Indemnification

Indemnification refers to the contractual or statutory release of a person or company from liability claims that may arise from a specific set of circumstances. In the real estate sector, the term is encountered primarily in purchase agreements, real estate development arrangements, condominium management contracts, and in the context of extended liability under conversion tax or real estate transfer tax laws. The aim is to clearly limit a party’s financial risk and avoid disputes over the allocation of damages.

Indemnification in Real Estate Purchase Agreements

In a purchase agreement for a used house or condominium, a comprehensive indemnification of the seller for known and unknown defects is typically agreed upon (Section 444 of the German Civil Code (BGB)). The seller thereby excludes the warranty-except in cases of fraudulently concealed defects or warranted characteristics. Buyers should be aware that such a clause weakens their position regarding the burden of proof: In the event of a dispute, they must prove that the seller was aware of a defect and fraudulently concealed it.

Indemnification in Construction Financing

In the context of land charge registrations, indemnification declarations are used in favor of the financing bank when multiple properties or co-ownership shares serve as collateral. Through the indemnification, one party (e.g., a co-debtor) declares that it waives the right to assert recourse claims against the other party. In the real estate development business, buyers may require a release from liability from the financing bank confirming that the property being purchased will be released from the developer’s global land charge after the purchase price has been paid (Section 3 MaBV).

Tax Release from Liability in Real Estate Sales

In inheritance and gift tax law, as well as in real estate transfer tax, there are scenarios in which a purchaser remains liable for the seller’s tax debts. This risk can be mitigated through a liability release clause in the purchase agreement or a certificate of release from the tax office (Section 48b EStG for construction services). In corporate acquisitions involving real estate (share deals), liability indemnifications for deferred tax risks are a key point of negotiation.

Practical Tip for Property Owners in Nuremberg and Franconia

We recommend that sellers and buyers in the Nuremberg metropolitan region treat the liability indemnification clauses in the purchase agreement not as standard language, but tailor them individually to the property. For older buildings with known renovation backlogs or properties in redevelopment areas (e.g., in Nuremberg’s Gostenhof or Erlangen’s Old Town), buyers should insist on specific exceptions for certain categories of defects. We assist you in developing legally sound wording in collaboration with the notary.

Frequently Asked Questions

Can the seller be completely exempted from all liability?

No. An exemption from liability for defects fraudulently concealed is always invalid under Section 444 of the German Civil Code (BGB). The seller is also liable for warranted characteristics despite an agreed liability exclusion.

What is the MaBV Indemnity Declaration?

The Real Estate Brokerage and Developer Ordinance (MaBV) stipulates in § 3 that a developer may only demand purchase price installments from the buyer once the developer can either present a building permit and the property is free of encumbrances or secured by a bank guarantee. The indemnification declaration from the financing bank confirms that, upon full payment of the purchase price, the developer’s general land charge will no longer extend to the purchased unit.

How can I protect myself as a buyer despite the seller’s indemnification?

Through thorough due diligence before the purchase: hiring a building inspector to assess the condition, reviewing existing reports, minutes of the WEG meeting, and the land registry extract. A purchase price reduction as a risk offset is also possible.

Liability Waiver in the WEG

In the context of the WEG, there are situations in which individual owners or the community wish to assume certain liabilities or be released from them. For example, an owner who makes structural alterations to the common property may submit a declaration of indemnification to the community: They undertake to bear all costs and claims arising from the alterations-including future ones. Such declarations should be in writing and, if possible, notarized to ensure they are effective even against future owners of the unit.

Anyone purchasing a condominium in Nuremberg and planning to make additions or renovations after the purchase should clarify in advance which approvals from the owners’ association are required and which liability waivers they must provide to the association. We can assist you in clarifying these issues beforehand.

Limits of the Liability Waiver - What Is Not Legally Possible

The liability waiver is not a free pass. German law sets clear limits on it:

• Intent: A waiver of liability for damages caused intentionally is generally invalid under Section 276(3) of the German Civil Code (BGB).
• Fraudulent Concealment in the Sales Contract: Anyone who is aware of a defect and conceals it cannot invoke the liability exemption clause.
• Review of General Terms and Conditions: If liability exemption clauses are used in general terms and conditions, they are subject to content review under Sections 307 et seq. of the German Civil Code (BGB). Clauses with unusually broad scope are regularly declared invalid by courts.
• Product Liability: In the area of product liability (e.g., defective building materials), liability exclusions vis-à-vis consumers are largely invalid.

These limitations also apply to professional contracting parties such as developers, architects, or project managers. In case of doubt, a specialist real estate attorney should be consulted before signing a contract containing extensive indemnification clauses.

Indemnification and Due Diligence in Real Estate Purchases

For buyers, the indemnification clause in the purchase agreement serves as a reminder to take their own duty of care particularly seriously. Since the seller is not liable for most defects, the risk of discovery lies entirely with the buyer. A professional property inspection by an independent building inspector is therefore not an expense, but an investment in legal certainty. In Nuremberg and the metropolitan region, we always recommend that our buyer clients hire a certified building inspector before the notary appointment. The cost for this typically ranges between 500 and 1,500 euros-a negligible amount compared to the purchase price of a property, but effective protection against costly surprises after the purchase.

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