What is a priority notice of conveyance?

Everything About the Special Protection for Real Estate Buyers

In a real estate purchase, a priority notice of conveyance is regularly entered in the land register in favour of the buyer, only to be deleted again immediately after the transfer of ownership in the ideal case. But why? We explain exactly what a priority notice of conveyance is and how it protects the buyer.

Why is a priority notice of conveyance entered?

After the notarisation of a real estate purchase, the notary generally applies without delay for the entry of the priority notice of conveyance in the land register. This entry fundamentally ensures that the buyer actually obtains ownership of the property once all contractual and legal requirements have been met.

The priority notice of conveyance is usually deleted again after the actual transfer of ownership, since the buyer’s claim to ownership is then fully satisfied by the entry in the land register, provided there have been no intervening disposals or encumbra§ 883 para. 1 BGB:

“To secure a claim for the granting or cancellation of a right in a piece of land or in a right encumbering a piece of land, or for the modification of the content or rank of such a right, a priority notice may be entered in the land register. The entry of a priority notice is also permissible to secure a future or conditional claim.”

As a sub-category of the general priority notice, the priority notice of conveyance is specifically intended to secure the – possibly also conditional – right to the transfer of ownership of a property. All claims to conveyance of ownership are capable of being secured, including those for retransfer.

If the intended acquisition concerns a partial area of a plot of land, the priority notice of conveyance may be entered even before the partial area has been formally separated from the undivided plot.

Accessory Security Instrument Sui Generis

The legal nature of the priority notice is disputed, as it has both proprietary and contractual elements. However, it is not a proprietary right in the strict sense, which means:

• The person entitled under the priority notice of conveyance has no claim against the owner for conveyance of ownership arising from the notice itself.
• The priority notice of conveyance protects the entitled person in relation to their debtor by preventing the debtor from otherwise encumbering or transferring the property in a way that would be contrary to their (unencumbered) claim to ownership.
• The priority notice of conveyance presupposes the existence of a valid – possibly also conditional – claim against the landowner for conveyance of ownership of the property.

The priority notice of conveyance is therefore accessory and passes – even without a separate declaration – pursuant to § 401 BGB to the assignee upon assignment.

How does the priority notice of conveyance protect the buyer?

The priority notice of conveyance protects the entitled person against:

1. Intervening disposals
   (§ 883 para. 2 s. 1, § 888 BGB). If the seller transfers the property to a third party, this transfer is relatively ineffective as between buyer and seller.

2. Insolvency of the debtor
   (§ 883 para. 2 s. 2 alt. 3 BGB; §§ 106, 254 para. 2 InsO, § 1971 s. 2 BGB). If the seller becomes insolvent, the buyer’s right generally remains intact.

3. Enforcement by other creditors
   (§ 883 para. 2 s. 2 alt. 1, 2 BGB, § 48 ZVG)
4. Limitation of liability of the heirs (§ 884 BGB).
   If the seller dies, the buyer can still enforce their right.

The Effect of the Priority Notice of Conveyance

The priority notice of conveyance takes effect retroactively from the date of its entry. Should a competing disposition subsequently be entered in the land register (e.g. another buyer or a land charge), the priority notice takes precedence. Full proprietary protection (acquisition of ownership) is, so to speak, brought forward in time.

Nevertheless, the priority notice of conveyance does not constitute a restriction on disposal or a land register block. This means:

• Competing/contrary encumbrances, such as the acquisition of ownership by a third party or the entry of a land charge in favour of a third party, are nonetheless effective and are also entered in the land register (ranking after the priority notice of conveyance).

Relative Ineffectiveness

The other disposal is, however, relatively ineffective to the extent that it conflicts with the security interest of the person entitled under the priority notice, but only in the relationship between that person, their debtor and the third party acquirer acting contrary to the notice. In other words: if the seller sells or encumbers the property despite the priority notice, these disposals are not absolutely ineffective, but only relatively ineffective as against the person entitled under the priority notice.

This means:

• The person entitled under the priority notice can still demand performance from the debtor, i.e. transfer of unencumbered ownership.
• The debtor cannot invoke relative ineffectiveness to argue that transfer of ownership has become impossible.
• The debtor remains correspondingly authorised to dispose and can have the encumbrances contrary to the priority notice removed.

There is no need to take action against the third-party acquirer, nor is this possible, since the priority notice does not give the person entitled under it any substantive legal claim against the third-party acquirer.

Upon performance by the debtor, the third-party acquirer then loses ex nunc, i.e. with effect for the future, the right initially validly acquired, and the person entitled under the priority notice obtains the legal position owed to them under the purchase agreement.

Costs and Notarial Obligation

Although the granting and entry of the priority notice of conveyance involves additional costs, it is in the vast majority of cases an indispensable security instrument. It protects the buyer from losing the purchase price, which is normally paid before ownership has been transferred. The notary therefore has a corresponding duty to advise.

Excursus: Protection Against Subsequent Letting?

It is disputed whether the priority notice of conveyance also protects against subsequent letting.

• Under § 566 BGB (“sale does not break lease“), an existing tenancy generally passes to the buyer. It is argued that subsequent letting is equivalent to the retrospective creation of a usufruct or a proprietary right of residence.
• The prevailing view, however, rejects this with reference to the protective purpose of social tenancy law. Unlike a usufruct or right of residence, the acquirer can unilaterally terminate the tenancy by giving notice (albeit under more onerous conditions) (cf. MüKoBGB/Lettmaier, 9th ed. 2023, BGB § 883, para. 65).

Lapse and Deletion of the Priority Notice of Conveyance

The priority notice lapses upon a declaration of cancellation by the person entitled thereunder and deletion from the land register.

It also lapses without a declaration of cancellation and deletion if the secured claim lapses, e.g. through

• Avoidance of the purchase agreement
• Withdrawal from the purchase agreement
• Satisfaction of the secured claim by transfer of ownership in the land register, provided there have been no intervening entries contrary to the priority notice.

As a rule, a real estate purchase agreement therefore also contains a provision whereby, at the time of notarisation, consent to deletion of the priority notice following the transfer of ownership is already granted and applied for – provided no intervening entries have been made to which the buyer has not consented.

Do you have specific questions about the priority notice of conveyance or do you require legal advice?