Expert Guide on Security and Guarantees under German Law

Yes, however there are different types of such "personal securities" under German law, all of which can be granted by both legal entities and individuals. In the case of a suretyship (Bürgschaft), the fate and scope of the security depends on the secured obligation, whereas a guarantee (in the narrower sense) or an assumption of debt (Schuldbeitritt) constitute independent payment obligations of the grantor of the security.

Yes.

No.

Yes, but in the case of a German corporation only subject to limitation issues (cf. section 4).

Yes.

Yes, but in the case of a German corporation only subject to limitation issues (cf. section 4).

Financial assistance:

A guarantee (in the broader sense) issued by a subsidiary incorporated as a German corporation (i.e. a German limited liability company (Gesellschaft mit beschränkter Haftung) or German stock corporation (Aktiengesellschaft)) to a creditor of the subsidiary's shareholder (“upstream security”) may violate the statutory capital maintenance rules. This may also be the case if a German corporation grants a guarantee to a creditor of its sister company (“cross-stream security”). A breach of the capital maintenance rules will not affect the validity of the issued guarantee but can lead to civil and criminal liability of the managers of the German corporation granting the guarantee.

Full-value rule:

Under German corporate law, upstream- or sidestream-guarantees are only permitted if the claim of the subsidiary granting the guarantee for reimbursement or recourse against the shareholder is of full value at the time the security is granted. This requires that, according to reasonable commercial judgment, a default on the recourse claim is unlikely.

Limitation Language:

A breach of capital maintenance regulations and the associated risk of civil and criminal liability of the managers can be avoided by using suitable limitation language. However, this language will limit the beneficiary's rights to enforce the guarantee if and to the extent the registered share capital needs to be protected.

If the grantor is an individual person, his/her surety declaration must be issued in writing according to German civil law. The electronic form is excluded.

In the case of companies or business enterprises, German commercial law provides that an oral surety declaration is sufficient. However, for evidential purposes it is recommended to obtain the surety declaration in written or text form also in a B2B relationship.

Yes:

if it has been agreed that future liabilities will be covered, which is a matter of interpretation of the respective security agreement;
this does in general also apply to securities in rem;
however, the law demands stricter requirements for specific securities in rem, such as pledges (Pfandrecht) and mortgages (Hypothek), i.e. at the time the contract is made the secured obligations need to be determinable or individualizable, respectively.

Validity:

It depends:

the validity of a suretyship (Bürgschaft), pledge (Pfandrecht) or mortgage (Hypothek) is dependent on the validity of the principal/secured obligation, while the validity of a guarantee (Garantie) is legally independent from the underlying claim, although commercially it is granted for a certain underlying purpose;
in the case of other forms of guarantee or security in rem, such as security transfer of title (Sicherungseigentum) or security assignment (Sicherungsabtretung), the security agreements are typically drafted in a way that the grantor of the security has a right to a retransfer/reassignment once the secured obligation has been satisfied.

Indemnification:

Under German law it is possible to enter into a contract by which one party agrees to indemnify the other party for certain costs, possible damages or other specified scenarios..

A suretyship (Bürgschaft) expires by law when the secured obligation is satisfied. There is no maximum guarantee period under German law. However, if the guarantor issues a surety for a certain period of time only, it will be released after the expiry of that period unless the creditor enforces the guarantee claim before the expiry of the guarantee period.

Yes.

A parallel debt structure is sometimes used in Germany to enable a security trustee also to hold “accessory security rights” on behalf of others (e.g. a group of lenders). Pursuant to German law, accessory security rights such as suretyships (Bürgschaften) mortgages (Hypothek) and pledges (Pfandrecht) require that the owner of the security must be identical to the owner of the secured claims. If the security trustee is the creditor of a parallel debt (constituted e.g. by an abstract acknowledgement of debt) and the accessory security rights are granted to the security trustee as a security for the parallel debt, the security trustee will be able hold and administer the whole security package (whether consisting or non-accessory or accessory security rights) as trustee for all creditors. The trust agreements need to be contractually agreed between the security trustee, the creditors and the grantors of the security.

In the assignment of a secured claim, any accessory security rights (e.g. suretyships (Bürgschaften), mortgages (Hypotheken) or pledges (Pfandrechte)) will pursuant to German law be automatically transferred to the assignee.

Such automatic transfer also occurs in non-accessory security interests (e.g. guarantee (Garantien), security transfer of title (Sicherungsabtretung) and land charge (Grundschuld)). However, the security agreement will generally provide, and the German courts have ruled, that the assignee is entitled to request that the non-accessory security rights are transferred to it by means of respective transfer agreements.

Generally, there are no specific formal requirements for the transfer of security. Exceptions include: i) security over real estate, registered ships and registered aircrafts; and (ii) security agreements that were made in notarial form or which contain specific transfer provisions.

In the case of mere editorial changes to the underlying contractual agreement from which the secured obligations derive, it will not be necessary to amend the existing security agreements. However, if the amendments to the underlying contractual agreement are more substantive in nature, especially if they change the amount or term of the payment obligations of the main debtor or if the principal debtor is replaced by another debtor, an amendment to the existing security agreements will be required.

In such case, it is possible to amend non-accessory securities (cf. section 11 above) with an agreement to amend the security purpose for which the security was originally granted so as to secure henceforth the secured obligations as amended.

In the case of accessory securities (cf. section 11 above) it is not possible to change the security purpose so that a supplementary junior ranking security (namely a new pledge (Pfandrecht) or mortgage (Hypothek)) must be perfected to secure the amended obligations.

Under German international property law, rights in assets, whether movable or immovable, are governed by the law of the country in which the property is located. If the assets are in Germany, the security agreements should also be governed by German law, as there is no alternative choice of law possible regarding this principle.

German international property law deviates from that principle regarding the means of transport as their location changes constantly. The law of the country of origin applies to aircraft, ships and rail vehicles.

From a German legal perspective, other security agreements may generally be submitted to a foreign law, but such choice of law might be considered invalid if there is no foreign link at all.

If the security is enforced in Germany, German law is generally applicable regarding the rules of enforcement.

Provided that the parties are commercial entities or entities under public law, the submission to foreign courts and the derogation from German courts is in principal possible. However, if German courts have exclusive jurisdiction, e.g. regarding disputes about real estate located in Germany, the submission of disputes to foreign courts is invalid.

Furthermore, German courts can consider the derogation of German courts as invalid if they assume that the derogation would, e.g. lead to a reduction in legal protection of an affected party.

Under German law, submission to arbitration is possible without special restrictions if the arbitration agreement relates to pecuniary claims (vermögensrechtliche Ansprüche). Submission to arbitration, however, does not preclude the commencement of proceedings before German courts. If the parties have agreed on a valid submission to arbitration, this gives the parties the right to raise the defence of arbitration in court. If the party raising the defence can prove the submission to arbitration, the court will dismiss the claim as inadmissible.

Under German law, the recognition and enforcement of foreign arbitral awards is governed in particular by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958).

Article 63 of the Treaty on the Functioning of the European Union ("TFEU") prohibits restrictions on capital movements and payments between Member States and between Member States and third countries. Therefore, in general terms, the free movement of capital is intended to be possible within the EU and regarding non-EU countries. However, EU countries are allowed to take precautions to prevent foreign investment from exposing them to threats to public security, and in certain circumstances the EU can restrict the free movement of capital.

Under German law, different hardening periods apply depending on the circumstances in which the security was granted. The most relevant cases are:

If the secured creditor was not entitled to the security provided by the insolvent party, the liquidator may invalidate the security if it was provided within one month before the commencement of bankruptcy (Inkongruente Deckung).

The granting of a guarantee or security by the insolvent party within three months before the commencement of bankruptcy may be declared void, if at the time the security was granted, the insolvent party was already illiquid (zahlungsunfähig) and the secured creditor was aware of such illiquidity (kongruente Deckung).

If the insolvent party provided security to a third party after the third party already received the secured loan, this security can be contested if it was provided up to four years before the commencement of bankruptcy (Unentgeltliche Leistung).

If the insolvent party deliberately meant to disadvantage its creditors by granting the security, and the secured creditor was aware of that, the hardening period could even be up to ten years before the commencement of bankruptcy (Vorsätzliche Benachteiligung)

a. bank accounts;	Yes.
b. receivables;	Yes.
c. IP rights;	Yes.
d. shares (public or a private company, listed or not listed)	Yes.
e. rights in a company (other than shares);	Yes, interest in a general or in a limited partnership may be pledged subject to a corresponding provision in the articles of association or the consent of all partners.
f. insurance rights;	Yes.
g. inventory (goods in turnover);	Yes, the inventory must be identifiable, e.g. by marking, listing or by defining a relevant secured area.
h. equipment/plant/machinery/other movables;	Yes, the assets must be identifiable, e.g. by marking, listing or by defining a relevant secured area. It should be noted that some assets may, by law, be an integral part of the real estate property, so that security over these assets can only be given by way of a mortgage or land charge over the real estate property in which the assets are located.
i. goodwill;	No, under German law only rights and receivables can be pledged, not goodwill as such.
j. real estate property (other than land);	Yes, in general, security over German real estate property is provided by an abstract land charge (Grundschuld) or an accessory mortgage (Hypothek). The land charge (Grundschuld) represents the more popular and commonly used type of security over real estate as opposed to an accessory mortgage (Hypothek). The reason is that a land charge as non-accessory security right is not directly linked to the secured claim and, therefore, gives more flexibility to the lender than an accessory mortgage. To be effective, mortgages and land charges must be registered in the German land register.
k. land;	Yes, the same applies as to real estate property, as German law does not distinguish between real estate property and land.
l. objects under construction (object of unfinished construction);	In principle, a building or objects under construction cannot be separately encumbered. Under German law, there is no distinction between the building on real estate property and the real estate property itself. If a land charge is granted over a plot of land, the scope of the security interests will extend to the economic entity established on the encumbered land as a whole. Buildings on the land are considered as integral part to the land and will automatically be encumbered by a land charge.
m. lease rights to real estate, including land;	Yes, in the case of a registered hereditary building right (Erbbaurecht), i.e. a long term right to use real property, a creditor can charge the hereditary building right by way of a mortgage (Hypothek) or land charge (Grundschuld). The rules for charging hereditary building rights are essentially the same as for "normal" real estate.

In theory, yes. However, since difference requirements and the perfection rule apply to different assets, it is typical in Germany that security over each type of asset is created by a separate contractual agreement.

Yes.

Generally, no. However notarisation is required in the case of e.g. security over real estate regarding German limited liability companies (GmbH).

Generally, no- However registration is required in the case of security over real estate, registered vessels, aircraft and certain types of IP rights.

Under German law, there is no rule for a security agreement to be in a specific language. However, (i) the parties should be capable of understanding the relevant language; (ii) in the case of security over real estate, the documents need to be submitted to the German land register in the German language; and (iii) in the event of court proceedings, the language of the proceedings will be in German so that translations of foreign language documents will be required.

Notifications:

a. bank accounts;	In the case of a pledge over a bank account (Kontoverpfändung), it is a perfection requirement that the pledge is notified to the account bank. As a proof of such notification, the pledgee typically requests an acknowledgement of pledge from the account bank. It is important to note that in Germany, the account bank normally holds an account pledge by way of its general banking terms and conditions. As this pledge is created on the opening of the bank account, the pledge in favour any other pledgee will always be junior in time and in rank. It is therefore important to request a waiver from the account bank in respect of its prior ranking account pledge based on its general banking terms and conditions. In practice, German account banks typically retain their right of pledge as far as their costs and fees associated with the respective account and the payment transactions on that account are concerned, but are prepared to waive their pledge in any other respect.
b. receivables;	In the case of an assignment of receivables, notification to the debtor (owing the assigned receivable) is not a perfection requirement under German law. However, if the debtor is not notified of the assignment, it can still discharge its obligations by effecting payment to the assignor (rather than the assignee as the new legal owner of the receivable).
c. IP rights;	It depends on the type of IP right and the type of security which is taken whether or not notification is required. In case of pledges (Pfandrecht) over IP rights for example, a notice of pledge is a perfection requirement.
d. shares (either of a listed company or a private company);	As security over shares in a German company (whether listed or private) is taken by a pledge, the notification of the pledge to the company is a perfection requirement for share pledges. In the case of German limited liability companies (GmbH), the share pledge needs to be notarised to be effective under German law.
e. rights in a company (other than shares);	Cf. preceding paragraph (d) of this section 20.4.
f. Insurance rights;	If the security over insurance rights is taken by way of an assignment, the same rules as for receivables (cf. section 20.4 (b) above) apply.
g. Inventory;	No notification required.
h. Equipment/plant/machinery;	No notification required.
i. Goodwill;	N/A, cf. section 17 (i) above.
j. Real estate property (other than land);	Cf. section 17 (j) above.
k. Land;	Cf. section 17 (k) above.
l. Objects under construction (object of unfinished construction).	Cf. section 17 (l) above.
m. lease rights to real estate, including land;	Cf. section 17 (m) above.

Yes, provided that except for security over real estate security rights, German law does not provide for the registration of security rights.

Except for security over real estate, where the priority/rank depends on the entries in the land register, German law security follows the principle first in time, first in rank. Hence, in the case of accessory security rights (cf. item 11 above), each subsequently created security right will be junior in rank to the existing ones, and in the case of security which such as a security assignment (Sicherungsabtretung) or security transfer of title (Sicherungsübereingung) provides for a transfer of the secured assed to the beneficiary of the security, any security subsequently granted by the grantor over the same asset will be void because due to the perfection of the first security right, the grantor was no longer the owner of the respective asset.

Establishment of security and level of security regulation is generally:

Generally, security can be easily established in Germany because, except for security over real estate and a few other assets, practically all security rights can be created by a simple contract between the grantor and the beneficiary of the security.

Except for security over real estate and a few other assets, there are practically no specific formal requirements for the creation of security, so that in principle an oral agreement would suffice. In those cases where there is no written form requirement, it would be possible to use any sort of e-signing, because it is just a means that helps to provide evidence for the contractual arrangements made between the parties

In cases where the German law requires the written form, however, only a qualified electronic signature will suffice to create a valid security right.

Finally, in the case of suretyships by individual persons, German law provides that signing in electronic form is excluded so that sureties by individual persons need to be signed in wet-ink (cf. § 766 German Civil Code (Bürgerliches Gesetzbuch)). This formal requirement does not apply where a surety is issued by a company or merchant (cf. § 350 German Commercial Code (Handelsgesetzbuch)).

In Germany, only security over real estate, registered vessels and aircraft, and certain IP rights is registered in a public register. The German land register is not publicly accessible. Only the land owner, persons holding rights over a property or other persons with a justified interest may access the land register (typically via a German notary who can access most land registries online).

In the case of the German land charges, the charge and the land owner need to apply for/consent to the registration of the land charge in the land register.

For the perfection of a German land charge (i) a notarially certified consent in respect of the registration of the land charge by the owner of the property and (ii) the registration of the land charge in the relevant local land register are required.

a. Application for registration	As far as German land charges are concerned, a German notary will be responsible for communicating with the land register and will submit the applications to the land register on behalf of the parties.
b. Security/guarantee document	For evidential purposes, in the event of court proceedings, it is useful for the beneficiary of a security interest to retain an original copy of the security agreement that could be submitted as documentary evidence to the court.
c. Principal obligation agreement	Cf. preceding paragraph (b) of this item 26.
d. Title documents to the collateral	A title document for German collateral is, for example, a land charge certificate (Grundschuldbrief). In the case of a certified land charge (Briefgrundschuld), the land register will issue a land charge certificate (Grundschuldbrief) to the beneficiary upon the registration of the land charge. Following its registration the certified land charge (Briefgrundschuld) can be transferred by the mere handing over and assignment of the land charge certificate (Grundschuldbrief). This facilitates the transfer of certified land charges (Briefgrundschulden), since normally, i.e. in case of non-certified land charges (Buchgrundschulden), the transfer will only become effective if and when the transferee is registered in the land register as new owner of the land charge. However, if the holder of the certificate (who is not registered in the land register) wishes to enforce the certified land charge (Briefgrundschuld) it will have to provide documentary evidence for a chain of duly effected transfers of the certificate from the initially registered owner of the land charge via any intermediaries to itself as current holder of the land charge certificate in order to successfully enforce the certified land charge (Briefgrundschuld).
e. Other	N/A.

Except for the German land register, which can be checked via a notary (if the inquiring party has a justified interest), the registers for registered vessels and aircraft and the registers for certain IP rights, there are practically no registries in Germany where security rights are registered.

Cf. item 27.1 above.

Medium: the fees of German notaries are prescribed by a cost ordinance that is based on the value of the transaction and can sometimes lead to substantial notarial fees, namely in case of land charges or GmbH share pledges.

N/A.

Yes.

Yes, provided that the breach is not immaterial and not only formal in nature.

Yes, provided that pledges can only be enforced for due but unpaid monetary claims (i.e. following acceleration).

Debtor:

Yes.

Guarantee/security provider:

Not necessarily, if the debtor still performs.

At what point in time the beneficiary is entitled to enforce a German security right will generally depend on the contractual arrangements in the security agreement.

For land charges there is a special statutory regime for enforcement. The procedures are set out in the German Law on Forced Sales and Forced Administration (Gesetz über die Zwangsversteigerungs und die Zwangsverwaltung).

In the case of pledges, a forced sale may under German civil law only take place after a one-month notice period has expired (cf. § 1234 German Civil Code (Bürgerlichers Gesetzbuch). In a B2B relationship, this notice period is shortened to one week (§ 368 para. 1 German Commercial Code (Handelsgesetzbuch).

No, out-of-court enforcement is generally unavailable in Germany except for certain cases where, as is often the case in share pledges and mortgages/land charges, the debtor has (notarially) submitted to "immediate enforcement" so that the creditor already holds an executory title and can directly turn to the competent enforcement body to start enforcement proceedings.

N/A, cf. section 30.

As a general legal concept, in the case of pledges (Pfandrechte) German law prohibits that before a default, the parties agree that on the occurrence of a default the creditor may take over title to the collateral (cf. § 1229 German Civil Code (Verbot der Verfallsvereinbarung)).

Generally impossible, unless with the consent of the security provider. Under German law, enforcement will in most cases require court proceedings.

Yes, if the debtor has (notarially) submitted itself to “immediate forced execution” (cf. section30).

N/A.

Under German law, powers of attorney are not as useful as an enforcement instrument, as: (i) they are at all times revocable; and (ii) cease to exist on the opening of insolvency proceedings (cf § 117 para. 1 German Insolvency Code (Insolvenzordnung). Hence, the creditor cannot be certain whether it can still benefit from the power of attorney when needed for enforcement.

a. bank accounts;	N/A, cf. section 31 above.
b. receivables;	N/A, cf. section 31 above.
c. IP rights;	N/A, cf. section 31 above.
d. shares (either of a listed company or a private company);	N/A, cf. section 31 above.
e. rights in a company (other than shares);	N/A, cf. section 31 above.
f. Insurance rights;	N/A, cf. section 31 above.
g. Inventory;	N/A, cf. section 31 above.
h. Equipment/plant/machinery;	N/A, cf. section 31 above.
i. Goodwill;	N/A, cf. section 31 above.
j. Real estate property (other than land);	N/A, cf. section 31 above.
k. Land;	N/A, cf. section 31 above.
l. Objects under construction (object of unfinished construction).	N/A, cf. section 31 above.

No.

The German courts are neither debtor- nor creditor-friendly, but court proceedings to obtain an executory title and the subsequent enforcement proceedings based on that title can take time.

While there are always changes in law there are typically few changes in the general concepts of property law (sachen-rechtliche Grundsätze), which is most relevant for taking security and which has essentially been unchanged since the German Civil Code (Bürgerliches Gesetzbuch) entered into force over 100 years ago.

Insights

Select your region

CMS Expert Guide for taking security in Germany

jurisdiction

GUARANTEE

1. Can a guarantee be granted by one entity/person to secure obligations of another entity/person?

2. Is guarantee treated under the law as:

2.1 a type of security?

2.2 a financial service?

3. Can a corporate guarantee be granted:

3.1 Upstream?

3.2 Downstream?

3.3 Lateral?

4. Are there any special aspects to be taken into account in relation to granting a guarantee (e.g. financial assistance, transfer pricing, corporate benefit, any other limitations)?

5. Are there any formal requirements or practical recommendations for the execution, validity and/or enforceability of a guarantee?

PRINCIPAL OBLIGATIONS

6. Is it possible for a guarantee/security to secure future obligations?

7. Is the validity of a guarantee/security dependant on the validity of a principal (guaranteed/secured) obligation? Does the concept of indemnity exist or would be recognised under the law?

8. Can guarantee/security be continuing for as long as guaranteed/secured obligations remain outstanding or shall it have a definite term?

9. Can guarantee / security be granted to a foreign creditor?

10. Is it possible for a guarantee and/or security to be created by way of parallel debt/trust/agent structures?

11. In case of transfer of guaranteed/secured liabilities to a new creditor (partially or fully), what are the formalities required to ensure that the guarantee/security package is maintained in favour of a new creditor?

12. In case of any changes to guaranteed/secured obligations (including a change of a principal debtor, adding another debtor), what are the formalities required to ensure that the guarantee/security package is maintained in favour of a creditor?

13. Are there any restrictions regarding the governing law of a guarantee/security?

14. Are there any restrictions regarding submission of disputes under guarantee/security to foreign courts’ jurisdiction or to arbitration?

15. Are there any currency control/capital movement restrictions with respect to guarantees, security or loans?

16. What is the hardening period with respect to guarantee/security?

SECURITY

17. Is it possible to have security over:

18. Is it possible to create security over multiple assets by one security document? Is floating security possible?

19. Can a security be granted to secure liabilities of a holding company, a shareholder, a subsidiary or any other affiliate?

20. In order to be enforceable against third parties, must a security/security agreement be:

20.1 Notarised?

20.2 Registered?

20.3 Executed in/translated into local language?

20.4 Other?

21. Does registration in most cases protect the secured creditor against the debtor’s subsequent dealings with the collateral?

22. How is the priority/rank of security established?

EXECUTION AND PERFECTION MECHANICS, TIMING AND COSTS

23. Can a guarantee/security be executed by way of e-signing?

24. Are registers of guarantees/encumbrances over movable/immovable assets publicly available and accessible online?

25. Which party shall/can apply for registration of security in a relevant register?

26. What documents need to be submitted and in what form for the guarantee/security registration with a relevant register?

27. How much time and cost does it take to:

27.1 check if any encumbrances over collateral exist (i.e. obtain extracts)

27.2 register/deregister/amend/remove an encumbrance in a relevant register?

27.3 notarise (if required) a security document?

27.4 comply with other perfection requirements?

SECURITY ENFORCEMENT

28. The right to enforce security arises when:

a. the secured debt is unpaid and due?

b. there is any other breach under the principal obligation agreement?

c. there is any other breach of the pledge/security agreement?

d. the debtor or guarantee/security provider becomes insolvent?

e. any other grounds?

29. Is there any mandatory period for curing a default and/or any other formalities to be fulfilled before proceeding to enforcement?

30. Is out-of-court security enforcement available? Is any additional instrument for direct enforcement required?

31. Which out-of-court enforcement methods are available and how the collateral value is determined thereunder:

31.1 taking over the title to the collateral?

31.2 selling collateral to a third party by way of direct sale or private or public auction?

31.3 notarial writ?

31.4 other?

32. Are powers of attorney or any other (conditional) instruments used to facilitate an out-of-court enforcement by a secured party? Are they mandatory or recommended?

33. Is there anything else of which a creditor should be aware as unusual or particularly difficult?

34. Is security enforcement in practice: generally easy, fairly easy or complicated? –more debtor- or creditor-friendly or balanced?– quick, average or long in terms of timing?

35. Are there any upcoming changes to guarantee/security regulations/rules?

Last updated · 26 May 2025

Explore more