Exemplary representation of fractional ownership
August 02, 2022

Joint property: fractional ownership and fractional community

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Definition of fractional community according to BGB

A fractional community according to the German Civil Code (BGB) exists when several people own a property or a right and can freely dispose of their shares. It is created by a contract or by legal regulations, for example in a homeowners’ association. It must be distinguished from a community of heirs and a community of joint owners. A typical example of a fractional community is the joint ownership of a property by a married couple who acquire it jointly. The regulations governing this special form of ownership can be found in Section 741 BGB and Section 1008 BGB. According to Section 742 BGB, each partner is entitled to an equal share of the right. However, there are also regulations that deviate from this, which are then stipulated in the contract.

Exemplary representation of fractional ownership

Establishment of a fractional community for real estate

Such a community is created either through a legal transaction or by law. A corresponding legal transaction exists if several persons acquire ownership of a property, but there is no community of joint ownership. In the case of statutory regulations, it is created by combining or mixing movable property, as a result of a treasure hunt or – in the case of real estate – by the homeowners’ association. Letting and selling the property by the community is possible without further ado. However, in the case of a fractional community and letting, care must be taken to ensure that it is carried out by all members of the community together.

The sale of the entire property is also only possible jointly, but each partner can sell their share independently. In addition, each fractional owner may use the joint assets or the property, provided that this does not impair the use by the other partners. The management of the common property is the joint responsibility of all members of the community. Decisions on management and use are made by majority vote. In the case of a condominium owners’ association, the owners’ meeting is the decision-making body.

Fractional community and community of joint owners

The two forms of community property have some similarities and are often confused with each other, but there are some important differences. In some respects, they even contradict each other. In the case of joint ownership, all persons have joint ownership of the property, but the individual owners do not have a share right. For example, a community of heirs is a community of joint owners, as the heirs are obliged to manage the estate jointly. In so-called co-ownership by fraction, each partner has the right to freely dispose of their own share and can, for example, sell their share of the property independently without having to agree this with the other partners. However, it is possible to convert a community of heirs into a fractional community. The latter offers the individual heirs more flexibility and room for maneuver. It can therefore help to prevent possible disagreements and disputes. The conversion is carried out by a notary, requires the presence of all members of the community of heirs and must be entered in the land register.

Familie in modernem Badezimmer

Dissolution of the fractional community: your rights

The dissolution of a fractional community can be initiated by any individual member. To do so, the dissolution of the community must be applied for. This is possible via various procedures. For example, the community is dissolved if the property is sold to a third party and each member receives the proportionate proceeds of the sale. The fractional community is also dissolved if one member takes over the share of the other member(s) and thus becomes the sole owner of the property. If the members cannot agree on a uniform course of action and a partition auction has to be held, the community is also deemed to be dissolved. However, this is always the worst of all solutions, as in such cases sale prices are usually achieved that are significantly below the market value of the property.

It exists when a group of persons has joint ownership of an object or a right. The regulations on this can be found in § 741 BGB. It must be distinguished from joint ownership, where members cannot freely dispose of their own share and all decisions relating to ownership can only be made jointly.

In principle, a GbR is a community of joint owners. The conversion of co-ownership according to fractions into a GbR can be carried out via an agreement between the community members, notarization and entry in the land register.

This community is established by means of a legal transaction or by law. In the case of contractual creation, several persons acquire a property and stipulate the co-ownership according to fractions in the contract. An example of a legally created fractional community in accordance with the German Civil Code (BGB) is the homeowners’ community. The owners’ meeting is mandatory for a fractional community and usually takes place once a year.

Co-ownership according to fractional shares is normally a form of joint ownership. The second form of property community is the community of joint owners. However, condominium owners’ associations are not considered communities of land. This is because each owner owns one apartment in the residential complex alone, but apartments can also have two owners – for example a married couple – which in turn form a fractional community in real estate.

In principle, a community of heirs is a community of joint owners. This means that there is no co-ownership based on fractions. In this case, the heirs have a claim to joint ownership, but not to their own shares. They therefore cannot dispose of the respective share independently, but must always make all decisions jointly. However, it is generally possible to convert a community of heirs into a fractional community. This requires notarization and the presence of all members of the community of heirs at the notary appointment.