Co-ownership by shares

Fractional co-ownership is the most common form of joint ownership of real property, in which each co-owner holds a specific, notional share-for example, ½ or ¼ of the entire property. This right is governed by Sections 741-758 of the German Civil Code (BGB) and differs from joint tenancy (e.g., a community of heirs) in that each co-owner is generally free to dispose of their share. The share is abstract-it does not refer to a specific part of the building, but rather to the entire property as a specific fraction.

Creation and Registration in the Land Register

Fractional ownership arises through joint purchase, gift, inheritance, or the division of an existing sole ownership. In the land register, each owner’s share is precisely documented-for example, “1/2 share owned by Owner A, 1/2 share owned by Owner B.” The entry is legally constitutive: ownership is transferred only upon entry in the land register. If the partners’ financial contributions differ, unequal shares may also be agreed upon, for example 60:40, which can be relevant for tax and inheritance law purposes.

The exact determination of the shares at the time of purchase should be carefully considered: If partners contribute different amounts toward the purchase price (equity plus financing), the land registry share should ideally reflect this ratio. Deviations can have gift tax implications or lead to disputes in the event of a later separation. A notary or tax advisor can assist with the proper structuring.

Management and Decision-Making

Measures of ordinary administration-such as necessary repairs or the renewal of existing leases-can be decided by the co-owners by a majority vote based on their shares. Measures that go beyond ordinary administration (significant changes, sale, encumbrance) require unanimity. If a co-owner blocks necessary decisions, another co-owner may file a petition with the court to have the consent replaced. In practice, ongoing disputes often lead to the dissolution of the co-ownership through a partition sale.

A written co-ownership agreement-notarized-can clearly define the management rules and prevent some conflicts: Who is responsible for day-to-day management? Who decides in the event of a dispute? What happens if a co-owner cannot pay their share? It is more cost-effective to settle these issues in advance than to fight them out in court later.

Difference from Condominium Ownership

Fractional ownership of a property should not be confused with the separate ownership of a condominium unit under the German Condominium Act (WEG). In condominium ownership, each unit owner holds separate ownership of their unit combined with a co-ownership share in the common property. In the case of pure fractional ownership, there are no distinct units of individual ownership; all co-owners hold a joint interest in the entire property.

Practical Tip for Owners in Nuremberg and Franconia

In practice, we frequently encounter fractional ownership among unmarried couples who have jointly purchased a property in Nuremberg, Fürth, or Erlangen. We recommend that, at the time of purchase, you not only specify the land registry share but also address the consequences of separation, death, and taxation in a partnership agreement or a notarized agreement. This helps avoid future conflicts, and all parties involved know from the outset what applies in the event of a dispute. We are happy to recommend experienced notaries and attorneys in the region who can draft such agreements in a legally sound manner.

Tax Considerations for Fractional Ownership

The tax treatment of fractional ownership follows the principle of proportional allocation: rental income, income-related expenses, depreciation, and any capital gains are allocated to the co-owners in proportion to their ownership shares-regardless of who actually made or received the payments. The tax office generally does not recognize deviating private-law agreements regarding the distribution of income as long as the land registry shares remain unchanged.

When acquiring a fractional share, real estate transfer tax is levied on the proportionate purchase price. If shares are later transferred between co-owners-for example, because one partner contributed more equity than originally planned-this may trigger real estate transfer tax again and, if applicable, gift tax. Anyone who sells shares within ten years of acquisition must pay tax on any profit as a private sale transaction under Section 23 of the Income Tax Act (EStG).

Encumbrances and Financing Risks

A frequently overlooked aspect: When co-owners take out a loan together, they are generally jointly and severally liable to the bank-each for the full debt, not just their share. If one co-owner can no longer make their loan payments, the other must cover the entire payment or risk foreclosure. This situation occurs particularly frequently following separations and leads to significant financial losses if no clear agreement has been made for this scenario.

Anyone who encumbers their fractional share of the property with a mortgage can generally do so without the consent of the other co-owners-the mortgage then applies to the ideal share. In practice, however, this share is hardly usable as collateral for banks, which is why financing is usually based on the entire property with the consent of all co-owners.

Frequently Asked Questions

Can I sell my fractional share?

Yes, in principle, you can sell your share without the consent of the other co-owners. However, in certain circumstances, the other co-owners have a statutory right of first refusal. In practice, it is difficult to find a buyer for a mere fractional share-a joint sale of the entire property is usually more economically sensible.

How are revenues from a co-owned property distributed?

Rental and other income are distributed according to the ownership shares, unless the co-owners have agreed otherwise. This also applies to costs: Each co-owner bears a proportionate share of maintenance costs, property tax, and other expenses.

What happens if a co-owner demands the dissolution of the co-ownership?

Any co-owner may demand dissolution at any time (Section 749 of the German Civil Code). For real estate, this usually means a private sale with division of the proceeds or-if no agreement can be reached-a partition auction. We help find an amicable solution that avoids an auction with the risk of loss.

As a co-owner, am I liable for the other party’s debts?

In the case of pure fractional ownership, each co-owner is liable only for their own share. However, if the co-owners have taken out a loan jointly (as joint and several debtors), each is liable for the entire debt-even if the other cannot pay. This should be taken into account when concluding the contract.

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