Property in a community of heirs

What a community of heirs is in legal terms

If someone leaves several heirs, the estate belongs to all of them jointly (§ 2032 BGB, German Civil Code). Lawyers call this a joint ownership community (Gesamthandsgemeinschaft). Behind this lies a very practical point: nobody owns a specific part of the house. There is no room or floor of one's own that one heir could sell alone. Everyone owns everything together.

The heirs decide on individual items from the estate only jointly (§ 2040 BGB). For the sale, this means that everyone signs. Even someone who inherited only five per cent can hold up the sale.

The only thing an heir can sell alone is their entire share of the inheritance, i.e. their place in the community. The other heirs have a right of first refusal (§ 2034 BGB). Right of first refusal means that they may step in themselves on the same terms before an outsider gets a chance. There are companies that buy up such shares, well below their value. For the remaining heirs, this usually makes the situation worse, not better.

The four ways out of the community

1. Sell together. Everyone sells together to one buyer and divides the money in proportion to their inheritance shares. This almost always yields the most, because a normal sale on the market achieves the best price.
2. One takes over. One heir keeps the property and pays out the others. This requires two things: a valuation everyone accepts, otherwise there will be arguments about the payout amount, and a loan the bank will actually grant.
3. Divide up the estate. If the estate includes several assets, each heir can receive something different. One takes the house, another the securities. Whoever receives less is compensated with money.
4. Have it auctioned. The last resort when nothing else works. The court auctions the property and the money is distributed. Any heir can apply for this alone (§ 180 ZVG, Compulsory Auction Act). The technical term is partition auction (Teilungsversteigerung).

Why a partition auction is usually the most expensive solution

A partition auction sounds like a clean emergency solution, and legally it is. Financially, it is almost always the worst choice. There are four reasons for this.

• Few bidders turn up. The courtroom is mostly filled with professionals who factor in a discount from the outset.
• Viewings are usually not possible. Anyone who has not seen a flat from the inside bids more cautiously.
• It takes time, often more than a year. Meanwhile, property tax, the service charge (Hausgeld) and repair costs keep accruing.
• The court and the valuer cost money. This is deducted from the proceeds and therefore hits all heirs.

In our experience, the difference between an auction and a properly managed sale is considerable. Anyone in the family who threatens an auction is therefore also threatening themselves.

What you need first

• Certificate of inheritance (Erbschein) or notarial will with the record of its opening. As long as you cannot prove that you are an heir, the land registry will not change anything, and nothing can be sold either. You apply for the certificate of inheritance at the probate court. It is subject to fees, which depend on the value of the estate.
• Changing the names in the land register (Grundbuch). In the first two years after the death, this costs no land register fee. Many communities of heirs miss this deadline because they are arguing about other things during that time.
• A valuation everyone trusts. Without it, there is no agreement. As long as everyone has a different figure in mind, people talk past each other.
• An overview of the debts. Whoever inherits also takes on existing loans. On top of that come deferred repairs, unpaid running costs and property tax. All of this keeps running. If the flat stands empty, Berlin's three-month limit under the ban on the misuse of residential space also applies; what has to be reported after that is explained in our guide The ban on misuse (Zweckentfremdungsverbot) when selling.

The tax question that is often overlooked

As heirs, you step into the position of the deceased. For the ten-year holding period (Spekulationsfrist), what counts is therefore the day on which they bought, not the date of death. The holding period means the ten years during which the state takes a share of the gain. If the purchase was more than ten years ago, the sale costs you no income tax. If it was more recent, tax may be due. More on this in the article on the ten-year holding period.

Inheritance tax is something else entirely. How much it comes to depends on how closely you were related to the deceased and how much is therefore tax-free. It is due whether you sell or not. The two taxes have nothing to do with each other and yet are constantly confused.

How to avoid deadlock

Most deadlocked communities of heirs do not fail because of the law. They fail because nobody says what they actually want. One wants to keep the parental home. One urgently needs money. And one has felt overlooked for thirty years. None of this is discussed. Instead, people spend hours debating the price per square metre.

Three things help: an external valuation that everyone can hold on to, a timetable with fixed dates, and someone who manages the process without having a stake in it. If positions have already hardened, bring in a lawyer or a mediator. That costs money, but less than proceedings lasting several years.

A market value assessment that everyone can follow gives all heirs the same basis. Everyone sees the same figure and the same workings. We prepare it free of charge.

Sources

• § 2032 German Civil Code (BGB), community of heirs
• § 2033 and § 2034 BGB (German Civil Code), disposal of a share in the estate and the co-heirs' right of first refusal
• § 2040 BGB (German Civil Code), disposal of items belonging to the estate
• § 180 Compulsory Auction Act (Zwangsversteigerungsgesetz), partition auction
• § 23 Income Tax Act (EStG), continuation of the holding period where property is acquired free of charge