What is a Sale with the Right of Redemption?

A sales agreement entails the transfer of property to a buyer in exchange for a specific price; however, the seller may be granted a right of redemption, denoting the option to reacquire the property within a term stipulated in the agreement.

How is the Right of Redemption Exercised?

If the original seller decides to exercise the right to redeem the property:

• They are obligated to refund the original purchase price;

• The buyer may claim reimbursement for expenditures incurred on the property;

• The seller may claim a reduction in the price corresponding to any decrease in the property's value.

Key Considerations for a Sale with the Right of Redemption 

• Prohibition on Alienation: The buyer is prohibited from alienating (selling or transferring) the property – any such transaction is null and void.

• Liability for Damages: Damage to or alteration of the property gives rise to an obligation to compensate for damages.

Characteristics of the Redemption Agreement

• The seller exercises the redemption based on a unilateral declaration of will;

• The buyer holds a temporary right of use;

• The agreement may be executed either simultaneously with the sale or at a subsequent date;

• Upon the expiration of the redemption period, this right is extinguished.

Right of Redemption and Credit Security

This mechanism is occasionally utilized as security for credit (collateral). German legal doctrine strictly regulates such transactions, prioritizing a fair correspondence between the purchase price and the actual value of the property.

Advice

A sale with the right of redemption is a valuable instrument; however, it is crucial that the parties clearly define their obligations and conditions. If you intend to enter into such a transaction, it is advisable to consult with a legal professional.