Problem with construction contract before purchase contract?

Hello everyone,

A friend and I are planning to jointly purchase a plot of land. The plot currently has a single-family house, which the owner will demolish, and the plot will be divided. The owner has already submitted a preliminary building request, and we will only sign the contract once the building permit is approved.

We are currently also reviewing construction offers for building 2 semi-detached houses. We are building the houses independently of the landowner.

I assume that in our case the two contracts are completely independent. The construction company does not even know who the landowner is.

The real estate agent told me that I have to pay property transfer tax on the construction contract even if the construction contract is signed before or shortly after the purchase contract.

Does the order of the contracts affect the property transfer tax?

The notary also included this statement in the purchase contract:
"The buyer declares that he has not yet signed a construction contract for the development of the contractual plot of land."

Why is it necessary not to sign a construction contract before purchasing the land? Is this legally required?

The bank says they need a construction contract with a fixed price guarantee to avoid financing problems.

Thank you very much and best regards

Are the two contracts related, e.g. the construction company arranged the land or you are obliged to build with a certain company? Then it is a tied transaction and the real estate transfer tax is due on both. If you found the land yourself and freely chose the construction company, then only on the land.

Basically, it is somewhat problematic to sign the construction contract before the land is buildable and in your ownership. The fixed prices are time-limited and if something is delayed, the construction company is allowed to increase the prices. Also, if something goes wrong with the land purchase (someone offers the previous owner more) you still have a construction contract that you have to fulfill or terminate under penalty.

Die Bank sagt, sie brauchen einen Bauvertrag mit Festpreisgarantie, um Finanzierungsprobleme zu vermeiden.

Are you financing the entire amount directly? Then of course the bank also needs a contract. But then you also have to make sure that you can start building quickly, otherwise you incur commitment interest. Alternatively, you can finance only the land variably and later arrange financing for the house and the remaining debt of the land.

The broker told me that I have to pay real estate transfer tax on the construction contract even if the construction contract is signed before the purchase contract or shortly after the purchase contract.

That is nonsense to begin with.

Does the order of the contracts affect the real estate transfer tax?

It can have an effect. The tax office might think that it is a single contractual arrangement. For such an arrangement, signing a construction contract before the purchase contract is an indication. This often happens when you only get the land if you also sign the construction contract with a specified construction company.

The notary also included this statement in the purchase contract: "The buyer declares that he has not yet entered into a construction contract for the property concerned by the contract."

To avoid waking up any sleeping dogs at the tax office in the first place – this is standard. He doesn’t know what you have already done (unless you tell him).

Why is it necessary not to sign a construction contract before buying the property? Is this legally required?

It is not, and no.

The bank says they need a construction contract with a fixed price guarantee to avoid financing problems.

That is not necessary either. There are so many homeowners building without a fixed price guarantee. For architect-designed buildings, for example, it is not possible otherwise. If the bank is that picky from the start, take another bank. Why don’t you buy the land subject to the condition precedent of a positive preliminary decision? Then all problems are solved and you can calmly examine construction offers.

You only sign the construction contract after the property has been purchased. Otherwise, you have a problem. The house bought without the property

Are the two contracts related, e.g. the construction company arranged the plot or you are obliged to build with a specific company? Then it is a tied transaction and the real estate transfer tax applies to both.

No, the construction company doesn't even know the landowner or the broker.

If you found the plot yourself and freely chose the construction company, then the tax applies only to the plot.

I found the plot on the internet. Originally, the owner/broker suggested a certain construction company. But I got a better offer, so I decided to build the house with another company whose name the owner/broker doesn't even know.

Even if something goes wrong when buying the plot (someone offers the previous owner more), you still have a construction contract you must fulfill or terminate under penalty.

You only sign the construction contract once the plot has been bought. Otherwise, you have a problem. Buying the house without land.

For this problem, the construction company proposed to include this clause in the construction contract:
"The contract is only valid after the plot purchase"
Would this be considered a connection to the purchase contract? I thought it was just too general and basically necessary, since you can't build a house without a plot.

Are you financing the entire sum directly? Then the bank will of course want a contract. But you must also ensure you can start construction quickly, otherwise you risk commitment interest.

Yes, this is financing for the entire project. The banks were not very interested in granting partial financing only for the plot.

It can have an impact. The tax office might think it’s a unified contract. For such a contract, signing a construction contract before the purchase contract is an indication. This often happens if you only get the plot by also signing a construction contract with a specified construction company.

Thanks for the hint. I think we will be able to prove that this is not the case. We already have several offers from different construction companies (including the one suggested by the owner/broker, which we did not accept).

To avoid waking sleeping dogs at the tax office in the first place – that’s standard. They don’t know what you have already done (unless you tell them).

OK. I have contacted the notary to clarify this situation. I assume we can then remove this clause without problems.

Why don’t you buy the plot under the suspensive condition of the positive preliminary building permit? Then all problems are solved and you can calmly review construction offers.

I am not sure if I understood that correctly. The broker and the architect (on behalf of the landowner) recommend that we only sign the contract once the preliminary building permit is available. That would make clear what we are buying.

I am not sure if I understood that correctly. The broker and the architect (on behalf of the landowner) recommend that we only sign the contract once the building permit notice is available. That way it would be clear what we are buying.

Exactly as I wrote it. The purchase contract only becomes valid once the building permit notice is available. If the building permit notice is not positive, the purchase contract becomes void. It is also possible to agree on different prices, depending on the approved possibilities. You will then incur notary costs, but you have the security that you have secured the land. This is routine for professional real estate investors, but not so common in the private sector.