Selling property with a right of residence or usufruct

Usufruct and right of residence: the difference

The two rights are often confused, but they go to different lengths.

• Usufruct: The beneficiary may take the benefits of the property (Section 1030 BGB) and is entitled to possession (Section 1036 BGB). They can move in themselves or let the property and keep the rent. The usufruct itself cannot be transferred, but its exercise may be left to another person (Section 1059 BGB).
• Right of residence: The beneficiary may use a building or part of it as a home to the exclusion of the owner (Section 1093 BGB). They may take in their family and carers. Legally it is a limited personal easement (Section 1090 BGB). They may only leave the flat to others, for example by letting it, if this is permitted (Section 1092 BGB).

What applies in the individual case is set out in the deed of creation referred to in the land register. Obtain this deed before the sale, because it also contains agreements on costs and maintenance. In Berlin we mainly come across such rights with flats and houses that parents transferred to their children during their lifetime.

The right remains on sale

A right of residence or usufruct arises through agreement and entry in the land register (Section 873 BGB). It encumbers the plot, not the person of the owner. If the owner changes, the right therefore remains. The buyer cannot claim not to have known about it: the land register is deemed correct in the buyer's favour (Section 892 BGB), and the buyer must accept registered rights.

For you as the seller this means: a sale is possible without the beneficiary's consent, as long as it takes place with the encumbrance. Without the encumbrance, it only works with their cooperation.

Three ways to sell

1. Sale with the encumbrance. The buyer takes over the right. They acquire a property they cannot use themselves for an indefinite period and pay correspondingly less. Interested parties are mainly investors with equity and staying power.
2. Cancellation against payment or waiver. The beneficiary gives up the right, often against a payment or because they are moving out anyway, for example into a care home. Cancellation requires their declaration and the deletion in the land register (Section 875 BGB). The land registry cancels the right if they consent to the cancellation (Section 19 GBO), and in publicly certified form (Section 29 GBO). So a notary must certify their signature. You can then sell unencumbered at the full market price.
3. Sale to the beneficiary. Someone who already lives there or draws the income is sometimes the obvious buyer. You then negotiate the value of the right as part of the purchase price, and the right is usually cancelled in the same agreement.

Which route pays off depends on the age of the beneficiary, the scope of the right and the market for the property. A payment for giving up the right can have tax consequences, for the payer as well as the recipient. Clarify this beforehand with a tax adviser.

How the encumbrance lowers the price

The Property Valuation Ordinance makes clear that rights and encumbrances affect the value of the encumbered plot (Section 46 ImmoWertV). Limited rights in rem and residential commitments are expressly named. A valuer determines the size of the discount for the individual case. The starting point is usually the annual value of the right, i.e. the rent saved for a right of residence and the achievable income for a usufruct, projected over the expected remaining duration.

For tax purposes, the Valuation Act prescribes a fixed method: lifelong uses are valued at a multiple of the annual value that depends on the age and sex of the beneficiary (Section 14 BewG). The Federal Ministry of Finance publishes the table for this. For rights with a fixed term, Annex 9a to the BewG applies. For the market price, this table is only a guide.

Worked example with assumptions

All figures are assumed and serve illustration only; they are not taken from an official table.

• Market value of the flat without encumbrance (assumption): 450,000 euros
• Net rent saved by the holder of the right of residence (assumption): 800 euros a month, i.e. 9,600 euros a year
• Multiplier for the expected remaining duration (assumption): 9

Calculation: 9,600 euros × 9 = 86,400 euros value of the right. 450,000 euros minus 86,400 euros gives around 363,600 euros for the encumbered flat. In practice further discounts apply, because the buyer does not know how long the right will last and because financing is harder.

Financing by the buyer

Most buyers need a loan, and the bank secures it with a land charge. In our experience, banks usually require first rank in the land register for this. If a right of residence or usufruct ranks ahead, many refuse the financing or require the right to be cancelled or to rank behind the land charge. A subordination again requires the cooperation of the beneficiary. Clarify this question early, otherwise the sale falls through shortly before the notary appointment.

What belongs in the purchase agreement

• Takeover or cancellation: whether the buyer takes over the right or whether it is cancelled before the purchase price is paid. In the case of cancellation, the notary usually makes the existing consent to cancellation a condition for the purchase price becoming due.
• Possession and benefits: If the right is taken over, the buyer does not receive the flat for use. The agreement must state from when which charges and costs pass to the buyer.
• Content of the right: The deed of creation is one of the documents the buyer receives before notarisation, so that it is clear who bears maintenance and running costs.
• Payment: If a payment for giving up the right is made, who bears it and when it is paid to the beneficiary.

You can read more about the procedure at the notary in our article Notary appointment and land register, and about the costs on the buyer's side under Purchase costs in Berlin.

Death of the beneficiary and cancellation

The usufruct ends on the death of the usufructuary (Section 1061 BGB). The same applies to the right of residence, because Section 1090 para. 2 BGB refers to this provision. Neither right can be inherited.

The expired right nevertheless remains in the land register until it is cancelled. Here the entry matters: if it is noted that proof of death is sufficient for cancellation, the death certificate is enough (Section 23 para. 2 GBO). If this note is missing and arrears are not excluded, cancellation in the first year after the death requires the consent of the beneficiary's heirs (Section 23 para. 1 GBO). So check what is registered before the sale. If you have inherited the property yourself, our guide Selling an inherited property in Berlin will help you.

Sources

• Section 1030 BGB, definition of usufruct
• Section 1036 BGB, usufructuary's right of possession
• Section 1059 BGB, non-transferability, leaving the exercise to others
• Section 1061 BGB, extinction on death
• Section 1090 BGB, limited personal easement
• Section 1092 BGB, non-transferability of the easement
• Section 1093 BGB, right of residence
• Section 873 BGB, agreement and registration
• Section 875 BGB, cancellation of a right
• Section 892 BGB, public faith of the land register
• Section 19 Land Register Code (GBO), consent to registration
• Section 23 GBO, cancellation of rights for life
• Section 29 GBO, form of declarations
• Section 46 Property Valuation Ordinance (ImmoWertV), rights and encumbrances
• Section 14 Valuation Act (BewG), lifelong uses
• Annex 9a BewG, capital value of time-limited uses