GERMANY LAW AND PRACTICE Contributed by: Wolfram H Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
7.7 Requirements Before Use or Inhabitation
day may be 0.25% of the net purchase order for the finalisation of construction work, and 0.15% of the net purchase order for any agreed inter - mediate milestones. In any case, the liquidation damages must be deducted from any damages for delay of works under the Civil Code. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance A warranty bond of 10% of the net fee is market standard to secure the performance of the con - tractor’s work until completion. From completion onwards, a warranty bond of 5% of the amount of the final invoice for malp - erformance within the liability period is market standard. Generally, warranty bonds are provided as bank guarantees. 7.6 Liens or Encumbrances in the Event of Non-payment Contractors of a construction project (or parts of such) may acquire a right over the proper - ty, comparable to a lien, in the form of grant - ing a mortgage on the property to secure the contractor’s remuneration ( Sicherungshypothek des Bauunternehmers ). However, this is only applicable if the buyer is also the owner of the relevant property on which the construction work is performed and the work, the value of which is to be secured, has already been per - formed. In addition, the contractor may claim a lien ( Werkunternehmerpfandrecht ) on movable items the contractor has been instructed to cre - ate or modify for the buyer. Once the contractor’s payment claim has been satisfied, it is obliged to approve the deletion of the encumbrance in the land register and to return the movable item to the buyer.
For all building projects, the necessary build - ing permits must be obtained before the start of construction work. This includes the official approval of necessary fire safety standards and other technical certificates by the building authority or the responsible engineer. In some, but not all federal states, the building project is formally accepted by the building authority after completion. In some instances, if the building is intended for a specific commercial or industrial purpose, a business licence must also be issued. VAT is in principle not applicable to the sale of German real estate. If the property is sold busi - ness to business, the seller may waive the VAT exemption, triggering VAT at a rate of 19%. The buyer owes the VAT triggered to the tax authori - ties (reverse charge). If the buyer intends to use the real estate to render non-VAT-exempt sup - plies, the VAT triggered may be reclaimed as input VAT; hence no VAT would be payable. These principles do not apply for operating facilities ( Betriebsvorrichtungen ), the transfer of which is always subject to VAT. Furthermore, no VAT would be triggered if the real estate is trans - ferred by way of a transfer of a going concern ( Geschäftsveräußerung im Ganzen ) which is not subject to VAT by law. A transfer qualifies as a transfer of a going concern, if the buyer contin - ues the VAT-able business rendered by the seller, which typically applies if the buyer continues the existing lease agreements. 8. Tax 8.1 VAT and Sales Tax
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