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The property development contract

If you plan to buy a new flat or home that only exists on paper, you will need your notary to record a property development contract. In it, the developer agrees to transfer title to a parcel of land and construct the building so it is ready for occupancy.

A property development contract, in other words, is a hybrid between a land purchase contract and a construction contract with several special characteristics:

Since the property has not been built and thus cannot be inspected, the buyer should procure and carefully study a copy of the building specification and construction plans before the recording date. These documents are made part of the contract during the recording and are binding upon both parties.

To protect the buyer, the German Brokers’ and Commercial Developers’ Regulation (MaBV) attaches special conditions to the payment of the purchase price. Under the MaBV, buyers pay in instalments that reflect the actual progress of construction, but only if the notary confirms that certain prepayment conditions have been met. As an alternative, the parties will often agree to make payment contingent on presentation of a bank guarantee by the developer.

The property development contract also lays out the construction schedule, extent of construction and any special requests the buyer may have.

Caution must be exercised when making separate contracts for the land purchase and the construction. Generally, both contracts must be recorded; otherwise, they might be deemed null and void.

For further details
Property development contract glossary (download - German version only)