Share Deal or Asset Deal for German Real Estate?

Share deal or asset deal: the basic choice

In an asset deal, the buyer acquires the property itself – land, buildings and associated rights – from the owner. In a share deal, the buyer acquires shares in a company (typically a GmbH or a GmbH & Co. KG) that owns the property, so the property stays in the same legal entity and only the owner of the entity changes. Choosing between a share deal or asset deal affects tax, transaction costs, liability, financing and timing, and the answer depends on the specific asset, the parties and the seller's existing structure.

Historically, share deals were popular because they could avoid real estate transfer tax (Grunderwerbsteuer) if the buyer acquired less than the relevant threshold. Reforms in 2021 tightened those rules considerably. Today, the decision is more balanced and often driven by non-tax factors, such as the seller's structure, the need to transfer contracts and permits, and the buyer's appetite for inherited risk.

This article compares the two structures on the main criteria and highlights the points that buyers, sellers and lenders typically negotiate.

Real estate transfer tax

In an asset deal, real estate transfer tax arises on the purchase agreement for German property (§ 1(1) no. 1 GrEStG). The statutory rate is 3.5% (§ 11(1) GrEStG), but the federal states have the power to set their own rates, and most have set higher rates. Buyers should check the rate applicable in the state where the property is located at the time of signing.

In a share deal, the transfer of shares is not a purchase of land, but the GrEStG treats certain changes in ownership of property-holding companies as taxable events:

The 90% thresholds and the ten-year period in § 1 GrEStG mean that a buyer can acquire at most just under 90% without triggering tax under these provisions, and only if the remaining interest stays with an existing or unrelated holder for the required period. For many investors, that structure is commercially unattractive, which is why the tax advantage of a share deal is now often limited to particular situations. Tax rules are complex and subject to anti-avoidance interpretation; structures should always be reviewed with tax advisers.

Notarisation and land register steps

In an asset deal, the agreement to transfer ownership of land must be notarially recorded (§ 311b(1) BGB). Ownership then passes by conveyance (Auflassung), which must be declared before a notary with both parties present (§ 925 BGB), and registration of the buyer in the land register (§ 873 BGB). To protect the buyer between signing and registration, the notary applies for a priority notice (Auflassungsvormerkung) under § 883 BGB, and the purchase price is typically paid only after the notice is registered and other conditions, such as the waiver of municipal pre-emption rights and the release of existing land charges, are fulfilled.

In a share deal involving a GmbH, the share transfer and the obligation to transfer must also be notarially recorded (§ 15(3), (4) GmbHG). Transfers of partnership interests in a GmbH & Co. KG do not, as such, require notarial form, but notarisation is often needed in practice because the general partner's GmbH shares are transferred at the same time. The land register does not change, because the owner of the property remains the same company.

The notary is an independent public office-holder who records the agreements, advises both parties neutrally on the legal effect and manages the completion steps. Notarial and land register fees are calculated on the transaction value under statutory fee schedules; they are generally higher in an asset deal because of the registration steps.

Liabilities, leases and contracts

The structural difference that matters most outside tax is what the buyer inherits.

Share deal: the company keeps all its assets, liabilities and contracts, including unknown ones: tax liabilities, disputes, warranty claims from earlier sales, environmental liabilities and employment relationships. Due diligence must cover the entity as well as the property, and the buyer relies on warranties, indemnities and, increasingly, warranty and indemnity insurance. Leases, service contracts, permits and financing remain with the company, although change-of-control clauses in loan agreements and some leases may give counterparties rights.

Asset deal: the buyer acquires only the property and selected contracts. Leases transfer by law: under § 566 BGB, applied to commercial premises through § 578 BGB, the buyer steps into the landlord's rights and obligations arising during its ownership. Other contracts – facility management, insurance, energy supply – need to be transferred individually with the counterparty's consent. If the property is operated as a business with employees, such as a hotel, a transfer of undertaking under § 613a BGB may occur.

Some statutory liabilities can follow assets: a buyer of an entire business may be liable for certain business-related taxes under § 75 AO, and public charges such as property tax are attached to the land. Environmental liability for soil contamination can also affect the owner as such, regardless of the transaction structure.

Due diligence: what changes between the structures

The due diligence scope follows the structure. In both cases, the buyer reviews the property itself: the land register extract, encumbrances in the second section, land charges in the third section, the register of public easements (Baulastenverzeichnis), building permits and zoning, environmental reports, leases and technical condition. In a share deal, the buyer additionally reviews the company: its corporate documents, tax position and tax audits, financing, guarantees, litigation, employees, insurance and any other assets or businesses the company has carried on in the past.

Property companies that have owned the asset for many years, or that were used for development projects, can carry significant hidden liabilities, such as warranty claims from buyers of other units, construction disputes or tax risks from earlier restructurings. In those cases, the extra cost of an asset deal may be worth the reduced risk. Conversely, a clean single-asset company set up specifically to hold the property, with audited accounts and a short history, can make a share deal straightforward.

The seller's perspective

Sellers often prefer a share deal because it allows a clean exit from the entity, may be more tax-efficient at the seller's level and avoids the need to transfer contracts one by one. However, sellers also have to give broader warranties in a share deal, covering the company's history, and may have to accept escrows or price retentions. In an asset deal, the seller's warranties focus on the property, but the selling entity remains with the seller, together with any residual liabilities, and must eventually be wound up or reused.

For portfolios, both structures can be combined: some properties may be sold through share deals of their holding companies and others through asset deals. The weighing of share deal or asset deal for each asset should then be documented in a structure paper agreed early with the buyer.

Share deal or asset deal: tax beyond transfer tax

Real estate transfer tax is only one tax factor. In an asset deal, the buyer can allocate the purchase price to the building and depreciate it, which is often a significant advantage. In a share deal, the company continues with its historic book values, and hidden reserves remain taxed in the company. Trade tax, VAT treatment (a transfer of a going concern may be outside the scope of VAT) and the seller's capital gains taxation also differ. A share deal or asset deal decision should therefore be based on a full tax model rather than transfer tax alone.

Financing and security

Lenders typically take a land charge (Grundschuld) over the property, registered in the third section of the land register, together with assignments of rent receivables and insurance claims. In an asset deal, the buyer's lender needs a new land charge, which the seller usually agrees to register before completion under a financing power of attorney in the purchase agreement, with security purpose limitations protecting the seller. Existing land charges of the seller's lender are released from the purchase price.

In a share deal, the property company's existing land charges may be reused for the buyer's financing by assigning them to the new lender, which can save costs. Lenders also take security over the shares. Upstream security from the property company for the buyer's acquisition financing raises capital maintenance issues under § 30 GmbHG, which must be addressed with limitation language.

Timing and conditions

Asset deals generally take longer from signing to completion, because ownership passes only on registration and several conditions must be fulfilled: the priority notice, the municipality's waiver of statutory pre-emption rights, any required approvals and the release of existing encumbrances. Payment is typically made into a notarial escrow account or directly once the notary confirms that the conditions are met.

Share deals can complete faster, often on a closing date shortly after signing, subject to merger control or foreign investment approvals where applicable. Merger control can apply in both structures if turnover thresholds are met, and the acquisition of real estate can be relevant in foreign investment screening if the property serves critical infrastructure or defence purposes.

Share deal or asset deal at a glance

How TRW & Co helps

We advise buyers, sellers, investors and lenders on German real estate transactions. We analyse whether a share deal or asset deal suits the transaction, conduct legal due diligence on the property and the property company, draft and negotiate purchase agreements, coordinate with the notary on completion mechanics, and structure financing and security. We work alongside tax advisers on transfer tax and income tax aspects. Our work connects with our real estate transactions and M&A practices, our transaction tax team, and our articles on the land register and priority notices and commercial leases. Please contact us. This article is general information and not legal advice.