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Anyone who owns one or more apartments together with an owner is part of a fractional community. In this article, you will find out how the administration of a fractional community works and who has to submit the property tax return for a fractional community.
Definition - What is a fractional community?
As the name suggests, fractional ownership means that several owners own a property in certain proportions. Each owner owns a fraction of the total property in equal or different proportions.
The fractional community is one of four main types of ownership in the German Civil Code (BGB). In addition to the fractional community, the BGB also includes sole ownership, community of joint owners and community of condominium owners.
Is a homeowners' association a fractional community? What is the difference?
A condominium owners' association (WEG) is an association of owners of several apartments within a property who make joint decisions on the management and use of the common property. In a WEG, the property is divided into special and common property.
Each owner therefore owns an apartment (separate property) as well as shares in common areas such as the stairwell, elevator or garden (common property). The respective share of an owner is specified in the declaration of division.
The rights and obligations of the owners as well as the rules for management and financial matters are regulated in the Condominium Act.
Fractional community of joint ownership: beware of the risk of confusion
There is often confusion between the fractional community and the community of joint owners. In fact, however, the fractional community is the complete opposite of the community of joint ownership.
In the case of joint ownership, several owners have an ownership interest in a property. However, the respective share is non-material in nature. In contrast to a fractional community, this share may not be sold. The persons in the fractional community own not only a non-material but also an actually definable and separable share in the tangible asset.
Real estate community fractional community: legal and tax differences
Whereas in a fractional community all persons have a joint share in the entire property and no individual part can be used exclusively, the persons in a community of properties each have their own separate share which they can use exclusively.
The rights and obligations in a fractional community are often contractually regulated in a usage agreement, whereas they are entered in the land register in a property community.
From a tax perspective, there is no option for separate assessment of property tax in the case of fractional co-ownership. The tax is divided proportionally between the co-owners. In the case of property communities, however, the co-owners have a choice: they can opt for joint or individual assessment.
In the case of a joint assessment, the property tax is calculated for the entire community; in the case of an individual assessment, it is calculated separately for each co-owner.
Is a community of heirs a fractional community?
No, these are legally different constructs. A community of heirs is a community of joint owners in which all heirs are joint and indivisible owners of the estate.
In contrast, in a fractional community, the individual heirs each have a certain share in the joint residential property. In order to achieve more flexibility, a community of heirs can be converted into a fractional community.
Is a married couple a fractional community?
Yes, the joint purchase of a property by spouses results in a fractional community. Both spouses are entered in the land register as co-owners and generally each own half of the property. Each person has an independent right to his or her share and can transfer this, for example by selling it.
How is the fractional community created?
The fractional community is created by a contract or by legal regulations, for example in the case of a WEG. It refers to the joint ownership of a property, for example a plot of land or a building. Each co-owner owns a fractional share of the residential property and can also sell, bequeath or give away this share.
Decisions on the use and management of the common property must be taken jointly by all co-owners, unless otherwise agreed in a division agreement or a fractional share agreement.
The main difference to the WEG is therefore that a condominium owners' association is created specifically for the joint ownership and management of apartments and common areas within a property, whereas a fractional community makes it possible to have joint ownership of any property and to dispose of it freely.
Example: A good example of a fractional community is the joint ownership of a property by married couples who purchase it jointly. The property is owned equally by the married couple.
The management of the fractional community
What happens in the fractional community is in the hands of the members. The management of a fractional community therefore requires good communication and cooperation between the members in order to make decisions and share responsibilities.
Most management matters are usually based on a contract between the members of the community. This agreement determines how decisions are made, how costs are shared and how the use of the property is divided. Everyone is free to dispose of his or her share of the property.
However, decisions on the matter are made jointly. In principle, you can also sell your share so that a new person joins the community. However, it is not possible for an individual member to sell the entire property.
Fractional ownership and letting: What to look out for?
In a fractional community, renting can only take place with the consent of all co-owners. This means that all persons in the fractional community must agree to the letting and sign the house rental agreement or apartment rental agreement. However, a different basis is possible if this has been agreed in writing in advance.
Fractional community property tax: Who pays if there are several owners?
If several people own a property together, they are all jointly responsible for the property tax. This means that, in principle, each owner owes the entire property tax.
However, this does not mean that every owner has to pay the full amount. The municipality can only demand the property tax once - therefore the property tax only has to be paid once. If one condominium owner pays the entire tax, the others are no longer responsible.
Shared responsibility for property tax for the fractional community
The fractional community is jointly responsible for ensuring that the property tax is paid in full. This is stipulated by law. The simplest solution is a joint account from which the property tax is regularly debited. This way, there are no disagreements in the fractional community.
Problems can arise if the owners cannot agree on who pays the property tax. To avoid trouble, it is advisable to agree on the payment of property tax as a fractional community at an early stage and, if necessary, set up a joint account.
Property tax: meet payment deadlines
To ensure smooth cooperation in the fractional community, it is important that you clearly define the payment obligations for common costs, such as property tax, in advance.
The contract of use should regulate the distribution of costs between the individual persons and specify precise payment deadlines. This helps to avoid misunderstandings and ensures a fair distribution of costs.
The property tax return of the fractional community
The property tax return is an important aspect of managing a fractional community, especially if it involves a property. In principle, every owner is obliged to pay property tax. Property tax enables owners to share in the costs incurred by the municipality as a result of the properties.
If you are part of a fractional community, you must inform the tax office with the declaration of assessment who among the members is to be the "person authorized to receive". This member will then receive all letters from the tax office.
The declaration of assessment
The assessment declaration is used to calculate the property tax for the fractional community, for example on the basis of various data such as the size of the property. The ELSTER tax portal is used to submit the assessment declaration. To avoid errors, some fractional communities like to work together with a tax consultant.
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Fractional community and VAT: What to look out for?
Until 2018, fractional communities were treated like companies for tax purposes and had to pay VAT on rentals. Due to a change in the law, it is now not the community as such but each individual member that is liable for VAT.
This change is based on the fact that fractional communities do not have legal capacity under civil law. Consequently, it is no longer the fractional community that is liable for VAT, but its members.
Fractional community and land register: What you need to know
The land register plays a decisive role for a fractional community, as the ownership structure of the property is recorded here.
The land register therefore provides official confirmation of ownership and protects against unfounded claims by third parties. Anyone can check who owns a property and what rights they have to it by inspecting the land register.
What is written in the land register for a fractional community?
- Owners: The names of the co-owners are entered, often with their respective shares.
- Type of ownership: It is noted that this is a fractional community.
- Encumbrances and rights: All encumbrances on the property, such as mortgages or land charges, are entered here.
- Restrictions: Any restrictions on use, such as building encumbrances, are also noted here.
Frequently asked questions
- Is a fractional community a GbR? No, a fractional community is not a GbR. In a fractional community, each co-owner has a clearly defined share of the property. In a GbR, on the other hand, the entire property belongs to the company, not to the individual partners.
- When is a division by fractions given? A division according to fractions is when an item - such as a property - is divided among several people. Each owner has a precisely defined share.
- What if I want to dissolve the fractional community? If you would like to dissolve your fractional community, there are various options. Either all parties involved agree to sell the property to a third party or one member takes over the shares of the others. If no agreement can be reached, a forced sale (partition auction) can be applied for. As this often leads to a lower sale price, it should only be considered as a last resort.
- I have questions about property tax and fractional ownership. Who can I contact? If you have questions about property tax and fractional ownership, please contact your property management company. Ralph will be happy to help you.
Property tax and fractional ownership: No more unanswered questions with Ralph
Further tips on the subject of condominium and property management only from us. What rights and obligations do I have as an owner? What is the WEG law? How do I terminate my property management? You can find answers to these questions and much more in our blog.
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