Investor Guide
2026-10-10 08:22

Grundschuld (land charge): The Bank's Collateral, and a Trap for Shareholder Loans

A Grundschuld is a land charge registered in section III of the land register that entitles its holder to be paid a fixed sum out of the property, independently of any particular loan. It is the standard collateral for German property loans, and if it secures a shareholder loan from abroad, the interest becomes taxable in Germany, subject to any treaty relief.

What it is

A land charge entitles its holder to payment of a fixed sum out of the plot (§ 1191(1) BGB) and is entered in section III (§ 11(1) GBV). Unlike a mortgage (Hypothek, § 1113 BGB), it does not presuppose a claim (§ 1192(1) BGB). A security agreement links it to the loan, and the owner's defences under that agreement hold against anyone who acquires the charge (§ 1192(1a) BGB).
The capital of a land charge falls due only after six months' notice, a rule that cannot be varied where the charge secures a money claim (§ 1193 BGB). The holder is paid through compulsory enforcement against the property (§§ 1147, 1192(1) BGB). In the notarial deed the owner usually submits to immediate enforcement, effective against any later owner, so the bank needs no court judgment (§§ 794(1) no. 5, 800 ZPO). Rank generally follows the order of registration (§ 879 BGB).

Why it matters to investors

At purchase, two sets of charges meet. The seller's land charges are normally released, paid off from the price against deletion approvals that the notary collects before the price falls due (Part 8). The buyer's bank wants a first-ranking charge before it pays out. Because the buyer is not yet owner, the purchase contract in practice lets the buyer charge the property in advance, initially securing only the price.
The charge outlives the loan: repaying the debt does not delete it, and a broadly drafted purpose clause can make it secure other debts. Charging a heritable building right may need the landowner's consent (§ 5(2) ErbbauRG).
For a lender resident abroad, the trap is tax. Interest on a shareholder loan secured by a land charge on German property, even a second-ranking one, is German-source income taxed by assessment (§ 49(1) no. 5 lit. c aa EStG; Part 9). A tax treaty may reduce the tax.

What to check

• Section III: every existing charge, its holder and the deletion approvals the notary holds before payment.
• The financing power of attorney in the purchase contract, limited to funding the price.
• The security agreement's purpose clause, and how the charge is released after repayment.
• Any shareholder loan left unsecured, with no land charge of any rank (Part 9).
Related terms: Grundbuch · Gesellschafterdarlehen · Erbbaurecht
Sources: BGB §§ 879, 1113, 1147, 1191, 1192, 1193; ZPO §§ 794, 800; Grundbuchverfügung (GBV) § 11; ErbbauRG § 5; EStG § 49(1) no. 5; Gordon Real Estate Group, "German Prime Retail", Parts 8 and 9. Legal position as of 10 October 2026.
Photo: Annie Spratt / Unsplash
This entry is general information and not legal or tax advice.