BFH II R 1/24 (17 Jun 2026) — Grunderwerbsteuer and payments to third parties: three contract‑ and notary checks foreign buyers must do before signing

The decision — what the BFH said (17 June 2026)

On 17 June 2026 the Federal Fiscal Court (Bundesfinanzhof, BFH), II Senate, issued judgment II R 1/24 (ECLI:DE:BFH:2026:U.170626.IIR1.24.0). The court summarised the legal rule in a leading statement: payments by a buyer to a third party are only a taxable Gegenleistung under § 9 Abs. 2 Nr. 3 GrEStG if the third party is in "a so strong legal position that he can and will prevent the buyer's acquisition" and the buyer makes the payment in knowledge of those circumstances. The BFH cancelled the lower court judgment and remitted the case for a fresh factual assessment by the Finanzgericht, directing that the presence of such a "strong legal position" must be found from all circumstances of the case.

Why this matters for foreign buyers

German real‑estate transfer tax (Grunderwerbsteuer) is generally measured by the value of the consideration (see § 1 and § 9 GrEStG). The BFH ruling narrows the category of third‑party payments that are automatically treated as part of that consideration by requiring both (a) a third party holding a blocking or decisive legal position and (b) the buyer's payment made with knowledge of that position. For cross‑border investors who often encounter structured deals, escrow arrangements, compensation payments to former buyers, or payments to local stakeholders, the decision changes the focus of due diligence: it is not every payment to a third party that increases the taxable base — but the facts that give that third party real power to stop the transfer and the buyer's motive and knowledge.

Three contract‑ and notary checks to do before signing

1) Identify and document any third‑party rights that could block or substitute the acquisition. Search title and civil‑court files for options, rights of repurchase (Wiederkaufsrechte), pending claims, assignment of purchase rights or other enforceable positions. The BFH requires the third party to have a "so strong legal position" that it could prevent the buyer's acquisition; record the factual basis for your conclusion. Ask the seller to deliver a written declaration and copies of any litigation or court orders. (Source: BFH II R 1/24, 17 June 2026.)

2) Record the buyer's knowledge and the purpose of the payment. The BFH applies § 9 only when the buyer paid "in Kenntnis dieser Verhältnisse" — that is, with knowledge that the payment was intended to induce the third party to forgo acquiring the property or to remove a real blocking right. Ensure the contract and notarial protocol explicitly state who pays whom, why, and whether the payment is consideration for the land or for some separate transaction (e.g. debt settlement). If you do not intend the payment to be part of the purchase price, require clear contractual wording allocating it outside the purchase consideration and require seller warranties to the same effect. (Source: BFH II R 1/24; GrEStG § 9.)

3) Use escrow and notary records to separate flows and preserve positions. Ask the notary to record payment conditions, an escrow/escrow account (Notaranderkonto) or conditional release tied to the removal of the third party's right. Where a payment is conditional on the third party undertaking to withdraw a claim, document the third party's undertaking separately and obtain evidence (court waiver, dismissal, written renunciation). Require the notary to list on the Urkunde which amounts form the purchase price and which are separate compensations. That allocation will be central if the Finanzamt later challenges the tax base; the BFH sent the case back to a Finanzgericht to re‑examine facts on such questions. (Sources: BFH II R 1/24; GrEStG § 9.)

Practical cautions and next steps

This BFH ruling narrows the category of third‑party payments that automatically enlarge the Grunderwerbsteuer base, but it does not eliminate audit risk. If a Finanzamt concludes that a third party enjoyed decisive blocking power and that the buyer paid to secure the transfer, it can assess additional tax. The BFH specifically required the lower court to re‑examine the evidence of the third party's legal power and the buyer's knowledge. Do not rely on template clauses alone.

Before signing a German notarial purchase contract, ask the notary for an explicit protocol of the payment allocation, obtain seller warranties about third‑party rights, secure written renunciations or court dismissals where possible, and consult a German tax adviser or a lawyer experienced in GrESt cases. This article explains the legal change; it is not personalised tax or legal advice.