In old age, many people tend to give up their condominium in order to get rid of the associated obligations. Sometimes they pass the apartment on to their own children, in other cases the sale is intended to convert the value of the apartment into cash. However, after many enjoyable years in their own four walls, the owners of such a home often do not want to move again – especially not at an advanced age. For this reason, it is possible to sell property but have a right of residence registered on the property in question.
Registered in the land register, a person’s right of residence only expires in very specific cases – a change of ownership is not such a case. The following article explains what you should look out for when selling an apartment with a registered right of residence and what rights and obligations the buyer and seller have.
What is a right of residence?
A right of residence is the right of a person to use a property or part of it as living space without paying additional rent. This person does not have to be the owner or tenant of the property. The right of residence can be registered for a limited period of time, linked to certain conditions or agreed for life.
In order to be legally secure, the right of residence should always be contractually agreed with the buyer and notarized when selling a property. It would be even better to have the right of residence entered in the land register of the property. This would also give the owner of the right much better protection against claims from third parties (such as banks or heirs).
The right of residence cannot be sold on to other persons or bequeathed. It expires at the latest with the death of the owner. By contrast, the permanent right of residence under Section 31 of the German Condominium Act can be inherited and resold. It therefore represents an even greater restriction of the owner’s rights. Accordingly, the permanent right of residence further depresses the value of the respective property.
Does it make sense to sell the condominium in exchange for a right of residence?
Depending on your age and situation, it is fair to say that it makes sense to sell a condominium. This is especially true if you have a lifelong right of residence registered on the property in question.
Especially in old age, many people no longer want to struggle with the tiresome duties and appointments of being an owner. Selling the apartment in exchange for a right of residence is definitely worthwhile. If you have no children to whom you would like to give the apartment, it is best to sell it. The proceeds will quickly and easily top up your personal pension fund. Properties with right of residence are often sold to investors who do not want to use the apartment immediately.
In contrast, many parents want to pass on their homes to the next generation. This saves the family taxes that would be due in the event of an inheritance after the parents’ death. In addition, the parents can continue their lives within their own four walls without further ado. However, all duties and responsibilities are already in the hands of the children. As the right of abode can be agreed not only in the event of a sale, but also in the event of a gift, it is ideal for internal family planning.
Often, both partners in a marriage or cohabitation have the right of residence entered in the land register. If one of them dies, their partner can remain in their own home. This is a very smart move, especially if discussions with any heirs to the property are looming.
What rights and obligations does the holder of a right of residence have?
Depending on the type of right of residence, its holder has different rights. In addition, the holder of a right of residence usually has various obligations to fulfill.
The right of residence is regulated in two different legal sections. It can be granted either as a limited personal right or as a right in rem. In the case of a limited personal right, the holder of the right of residence may occupy the room in question. However, this does not apply to any other person. If, on the other hand, the right of residence is granted as a right in rem, close relatives or carers may also use and occupy the property in question.
Shared areas such as the cellar, laundry room or garden may always be used free of charge in the case of an existing right of residence. The owner of the apartment has no right of inspection. Planned viewings can only be arranged personally with the owner of the right of residence and therefore require their express consent.
The owner of the right of residence is responsible for repairs within the apartment. All minor repairs and renovation work must be carried out by the owner. The owner of the right of residence is also obliged to pay any operating costs incurred for the apartment. Only extensive or extraordinary renovation work must be carried out by the apartment owner.
Selling a condominium with a registered right of residence: What should I bear in mind?
If a property is sold, a registered right of residence nevertheless remains in place. It cannot simply be revoked by a sale. As the buyer of such a condominium cannot dispose of it freely, a registered right of residence represents a financial burden for them. It is also more difficult to sell an apartment with a registered right of residence on the open market.
For this reason, it is common for the sale of such a property outside the immediate family circle to be handled by an estate agent. Estate agents know the market inside out. They know exactly to whom it is best to sell an apartment with right of abode and how high the price can be. Usually, real estate investors in particular are interested in acquiring an apartment at a lower price.
This is because the value of the apartment can increase in the event of high inflation over the following years. When the time is right, an investor can sell it on. However, if a condominium is resold within the first ten years of purchase, the investor must pay speculation tax.
If you decide to sell an apartment with a registered right of residence, make sure you clarify all the important factors with the new owner and record them in writing. These include the payment of ongoing operating costs such as electricity and gas. But the accommodation of beloved pets can also be an important point that should be set out in the contract.
What is the relationship between the right of ownership and the right of residence?
The right of ownership and the right of residence do not affect each other. This means that the right of residence remains in place regardless of the sale of a property. However, the consent of the holder of the right of residence is not required for the sale of an apartment.
If the owner and the holder of the right of residence are different people, the latter has no legal means of preventing the property from being sold again.
How much does a registered right of residence reduce the price of the condominium?
The prices for condominiums are significantly reduced if a right of residence exists. The duration of the existing right of residence is the most important factor in calculating the reduction in value.
In the frequent case of an indefinite right of residence, the age of the holder of the right of residence is taken into account. When calculating the loss in value of the property, the remaining life expectancy is based on the national average. Next, a notional annual rent is calculated for the apartment depending on its size, location and furnishings. This is then discounted by 5.5 percent in order to estimate the current value of the condominium. The average life expectancy of the owner is then multiplied by the respective annual rent.
This results in the loss of rental income for the expected lifetime of the holder of the right of residence. This is regarded as the actual loss in value of the property. The result of the previous calculation can now be deducted from the total value of the property in order to estimate the current price of the respective apartment on the open market.
How does a right of residence end?
When a right of residence ends naturally depends on how long it is valid for. A temporary right of residence ends automatically when the term expires. Unlimited right of residence or right of residence for life ends with the death of the holder.
There are also a number of other reasons for the expiry of a valid right of residence. For example, such a right may be subject to certain conditions. Such conditions could be, for example, that the holder of the right of residence may not have a second residence or that the apartment must be used permanently. If the stipulated condition is no longer met, the right of residence expires immediately. If a property becomes uninhabitable, it is also possible for the right of residence to expire quickly.
Another tricky reason for an abrupt end to the right of residence is a forced sale by the bank. This is because in the vast majority of cases, the mortgage on a property is entered in the land register before the right of residence. This means that if the owner of an apartment is no longer able to pay their loan debts, the respective bank will have the property foreclosed. This automatically extinguishes the right of residence.
The proceeds of the forced sale are usually too low to compensate the owner of the right of residence financially. Moreover, if a financial settlement is paid, it is usually significantly lower than the lifetime value of the right of abode. We therefore advise you to have a right of recovery entered in the land register when selling a property with a right of residence. If the new owner can no longer service their loans, you can buy back your former property.
Furthermore, the right of residence cannot be transferred to third parties. If the owner dies, the right of residence also expires. The only exception to this is the permanent right of residence in accordance with Section 33 (1) of the German Condominium Act (Wohnungseigentumsgesetz). This is associated with greater obligations and payments, but on the other hand can be inherited and sold. On the other hand, an existing permanent residential right additionally reduces the sales price of a condominium. This is even lower than in the case of an existing, normal right of residence.
Can the right of residence be revoked without the owner's consent?
In general, it is not possible to terminate the right of residence without the consent of its owner. As the right of abode is not affected by the sale of a property, it cannot be terminated by the owner. This applies to both the old and the new owner of the property.
The only legally valid way to terminate the right of residence to a property is to make a compensation payment to the holder of the right. In return for payment of a certain amount, the owner voluntarily gives up their right of residence. In this way, a property can be sold unencumbered at the actual market price.
However, the following should be borne in mind when paying such a settlement: The amount of the settlement is usually at least as high as the loss in value of the property with the existing right of residence. Many owners of right of abode like to receive a significantly higher payment for giving up their right of abode in order to provide for the future. It therefore only makes sense from the owner’s point of view to terminate the right of residence by means of a settlement if it is actually financially worthwhile.
What taxes are due when a condominium with a registered right of residence is sold?
The fact that tax must be paid on the sale of condominiums does not change even in the case of an existing right of residence. If a property is sold by the owner of the right of residence themselves, speculation tax may be payable.
If the apartment has been permanently occupied by the selling owner or the purchase was made more than ten years ago, no such tax has to be paid. The sale is also exempt from tax if the apartment was previously rented out and used by the owner for the last three years.
The owner of the right of residence does not have to pay any additional income tax. However, gift tax is usually payable on the value of the right of residence. Ultimately, this results in major financial benefits for the owner of the right of residence.
A gift of a home within the family is also taxable. In this case, the new owners of the apartment, children or close relatives, must expect to receive mail from the tax office. However, if the value of the condominium – minus the value of the right of residence – falls below the tax-free threshold for the respective degree of kinship, no tax is payable on the property.
What documents are required when selling a condominium with a registered right of residence?
If you want to sell a condominium with right of residence, you need to obtain certain documents to ensure that the sale goes smoothly. These include
– an extract from the land register, preferably notarized
– building plans and building specifications
– site plan and extract from the cadastral map
– an extract from the register of building encumbrances
– calculation of living and usable space and calculation of the enclosed space
an energy performance certificate
If you want to sell your condominium and secure the right of residence for life, you will also need a declaration of division from the land registry and a current economic plan and overview of reserves. You should also have housing benefit statements and minutes of the owners’ meetings for the last three years to hand.
