the realization of the property.
Peculiarities of land register law
In principle, the consent of the beneficiary is required for the deletion of a right of residence. However, since the insolvency administrator replaces the debtor upon commencement of the proceedings, the administrator can now declare the consent to deletion. This applies at least if the right of residence is not otherwise subjectively dependent on rights of third parties or otherwise restricted.
Protection of creditor interests
The decision of the BGH takes into account the protective purpose of insolvency proceedings: maximization of the insolvency estate and equal satisfaction of creditors. A right of residence tied solely to the debtor that benefits only them can obstruct optimal realization and may be removed to safeguard creditor interests.
Practical relevance of the decision
Significance for property realization in insolvency proceedings
The BGH decision provides clarity for insolvency administrators, buyers, and creditors that a right of residence of the debtor in their own property, arising from insolvency, does not stand in the way of free disposal. Properties can thus be realized unencumbered, which can often lead to a considerable increase in value. This is significant both when assessing collateral and within the framework of an insolvency plan.
Distinction from rights of residence for third parties
A distinction must be made if the right of residence is not granted to the debtor, but to another person—such as a spouse or relatives. In such cases, deletion is generally not possible solely by the insolvency administrator, as third-party rights are protected and do not form part of the insolvency estate.
Land register procedure after eligibility for deletion
For the land registry office, the BGH decision establishes a clear line: If an application for deletion of the debtor’s right of residence is submitted by the insolvency administrator and all other requirements are met, the deletion may be recorded.
Outlook and unresolved questions
The BGH decision strengthens the position of the insolvency administrator with regard to assets belonging to the estate and expressly affirms the administrator’s authority to delete strictly personal rights of residence of the debtor in their own property. However, it remains unclear to what extent contractual particularities or subsequent agreements must be taken into account, for example, if the right of residence was granted as security or if complex circumstances exist.
Conclusion
The decision of the Federal Court of Justice of April 12, 2023 is of significant importance for insolvency practice and the realization of properties. It enables more efficient generation of assets by allowing useless encumbrances to be removed in the event of insolvency. For specific legal questions concerning rights of residence in the context of insolvency, attention should be paid to the individual circumstances.
For questions regarding the structuring, administration or realization of properties in the event of insolvency, the experienced lawyers of MTR Legal are available throughout Germany and internationally.
