Cancelling a land charge: when it pays off and when assignment is cheaper.

What remains in the register after the final instalment

The German land register keeps every property in three sections. The first records who owns it. The second records encumbrances such as rights of way or a right of residence. The third records charges over the land, and that is where your Grundschuld sits, with the amount registered when it was created and with a rank.

The form it takes there makes a practical difference later. A Buchgrundschuld exists only as an entry in the register and is the normal case today. A Briefgrundschuld additionally comes with a certificate, the Grundschuldbrief. Which of the two you have is stated in your land register extract, and it decides whether a later cancellation needs an extra document.

That registered amount is not your outstanding balance. It is the ceiling up to which the bank could demand payment out of the property, and it stays the same throughout the term while the balance falls. After the final instalment the two figures are therefore as far apart as they will ever be: the balance is nil, the registered amount is unchanged.

This surprises many owners, and the explanation lies in the construction. A mortgage would have shrunk automatically with repayment, because it is tied to the claim. A Grundschuld is not. It stands independently alongside the loan, connected only by a contract, the security agreement. That is why the Grundschuld has prevailed in practice: the same entry can be reused for a second loan without anything new having to reach the register.

What the final instalment changes, then, is not the entry but the entitlement. The bank may no longer claim anything from the charge, and the security agreement gives you a claim to have the security returned. How that is done is, as a rule, for you to decide.

Consent, notary and land registry

If you decide on cancellation, three parties are involved and each does exactly one thing. That division also explains why the question of cancelling without a notary has to be answered with a qualified no.

• The bank issues the Löschungsbewilligung, its declaration that it consents to cancellation. It does not file anything and does not set the process in motion. The document often arrives unprompted after the final instalment; otherwise you request it.
• The notary certifies your signature on the application. He does not notarise and does not advise, he only confirms that the signature is genuine. That is why the appointment is short and costs far less than a notarisation.
• The land registry enters the cancellation. Only then has the charge left section III.

So it cannot be done without a notary, even though the notary does not carry out the cancellation. One special case is the Briefgrundschuld, a land charge evidenced by a certificate. That certificate has to be submitted with the application. If it has been lost, the route runs through a public notice procedure at the local court, which can take months. Anyone who has such a certificate in a folder should keep it like a deed rather than like a copy.

What cancellation costs

The fees are not a matter of discretion. They are set by the Court and Notary Fees Act, the GNotKG. The basis is the nominal amount of the land charge, meaning the figure in the register. This is where most people miscalculate: the charge is measured against the registered amount, not against an outstanding balance that is now nil.

Fees arise twice. The notary charges for the public certification of your signature, the land registry for entering the cancellation. For the cancellation the schedule of costs under the Court and Notary Fees Act provides for a 0.5 fee under number 14140. Because both items attach to the same value, they rise together with the size of the charge.

A reliable figure for your own case comes from the official fee calculator run by the Federal Chamber of Notaries. The example amounts circulating online differ considerably, because they assume different scopes of work. The way fees are calculated on a purchase is set out in our guide to notary fees when buying a house, and the same logic applies here.

When cancelling makes sense and when it does not

Almost every account treats this as a yes or no question: cancel or leave it. In fact your security agreement gives you a claim to the return of the security, and that claim opens three routes. You can ask for the charge to be cancelled. You can ask the bank for a waiver, which turns the security into an owner’s land charge. Or you can ask for it to be assigned to yourself or to a third party.

What separates these routes is the rank. Charges over land are satisfied in the order in which they were registered, and first rank is the most valuable position there is. Cancel, and it is gone; subordinate rights move up. Keep the entry as an owner’s land charge or have it assigned to you, and the rank survives and stands ready for the next loan.

Only a few but clear reasons therefore speak for cancellation: the property is to be sold, gifted or inherited and handed over free of encumbrances, or you simply want a tidy register and further borrowing is out of the question. Everything else speaks against it, above all the fact that cancellation cannot be undone. Anyone who needs the security again later registers a new one and pays the notary and the land registry a second time.

Which routes are open to you depends on your own security agreement. Standard clauses that reduce the claim to bare cancellation are not effective in every constellation. If you are unsure, it is worth reading the security purpose declaration before you reply to the bank.

On a lender switch it is assignment against fresh registration

So far this has been about a loan that has ended. In practice the land charge question comes up far more often in another situation: the loan continues, but the lender changes. That is the normal case when you refinance with a different institution at the end of a fixed rate period. The choice then is not cancel or keep, but assign or register anew.

Registering anew means the old charge is cancelled and a new one is entered for the new bank. That takes a consent to cancellation, a new deed at the notary and two entries at the land registry. With an assignment the same entry moves to the new creditor with the same rank, and the notary only certifies the signature on the assignment declaration. No new deed is needed.

Assignment is therefore normally both the cheaper and the faster route. Two to four weeks are usually allowed for an assignment, four to six for cancellation followed by fresh registration. Both are indicative and depend on the land registry in question, but the direction is unambiguous.

The decisive point comes last. In practice this choice is often made by the bank rather than by the owner, because nobody asks. Both the outgoing and the incoming lender have to agree to an assignment, and if the application says nothing, the process frequently takes the more laborious route. The customer pays for it. Anyone preparing a follow-on loan should therefore raise the question before the paperwork is signed, not afterwards. How a follow-on rate can be secured early is set out in our guide to the forward loan.

Four situations, four different answers

Whether a land charge should be cancelled cannot be answered in the abstract, and that is exactly where most guides on the subject fall down. The same question has a different answer depending on your circumstances. In our advisory work at ME Finance we sort it into four situations.

1. The loan has ended, further plans are open. Leave it in place. It costs nothing, and the rank stays available for a renovation or a later loan.
2. The loan continues, the lender changes. Ask for an assignment, and raise the point yourself. Cancellation and fresh registration is the most expensive route here.
3. The property is being sold. Release from encumbrances, but not in advance. The sequence belongs in the purchase contract and is handled by the notary.
4. The property is being transferred or inherited. Consider cancellation. Here a tidy register genuinely has value, because it saves later clarification.

Notably, cancellation happens in only two of the four cases, and in one of those not straight away. Anyone who reflexively applies for cancellation after the final instalment is therefore deciding against their own interest in the majority of cases. What is sensible in your situation also depends on when your fixed rate period ends and what is planned after it.

Selling a property with a land charge still registered

A registered land charge is not an obstacle to a sale, and there is no need to have it cancelled at your own expense beforehand. The buyer wants the property free of encumbrances, and that route is well established: it is called Lastenfreistellung and is handled through the purchase contract.

The sequence is always the same. The notary asks the seller’s bank for a redemption figure and the consent to cancellation. Out of the purchase price the bank is paid first, and the remainder goes to the seller. The cancellation is entered together with the change of ownership. The buyer receives a clean register without the seller having had to pay anything up front.

Anyone who has the charge cancelled beforehand at their own expense therefore pays twice for nothing: they bear fees that the purchase contract would have dealt with anyway, and they give up a rank they could have used right up to the sale. Here too, waiting is the cheaper decision.

Cancel, keep or assign: the decision turns on what is planned next, and it costs nothing as long as it is taken in good time. If a follow-on loan, a renovation or a sale is coming up for you, we will look at your documents beforehand. Get in touch before you reply to your bank.