Termination of Joint Ownership

Termination of Joint Ownership - The termination of joint ownership (also known as dissolution of the joint ownership) is the right of every co-owner to demand the termination of a fractional ownership arrangement regarding a property. The legal basis is found in Sections 749-758 of the German Civil Code (BGB). As a result, the joint ownership is either physically divided, transferred to one co-owner, or liquidated through a partition sale.

Requirements and Procedure

In principle, any co-owner may demand termination at any time-no valid reason is required. However, the right to terminate may be limited in time by agreement (e.g., in the partnership agreement or through land registry entry), but it cannot be permanently excluded (Section 749(2) of the German Civil Code).

The possible ways to dissolve the co-ownership are:

1. Mutually agreed sale to a third party: All co-owners jointly sell the property on the open market-usually the most economically advantageous outcome.
2. Acquisition by a co-owner: A co-owner purchases the shares of the others at the agreed-upon or appraised market value-useful in cases of inheritance or divorce when one of the parties wishes to retain the property.
3. Physical division: The property is divided into separate parcels, which are allocated to the co-owners according to their respective shares. Possible only if the property is sufficiently large and the building regulations permit it.
4. Partition auction: The local court orders a forced sale upon application by a co-owner. The proceeds are distributed among the co-owners after deducting costs.

Common triggers in practice

The most common reasons for terminating co-ownership are divorce (joint family home), communities of heirs (inherited property with multiple heirs), and failed investor groups (fractional owners with differing interests). In all these cases, there is often disagreement regarding use, sale, or price.

An amicable solution-sale to one of the parties or to a third party-is almost always significantly less expensive than a partition auction, which typically yields only 70-85% of the market value. Added to this are court and attorney fees, as well as the emotional strain on all parties involved.

Comparison of Procedures for Terminating Co-ownership

Procedure	Prerequisite	Expected Proceeds	Duration	Costs
Mutual sale on the open market	Agreement of all co-owners	95-105% of market value	3-6 months	Broker’s commission (3.57% per party)
Internal sale (takeover)	Agreement on purchase price	95-100% of market value	4-8 weeks	Notary fees (approx. 1-1.5% of purchase price)
Physical division	Approval for division + divisible property	100% (no sale necessary)	3-12 months	Surveying costs €2,000-8,000
Partition auction	Application by a co-owner to the local court	70-85% of market value	6-18 months	€5,000-15,000 court and appraiser fees

Special Features of Communities of Heirs

Communities of heirs (§ 2032 BGB) constitute a special form of community governed by different rules than those applicable to fractional co-ownership under §§ 741 ff. BGB. The property belongs to the community of heirs as joint ownership-no single heir may dispose of their share. All administrative measures require either majority decisions (proper administration) or unanimity (extraordinary measures). Only the liquidation of the community of heirs (Section 2042 BGB) leads to the dissolution and distribution of the estate.

Practical Tip for Property Owners in Nuremberg

In the Nuremberg metropolitan region, we frequently encounter cases where communities of heirs fail to reach an agreement for years, causing the property to lose value over time-due to deferred maintenance, declining rentability, and escalating conflicts. Our advice: Have a current market valuation prepared early on and openly discuss your expectations with all co-owners. Often, a fair internal sale or a joint sale on the open market can be organized, which is financially more advantageous for all parties involved than a partition auction.

We support communities of heirs and co-owners in the Nuremberg metropolitan region with valuation and the organization of a fair, smooth sales process.

Frequently Asked Questions

Can a co-owner prevent the dissolution of the co-ownership?

Only if there is a contractual or statutory exclusion of dissolution-such as an agreement entered in the land register that excludes dissolution for a specific period, or a current partnership agreement. However, a permanent exclusion of the right to dissolution is invalid-the right to dissolution is inalienable. In the absence of special agreements, every co-owner has an inalienable right to dissolve the co-ownership.

How much does a partition auction cost?

Court costs are based on the market value of the property and are regulated by the Court Costs Act (KKG). In addition, there are appraiser fees (the court usually orders a valuation report), publication costs, and, if applicable, attorney’s fees. For a property with a market value of 400,000 euros, experience shows that the total costs range from 5,000 to 15,000 euros-money that can be saved with a consensual sale. On top of that, the auction proceeds are usually significantly lower.

How does a land charge affect the termination?

A registered land charge encumbers the entire property and must be taken into account during termination. The proceeds from the sale or auction are first used to pay off the land charge and any accrued interest; only the remaining amount is divided among the co-owners. Before the dissolution, you should therefore inquire with the bank about the current outstanding balance and clarify the release authorization.

What happens to an ongoing lease when co-ownership is dissolved?

Existing lease agreements do not preclude the dissolution of the co-ownership-ownership changes, but the lease agreements continue. In the case of a consensual sale to a third party, the buyer assumes all existing lease agreements as the new landlord (Section 566 of the German Civil Code-”Purchase does not terminate the lease”). In the case of a partition auction, the purchaser also assumes the ongoing contracts. For the co-owners, this means: Rental income accrues to the co-ownership until the transfer of ownership and is distributed according to the co-ownership shares. If there are multiple lease agreements with different terms, the co-ownership should clarify before the dissolution how outstanding operating cost statements and outstanding utility credit balances will be distributed.

Tax Implications of Terminating Co-ownership

Terminating co-ownership has tax consequences that are often underestimated. If a co-owner sells their share to the others, this constitutes a taxable sale-provided the ten-year speculation period under § 23 EStG has not yet expired. For communities of heirs, the capital gains period does not begin with the opening of the estate but runs retroactively from the date the decedent acquired the property. If the property was purchased more than ten years ago, any profit from the termination is generally tax-free. In practice, this means for communities of heirs in the Nuremberg metropolitan region: Many of the inherited properties have been in the decedent’s portfolio for more than ten years-a tax-free sale as part of the estate settlement is therefore often possible. We recommend clarifying the tax consequences with a tax advisor before deciding on the method of termination.

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