Joint ownership: What are the rights, obligations and benefits?

A property community is a special form of ownership in which several people share a property and jointly manage the investment. A joint ownership arrangement entails both rights and obligations for the individual owners. In this article, we will shed light on the most important aspects of a community of owners.

Definition: What is a real estate community?

Joint ownership is a form of ownership in which several people jointly own a plot of land or a property. It gives several people the opportunity to invest jointly in land or real estate and to share both the associated benefits and responsibilities.

This allows risks to be minimized and resources to be pooled, making the property community an attractive option for many investors. The division of ownership shares is precisely defined so that each co-owner knows his/her specific share of the total property.

• Financial aspects of the community: An important component of the property community is the pro rata distribution of income from leasing or renting among the owners. In order to make this distribution transparent and legally secure, an assessment notice from the tax office documents the exact distribution of income among the co-owners.
• Tax treatment of the community: In terms of tax treatment, the property community offers the advantage that co-owners can declare their individual share in the tax return. Taxation is carried out individually according to the personal circumstances and tax class of the individual owners, which enables flexible and fair tax treatment.
• Rights and obligations of the community: Co-owners of a property community have certain rights and obligations associated with this form of ownership, such as maintenance. In addition, specific regulations apply to the management and use of the common property, which must be observed by all persons involved in order to ensure smooth cooperation within the community.

Property community, fractional community, community of joint owners and homeowners' association: the differences

There are two main forms of real estate communities: the fractional community and the community of joint owners. The main legal difference between them lies in the way in which the owners can dispose of the property.

• Fractional community: In a fractional community, each co-owner holds a certain share of the property, which he or she can dispose of freely. The person can sell or encumber their share without needing the consent of the other owners. The fractional community is regulated in §§ 741 ff. of the German Civil Code (BGB).
• The Gesamthandsgemeinschaft: In contrast, the Gesamthandsgemeinschaft is characterized by a close connection between the co-owners. The property belongs to all owners jointly and none of them can freely dispose of their share. Dispositions regarding the property can only be made jointly by all owners. Joint ownership is defined in §§ 2032 ff. BGB (community of heirs), §§ 718 ff. BGB (partnership under civil law) and other laws.
• The homeowners' association (WEG): With regard to the condominium owners' association (WEG), it should be noted that this is not a property community in the true sense of the word. Each condominium owner is the sole owner of an apartment and only has a co-ownership share in the common property of the plot. The homeowners' association serves to manage the common property and regulate the relationships between the homeowners.

How is a real estate community established?

Establishing a community of property owners is an important step that can be relevant in various life situations. Whether you are purchasing a property together with others, are part of an existing homeowners' association (WEG), inherit a property, purchase a property together with your spouse or legally form such a community for other reasons - it is important to understand the various aspects and constellations.

If you purchase a plot of land with several people, a property community is automatically created. This often happens before development or other use and serves to share the financial burden or to jointly acquire larger plots of land.

In a WEG, each member has a share in the common property, which usually includes the land. This is typical for terraced houses, condominiums and similar properties.

If a testator leaves a property to several heirs, they automatically form a community of heirs that also relates to the property.

The joint purchase of a property by spouses, including condominiums, also creates a community of property. In the event of a divorce, the entry in the land register is of crucial importance, as it regulates the ownership structure and thus the claims of the individual parties. In the case of spouses, the regulations may vary depending on the existence of a marriage contract.

The legal establishment of a property community is generally carried out at a notary's office by signing the purchase agreement and registering the owners and their shares in the property in the land register.

The advantages of a real estate community

The formation of a property community, especially in the form of a fractional community, can have various advantages:

• Pooling of capital: By pooling several people, larger financial resources can be raised to jointly acquire or develop a property.
• Risk sharing: The risk associated with the acquisition and use of a property is distributed among several people.
• Flexibility: Fractional ownership allows flexibility in the use and management of the property, as each co-owner can freely dispose of their share.
• Simple settlement: The fractional community can be dissolved relatively easily by selling the property and dividing the proceeds among the co-owners.

However, it is important to note that the formation of a property community can also be associated with risks. Disputes between the owners about the use and management of the property can lead to conflicts. We advise you to reach a clear agreement on the rights and obligations of the owners before forming a community of owners.

Tax office requires two declarations from co-owners: Why?

If you are part of a community of owners, there are a few special features to consider when filing your tax return, as the tax office requires two tax returns.

First, an assessment procedure is carried out for the entire property community. Imagine that the tax office regards the community as a single owner. The total income from letting and leasing is therefore determined as if it were a single person.

In the next step, the assessment basis is determined uniformly for all co-owners. This means that the basis for calculating the tax burden is the same for all participants. The income is then divided among the participating persons according to their shares in the community.

The third step is your individual income tax return. Here you enter the income from renting and leasing determined in the assessment notice. The actual taxation of your rental income is based on this information.

Tip: If the assessment notice is not yet available when you prepare your income tax return, you can provisionally estimate your income. Don't worry, the tax office will automatically correct the information as soon as the assessment notice is available.

This procedure offers you a number of advantages:

• Equal treatment: It ensures equal tax treatment for all owners
• Fair taxation: You are taxed as if you were the sole owner, which enables fair and appropriate taxation
• Transparency: It enables a fair and transparent distribution of income so that each owner can pay tax on their share

Through this procedure, the tax office ensures that the taxation of rental income of a real estate community is both fair and comprehensible.

What you should bear in mind when renting out a shared property

As an owner in a real estate community who rents or leases common property, you earn income from renting and leasing, similar to a sole owner. This rental income is taxable.

Important points for you at a glance:

• Tax liability: Your rental income is generally taxable.
• Income-related expenses: You can deduct costs incurred in connection with renting (e.g. debt interest, property tax, building insurance, maintenance expenses) from your income as income-related expenses and thus reduce your tax burden. Find out more about the allocation of costs under the new Condominium Act.
• Recognition of incomeIncome from letting and leasing is only recognized for tax purposes if the following conditions are met:
  • Objective letting: A letting must actually take place, i.e. the transfer of residential property to a third party in return for payment.
  • Subjective intention to make a profit: You must have the intention to make a profit.

Please also note the following points:

1. Calculate income and expenses: First calculate the total income and expenses (income-related expenses) incurred for the entire community. This is an important step to create the basis for the next steps.
2. Declaration of assessment: Enter the previously calculated information in the community's declaration of assessment. The declaration of assessment serves to declare the income and expenses of the community to the tax office.
3. Note the exceptions: There are certain income and expenses that do not belong in the property community's declaration of assessment. These include personal income, such as remuneration for property management, and personal income-related expenses, such as interest for financing. These are taken into account separately as special income and special acquisition costs. The same applies to depreciation claimed in different ways.

Leaving a real estate community: a complex process with many facets

The desire to leave a property community can arise for various reasons, such as disagreements among the owners, financial circumstances or personal changes. Leaving a community of owners is often complex and requires careful planning and consideration of numerous aspects, which we will be happy to explain to you.

Would you like to withdraw from a real estate community? Please note these points:

• Consent and contract amendments: First obtain the consent of all parties involved. Carefully review your existing contracts and make any necessary adjustments. Don't forget to evaluate possible legal consequences.
• Clarify financial aspects: Be sure to clarify all outstanding financial obligations. Take into account costs for maintenance, repairs and ongoing expenses.
• Be proactive: Make a forward-looking analysis of the financial implications to avoid surprises later on.
• Organize the transfer of ownership professionally: Carefully plan the transfer of your rights and obligations to the remaining members. Consider renegotiating existing agreements and drawing up any necessary transition agreements.
• Do not underestimate legal aspects: Prepare yourself for potential legal issues: Clarify your ownership interests, identify potential liabilities and consult a legal expert if necessary.
• Redistribution by the community: The remaining community is responsible for redistributing the ownership shares, not you as the person leaving. The community of owners must redistribute the shares in the common property. This redistribution may be prescribed by existing contractual provisions or require a new agreement between the remaining members. As the person leaving, you are no longer directly involved in this process.

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