Definition and legal classification of the transfer agreement
Ein Transfer Agreement is a civil law contract which plays a particularly important role in asset succession between living persons. The aim of a transfer agreement is to transfer assets—such as plots of land, real estate, agricultural businesses or company shares—to another recipient, usually a family member. The agreement regularly contains detailed provisions regarding consideration, for example in the form of care, usufruct, residential rights, or other rights retained by the transferor.
The transfer agreement differs significantly from a gift, purchase contract, and inheritance contract, as it typically combines elements of voluntary transfer with contractually agreed duties for both parties. Legally, it is considered an atypical contract with obligations under the law of obligations and, in the case of real estate transfers, with components of property law.
Areas of Application for the Transfer Agreement
Transfer Agreement in Family and Inheritance Law
In family law, the transfer agreement primarily serves to effect the anticipated succession. Here, a person transfers assets—often a house, farm, or business—already during their lifetime to descendants. The aim is to ensure the continued existence and preservation of the asset within the family, and at the same time, the provision for the transferor can be arranged.
Compared to straightforward inheritance or gifts, the transfer agreement allows for a wide range of structuring options, in particular:
- Reservation of residential rights
- Usufruct rights in favor of the transferor
- Agreement on care or maintenance services
- Rights of reclamation for certain circumstances (e.g. sale of the object by the acquirer)
- Consideration in the form of lifelong pensions
Transfer Agreement for Agricultural Businesses
The transfer agreement is of particular importance in agriculture, as land and businesses are often intended to remain in family ownership. In rural areas, transfer agreements regulate not only the transfer of ownership, but often also the business succession, pension and provision rights for the older generation, and the compensation of excluded heirs in the context of farm succession laws.
Legal Structuring of the Transfer Agreement
Formal Requirements
The validity of a transfer agreement depends on the assets being transferred. The transfer of real estate or land is subject to notarization pursuant to § 311b BGB. In the case of movable assets, there is no special form required; nevertheless, a written document is also recommended here for clarification of the agreements.
Besides notarization, in cases of land and real estate, subsequent conveyance and registration in the land register are required to legally effect the change of ownership.
Contract Contents
Transfer agreements are regularly complex and individually designed. The central contents include:
- Subject Matter of Transfer: Exact specification of the assets to be transferred (real estate, business assets, company shares, bank balances, etc.)
- Consideration: Frequently care services, pension payments, assumption of obligations, or monetary payments to the transferor or other parties.
- Reservation Rights: Especially usufruct, residential right, rights of use, or rights of reclamation.
- Allocation of Liabilities: Regulation of liabilities, taxes, fees, or repair obligations.
- Compensation of Third Parties: Equalization payments to excluded heirs, if applicable.
- Withdrawal and Reversal Provisions: Definition of conditions under which the transferor can reclaim the transferred asset (for example, in cases of sale, insolvency of the transferee, or serious misconduct).
Distinction from Other Legal Instruments
Transfer Agreement and Gift
Although the transfer outside the case of inheritance is often made without consideration, the transfer agreement differs from a gift particularly due to the agreement of extensive consideration and reservation rights. It is not a pure donation as it can impose various obligations.
Transfer Agreement and Inheritance Contract
Unlike the inheritance contract, which only becomes effective upon the death of the testator, in the transfer agreement, the assets are transferred to the acquirer during the lifetime of the transferor. This also distinguishes the transfer agreement from statutory and testamentary inheritance.
Transfer Agreement and Purchase Contract
The purchase contract is strictly aimed at a transfer of assets in return for payment, usually without further obligations in favor of the seller such as care or usufruct. The transfer agreement frequently includes additional personal service obligations.
Tax Aspects of the Transfer Agreement
The transfer of assets within the framework of a transfer agreement can have various tax law consequences:
- Inheritance and Gift Tax: If the transfer is made free of charge or partially for consideration, relevant allowances and specific tax rates must be observed. Benefits such as usufruct reduce the assessment basis.
- Real Estate Transfer Tax: In transfers within the family (especially between parents and children), a tax exemption may apply.
- Income Tax and Speculation Period: Profits from the transfer of real estate may be subject to tax, especially if the speculation period of ten years has not yet elapsed.
- Value Added Tax (VAT): As a rule, private individuals are not subject to VAT, but in the case of business transfers, a transfer of a business as a whole may exist.
Revocation and Reversal of the Transfer Agreement
Transfer agreements are often provided with rights of reclamation. These can be triggered for various reasons, such as:
- Non-performance or defective performance of care and provision duties
- Sale of the contract object contrary to the agreement
- Filing of insolvency for the acquirer
- Predeceasing of the acquirer
Withdrawal or reversal generally requires a clear contractual arrangement. If such is lacking, reversal can only occur under strict conditions—for example, in cases of fraudulent misrepresentation or serious misconduct—on the basis of general rights of withdrawal or if the basis of the contract ceases to exist.
Effects on Other Heirs and the Compulsory Share
If assets are transferred during one’s lifetime by means of a transfer agreement, this may have consequences for the compulsory share, since gifts and transfers inter vivos generally trigger the right to a compulsory share supplement pursuant to § 2325 BGB. The amount of the supplement claim decreases with each year following the transfer (tapering model: 10-year period).
The compulsory share must therefore be considered when drafting the transfer agreement, especially if there are additional children or a spouse.
Conclusion
The transfer agreement is a versatile and complex instrument for asset transfer under German civil law. Its scope of application mainly covers anticipated inheritance, family-internal business and real estate transfers, as well as the regulation of provision and consideration for the transferor. The complex legal, tax, and practical structuring of the transfer agreement requires careful planning and precise consideration of individual circumstances and legal consequences, especially with regard to compulsory shares and reclaim clauses. With the right structure, the transfer agreement offers tailored opportunities for intergenerational asset transfer, taking into account all relevant civil and tax law aspects.
Frequently Asked Questions
Who must sign the transfer agreement?
A transfer agreement must generally be signed by all contracting parties who are affected by the transfer of the relevant rights or assets. In the case of real estate, agricultural businesses or companies, this usually means that both the transferor (e.g. current owner or previous business owner) and the transferee (e.g. successor, buyer, or recipient) must sign in person. Special care is required for legal entities or partnerships: Here, the authorized representatives—such as managing directors, executive board members, or authorized partners—must sign. In cases of restricted legal capacity (e.g. minors or persons under guardianship), the consent of the legal representative and, where applicable, the approval of the family court must be obtained. In relation to spouses, relevant approvals should be observed, especially where joint assets or the family home are being transferred (so-called ‘consent pursuant to § 1365 BGB’).
What formal requirements must be observed for a transfer agreement?
The legal requirements for the form of a transfer agreement depend on the specific asset being transferred. If, for example, a plot of land, a house, or an owner-occupied apartment is being transferred, the German Civil Code (BGB) mandates notarization (§ 311b BGB). The same applies for shares in certain types of companies, such as GmbHs. When transferring movable objects (e.g. machines, works of art), written form is generally sufficient; nonetheless, a record that can be produced as evidence is also recommended here. For agricultural businesses, it may additionally be necessary to obtain official authorizations or to make preliminary entries in the land register. If other legal obligations are created under a transfer agreement—for example, usufruct rights, residential rights, or maintenance obligations—these may also be subject to notarization.
What tax aspects must be considered for a transfer agreement?
A transfer agreement can affect various types of taxes, in particular income tax, inheritance and gift tax, as well as, where applicable, real estate transfer tax. For gratuitous (i.e. gift-like) transfers, the obligation to pay gift tax is generally triggered under §§ 7 ff. German Inheritance and Gift Tax Act (ErbStG), and personal allowances and tax classes must be observed. If consideration is provided in any form (e.g. assumption of debts, granting of residential rights, or care obligations), what is known as a ‘mixed transaction’ is evaluated: The portion not considered a gift may be favored for gift tax purposes. In particular, for businesses and agricultural or forestry enterprises, tax benefits or exemptions can apply under certain conditions, for example pursuant to §§ 13a, 13b ErbStG. For the purposes of real estate transfer tax, an exemption under § 3 GrEStG often applies, especially for family-internal transfers, but even here: Each case must be evaluated individually from a tax perspective.
What happens if defects are discovered after the transfer agreement has been concluded?
Liability for defects is governed by the terms of the transfer agreement itself and by the general statutory provisions of the BGB. In the case of gratuitous transfers (such as anticipated inheritance), liability for defects is frequently excluded or restricted, for example, by excluding warranty for material or legal defects. Such an exclusion of liability is only effective if it is expressly and clearly stipulated in the contract. However, in cases of fraudulent concealment of significant defects, the transferor cannot rely on a general exclusion of liability; he or she is then liable for the acquirer’s loss regardless (§ 444 BGB). Special provisions also apply if third-party rights (right of first refusal, usufruct, mortgages) are affected under the transfer agreement or if existing encumbrances were concealed.
Can transfer agreements be subsequently amended or revoked?
In principle, transfer agreements that have been concluded are legally binding and cannot be unilaterally reversed without further ado. Any amendment or revocation is only possible by mutual agreement of all parties to the contract, possibly subject to formal requirements (e.g. renewed notarization). In some cases, contractual withdrawal or revocation rights are agreed upon in the contract itself, for example, if a party fails to fulfill certain obligations (such as providing care or pension payments). In addition, the law provides for annulment rights in special circumstances, such as mistakes, fraudulent misrepresentation or duress (§§ 119, 123 BGB). The successful exercise of such rights always depends on a specific legal and factual examination of the individual case.
What obligations and rights can be regulated within a transfer agreement?
The transfer agreement can contain a variety of rights and obligations, which are structured according to the subject matter being transferred and the interests of the parties. Rights which can be transferred include, among others, ownership rights, expectancies under inheritance law or company shares. The transferor is frequently provided for by means of usufruct rights, residential rights, pension payments or care obligations. Provisions for the assumption of liabilities (e.g. debts or maintenance costs), the obligation to continue the business, or non-compete clauses are also possible. In family-internal transfers, a right of reclamation (so-called reversibility) for the transferor can also be agreed upon in specific cases, for example, if the transferee predeceases the transferor or becomes insolvent. All these rights and obligations must be precisely determined and legally secure in the transfer agreement in order to avoid disputes later on.
What role does the land register play in a transfer agreement?
When transferring real estate, houses, or condominiums, a transfer agreement only becomes fully legally effective once the new owner is registered in the land register. The notarial contract forms the basis for the requested registration, which the notary initiates at the competent land registry office. Encumbrances such as usufruct, rights of residence, or even rights of reversion are secured as so-called easements or notes in the land register. Without the corresponding entry in the land register, the transfer of ownership remains subject to a suspensive condition or is provisionally ineffective. Particular care must be taken if there are preliminary notices or rights registered in favor of third parties, as these must be given priority consideration.
