Update - Building Land Mobilisation Act

On 07.05.2021, the Bundestag passed the partly very controversial law on the mobilisation of building land. Before the law can enter into force, it thus only requires the approval of the Bundesrat and the completion of the promulgation procedure.
The primary objective of the law is to strengthen the municipality’s scope of action with regard to the creation of housing. In future, it will be easier for building permit authorities to grant exemptions from existing development plans, e.g. to allow loft conversions or extensions. Furthermore, the Building Land Mobilisation Act provides municipalities with a new instrument: a sectoral development plan, which enables the municipality to draw up a land-use plan specifically for housing construction. The law also contains an extension of the building requirement in order to be able to build on unused plots more quickly and thus close gaps between buildings more quickly, as well as the strengthening of municipal rights of first refusal for derelict plots and so-called “problem properties”.
The most controversial point, however, is the amendment of §250 BauGB, which prohibits the conversion of rental flats into owner-occupied flats. In regions with a tight housing market, owners can no longer easily convert their flats previously used for rental purposes into owner-occupied flats; in future, this will require approval by the competent authority. The exact regions that will be affected are still being specified by the Länder through independent legal ordinances. Exceptions to the conversion ban exist, among other things, in the case of sale to family members or the sale of individual flats from an apartment building.
Already after the federal cabinet approved the draft law on 04.11.2020, immense criticism of the law was voiced. In particular, the Building Land Mobilisation Act makes it more difficult to form property, as fewer flats and houses will be available for purchase on the market. Especially in economically difficult times, when not many investment opportunities yield returns, it is irresponsible to make it more difficult to build up property for the purpose of old-age provision. In response to the strong headwind, Federal Minister of Building Seehofer even called on his own ranks to vote against the bill. After a long struggle, the Bundestag passed the law after all – including amendments to §250 BauGB.

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    No registration of a land charge in favour of a legal entity that has ceased to exist as a result of a merger

    No registration of a land charge in favour of a legal entity which has ceased to exist as a result of a merger – OLG Düsseldorf I-3 Wx 125/20

    In a recent decision(OLG Düsseldorf, decision v. 12.08.2020, ref.: 3 Wx 125/20), the OLG Düsseldorf had to deal with the question whether a land charge in favour of a legal entity that no longer exists (due to the merger process) is registrable.
    The judgment was based on the following facts:
    On 27 May 2020, the contracting parties concluded a notarised real estate purchase contract, which also contained a financing power of attorney. Furthermore, the contracting parties created a land charge in favour of the financing bank on the same day. The beneficiaries thereupon apply for the registration of the land charge and, following in rank, a resolutive conditional priority notice of conveyance. However, the creditor of the land charge had already been merged with Deutsche Bank AG as the acquiring legal entity on 10 May 2020. This conversion was also entered in the commercial register. The land registry then registered the priority notice of conveyance, but rejected the application for registration of the land charge.
    The court indisputably found that the company designated as creditor of the land charge had already ceased to exist pursuant to § 20 para. 1 no. 2 sentence 1 no. 1 UmwG as a result of the merger. However, it was unclear whether the application for registration could not be interpreted to the effect that the creditor of the land charge was now the acquiring legal entity, i.e. Deutsche Bank AG. For this, an interpretation of the land register declaration would have to lead to a doubtless and unambiguous result. However, the court denied this in the present case. The acquiring legal entity also has three other branches that can also conclude financing transactions. In this respect, it was unclear whether the contracting parties would have concluded the contract with the acquiring legal entity or one of the three branches if they had been aware of the legal situation.
    According to the court, a reinterpretation according to §140 BGB was also not appropriate, since the legal transaction was not indefinite in content, but only the designation of the creditor of the security right over real property was incorrect. Finally, the court ruled out a derivation from a universal succession directly as well as indirectly.

    If you have any further questions on this topic, we will be happy to advise you in detail.

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    Corona-related reduction in commercial space rent

    On 01.01.2021, a new law came into force in which the widely discussed and controversial issue of rent adjustments for commercial premises that could not be used due to an official order is now regulated. The new provision in Art. 240, § 7 of the Introductory Act to the German Civil Code (EGBGB) contains a statutory presumption on the disturbance of the basis of the contract pursuant to § 313 BGB. If the conditions are met, this can justify an adjustment of the contract or, if the latter is not possible, even grounds for termination.

    The consequences of the officially ordered closures in the context of the Covid 19 pandemic were previously very contentious and handled differently. Often, the respective tenants were able to agree on amicable solutions. However, where this was not possible, the courts ruled and came to different conclusions. While the Regional Court of Heidelberg in a judgment of 30 July 2020 (Case No. 5 O 66/20) argued against an adjustment because the risk of the use of the leased property lay with the tenant, the Regional Court of Munich I in a judgment of 22 September 2020 (Case No. 3 O 4495/20) held that an adjustment of the rent was necessary and required. Some courts considered the regulations in the Covid 19 Pandemic Effects Act as final special regulations, so that the general statutory regulations would not apply. With regard to terminations of rented premises, this law provides for a twofold exclusion of the possibility of termination.

    The new provision of Art. 240, § 7 EGBGB is now intended to create a basically uniform solution to this problem. Accordingly, it is statutorily presumed that in the case of officially ordered closures due to the Corona pandemic, which significantly restrict the use of the commercial leased premises, a circumstance within the meaning of section 313 para. 1 BGB exists, which has become the basis of the contract and has later changed seriously and unforeseeably. This allows for a legal claim to adjust the contract and thus, for example, to reduce the rent. For this purpose, it must be shown in each case that the parties would not have concluded a contract with the same content if they had been aware of these circumstances and that it would be unreasonable for them to adhere to the contract. The unreasonableness can be demonstrated, for example, by the existence of considerable turnover losses and the lack of compensation through state aid.

    As a result, the contract may be adjusted and otherwise, should an adjustment not be possible, on the basis of section 313 para. 3 BGB may even be terminated. An adjustment can be made in various ways, for example, in addition to a reduction of the rent, a deferment or other arrangements left to the parties themselves. The regulation also applies accordingly to lease agreements.
    Normalerweise liegen die Voraussetzungen des § 313 Abs. 1 BGB only exists in special exceptional cases – accordingly, the existence of a circumstance within the meaning of § 313 para. 1 BGB has been very controversial so far. Although the new regulation does not mean security of tenure for either tenant, the uncertainties that existed in case law have been eliminated and the negotiating positions of commercial tenants have been strengthened. In essence, however, the generally applicable principles were affected neither with regard to the disturbance of the basis of the contract nor with regard to tenancy law. Ultimately, the factual and thus the legal situation can therefore still vary in individual cases and requires a weighing of the respective interests.

    For example, in a judgement of 12 February 2021 (Case No. 31 O 11516/20), the LG München I ruled that in the case of the department stores’ chain C&A there was no unreasonableness within the meaning of Section 313 of the German Civil Code (BGB), with the consequence that the full rent was to be paid despite the closure measures due to the pandemic.
    According to the court, it was reasonable for the tenant “in general and also on the basis of the results from the previous three business years” to form reserves. The court came to this conclusion despite a decline in turnover at C&A of about 80 per cent. When examining the reasonableness, the court used the turnover of the specific branch as a basis for the distribution of risk, without including other branches. In addition, state aid (e.g. short-time allowance) as well as the turnover generated by the online shop should also be taken into account in the assessment. Although the prerequisites for a disturbance of the basis of the contract according to § 313 of the German Civil Code (Bürgerliches Gesetzbuch – BGB) were in principle met, the court was of the opinion that the circumstances of the individual case could not lead to an adjustment of the obligation to pay rent. Rather, “only that legal consequence may be sought which gives appropriate weight to the interests of both contracting parties worthy of protection”. Moreover, in this case there was no right to reduce the rent according to the general tenancy law, as there was no defect that nullified the use according to the contract within the meaning of § 536 (1). 1 of the German Civil Code (BGB). Furthermore, there was no impossibility and the suitability of the rental object had also not ceased to exist during the period in question.

    The tenant is even obliged to form reserves to an appropriate and reasonable extent, according to the LG München I in its judgement of 25 January 2021 (Case No. 31 O 7743/20). This obligation resulted from the tenant’s liability for his own solvency irrespective of fault. The circumstance of the pandemic does not change this, as it quickly depletes reserves. It is true that state aid can be lower precisely because of reserves, but this is also irrelevant, since there is no need for financial aid if there are sufficient reserves.

    In view of the fact that both parties were equally exposed to the economic risk of usability, the court stated that a ratio of 50:50 was appropriate with regard to the distribution of risk. Nevertheless, the circumstances of the individual case had to be taken into account appropriately within the framework of a balancing of interests.

    In this context, the newly introduced Article 240 § 7 EGBGB only had a clarification function. The claim for adjustment of the contract under section 313 BGB did not necessarily require a threat to existence. Rather, the conflicting interests must be weighed against each other, so that certain circumstances of the individual case can justify exceptions. That was the case here.

    In addition, the Introductory Act to the Code of Civil Procedure (EGZPO) also contains a new regulation. Pursuant to section 44 EGZPO, there is a prohibition of priority and acceleration in proceedings concerning an adjustment of the rent for commercial rented premises based on the above-mentioned regulations. On the basis of this, the early first date should take place at the latest after the expiry of one month after service of the statement of claim.

    In particular, the new regulations are also retroactively applicable to all periods from April 2020 onwards, even if there were already restrictions on the use of the tenancy at that time due to orders issued by the authorities.

    The applicability to new contracts, however, is likely to be more difficult, as the parties are regularly already aware of the risk of the pandemic when concluding the contract. It is therefore advisable for landlords to include a standard “corona clause” in the contracts. This can ensure the necessary flexibility in the event of a dispute.
    We will be happy to advise you further on this topic. Contact us!

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      BFH decision on the purchase price allocation for real property

      Since April 2014, the Federal Ministry of Finance has provided the tax administration with a working aid for apportioning the total purchase price for a developed property (purchase price apportionment). In its ruling of 21 July 2020 (Ref.: IX R 26/19), the Federal Fiscal Court has now decided that this assistance may no longer be used in disputes between the taxpayer and the tax office.

      Why is the purchase price allocation relevant at all?

      Anyone who acquires a property for the purpose of earning an income usually has an interest in dividing the purchase price in such a way that the building accounts for as high a proportion of the purchase price as possible and the land for as low a proportion as possible. This is because depreciation for wear and tear can be claimed on the building portion. In principle, the tax office is obliged to accept the values from the notarial purchase contract as long as there are no significant doubts (BFH, judgement of 10.10.2000, ref.: IX R 86/97). If any doubts arose, the tax office, in its constant practice, referred back to the BMF’s working aid.

      What are the facts underlying the current ruling?

      In the specific case, the taxpayer plaintiff had purchased a rented condominium in a major city. While the plaintiff assumed a depreciable building share of 82%, the tax authorities arrived at a building share of only 31% via the working aid. The BFH has now countered this disproportion. The BMF’s working aid was not entirely suitable for determining the real market values of land and buildings. This is justified, on the one hand, by the fact that the working aid only uses the simplified asset value method. On the other hand, the location factor, which can lead to massive market value deviations, especially in large cities, is not taken into account.

      What is the consequence of the ruling?

      First of all, the ruling leads to the inapplicability of the FOM’s working aid in disputed cases. Instead, the tax authorities now have to obtain an expert opinion from an independent sworn expert in cases of doubt.

      In any case, it makes sense to base the property purchase contract on comprehensible and plausible values. Finally, the above-quoted ruling from 2000 still applies; the tax office is still required to adopt the purchase price allocation from the notarial purchase contract, provided there are no significant doubts. According to settled case law, this only arises if, for example, there are indications of a fictitious transaction or an abuse of the tax structure.

      Therefore, the tax advisor should be consulted on questions of the drafting of real estate purchase contracts in the run-up to the purchase.

      The New Flat Ownership Law

      The reformed Flat Owners’ Act (Wohnungseigentümergesetz, WEG) has been in force since 01.12.2020 and brings with it numerous innovations for administrators and flat owners. In essence, the reform is intended to eliminate bureaucratic problems due to decision quorums or regulations that are distant from practice. This is to be achieved through more rights of the condominium owners’ association and the administrator as well as a greater possibility of structuring the internal relationship of the condominium owners’ association. The most important innovations are summarised below:

      1. modernisation measures can be decided more easily

      In order to counteract the modernisation backlogs that are quite common in practice, the owners’ meeting may in future decide on all structural changes to the common property with a simple majority. In order that individual condominium owners are not excessively burdened with additional costs, only those owners who have also agreed to the measure must contribute to the costs of the decided measure. This principle is not applied after §21 Abs. 2 Satz 1 WEG Only two cases of deviation: Either the measure must be amortised within a reasonable period of time or it must have been decided by a 2/3 majority of the condominium owners and be realisable through a not disproportionately high cost.
      In addition, every flat owner will be able to demand modernisation measures in future, provided they contribute to accessibility, e-mobility or burglary protection, or access to faster internet is achieved through them. In this case, however, he must bear the costs himself. Other flat owners who also want to benefit from this measure can be obliged to make a compensation payment.

      2. more powers for the administrator

      The administrator represents the WEG in external relations without limitation. Consequently, all contracts that he makes for the condominium owners’ association are also binding on it. Only in the internal relationship can the flat owners limit his power of representation.
      The new WEG law also no longer provides for an explicit catalogue of duties for the administrator. Instead, he is now liable under §27 para. 1 No. 1 WEG is obliged to take all measures of minor importance. All previous duties of the administrator naturally continue to fall under this; in individual cases, especially in the case of larger administrative units, §27 para. 1 No. 1 WEG now defines the duties and powers of the administrator.
      At the same time as the extended powers, however, the new WEG also introduces the certificate of competence for administrators in the WEG that has been desired for years. After a transitional period, as of December 2022 only the appointment of a certified administrator fulfils the standard example of proper administration of §19 para. 2 No. 6 WEG. Certification can be obtained in accordance with §26a WEG either through appropriate professional qualification or through examination at the IHK.


      3. dismissal of the administrator

      In its previous form, the WEG required an important reason for the dismissal of an administrator. This regulation is now no longer applicable, so that an administrator can now be dismissed without giving reasons. In this case, the administrator’s contract ends at the latest 6 months after the dismissal. In addition, the administrator can no longer challenge the dismissal in court.

      4. quorum of owners’ meetings

      Under the new WEG, owners’ meetings will in future always have a quorum; §25 WEG no longer provides for a quorum. However, owners’ meetings must be held in accordance with §24 para. 4 sentence 2 WEG, the meeting must be convened in future with a notice period of 3 weeks instead of 2 weeks.
      Likewise, a simple majority will suffice for all resolutions in future. Here, each condominium owner continues to have one vote, regardless of how many condominium units are owned. However, it is possible to deviate from this regulation, so that previous deviating regulations thus remain effective. According to a new provision of §23 para. 1 sentence WEG, condominium owners will in future also be able to participate in owners’ meetings in electronic form.

      5. financial management of the condominium owners’ association

      The costs shall be allocated in accordance with §16 para. 2 sentence 1 WEG according to co-ownership shares. In deviation from this, however, a different distribution key can now be agreed. However, this cannot be agreed as a lump sum, but only with regard to individual costs and cost types, such as for maintenance measures.

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      Mietpreisbremse (Rent Control)

      The Mietpreisbremse (Rent Control)

      About 50 % of the population in Germany live in rented accommodation. For landlords, the German housing market with its large housing stock is quantitatively unbeaten throughout Europe. At the same time, many tenants complain about excessively high rents. Particularly in metropolises such as Munich, Frankfurt am Main or Cologne, rents have risen significantly in recent years.

      In order to slow down the further increase of rents in the housing market for tenants, the so-called Mietpreisbremse (rent brake) was introduced in June 2015. We have summarised and explained important elements of the Mietpreisbremse for you.

      The rent brake is fundamentally intended to prevent flat rents from rising – above a certain level. A legal definition of the term “Mietpreisbremse” does not yet exist. The term “Mietpreisbremse” (rent control) is often used in connection with the limitation of rent levels for new or re-let flats. In addition, the term is used for the possibility introduced in 2013 to lower the cap for rent increases in existing tenancies.

      Each federal state decides in principle at its own discretion on the implementation and design of the rent index.

      Rent control for new leases or re-letting

      The law on the rent brake for new or re-let flats stipulates that the rent at the beginning of a tenancy may not be more than 10% above the local rent, cf. § 556d BGB, provided that the residential property is located in an area with a housing shortage. New buildings and extensively renovated flats are generally exempt from this regulation. For which areas the so-called rent control is to apply, i.e. which specific area is defined as an area with strained housing, can be determined by the federal states for 5 years by legal ordinance. Some federal states make use of this possibility and define areas that are subject to the Mietpreisbremse. Areas with tight housing markets exist by legal definition if the sufficient supply of the population with rental housing in a municipality or part of the municipality at reasonable conditions is particularly at risk.

      The enacted legal ordinances were declared invalid by the courts in several federal states due to formal errors in the enactment of the ordinances. The BGH clarifies that ordinances implementing the Mietpreisbremse require justification. It was not sufficient to issue the explanatory memorandum of the ordinance retrospectively.

      In August 2019, the Federal Constitutional Court ruled that the legal provisions on the Mietpreisbremse do not affect landlords’ rights and are constitutional.

      In February 2020, the Bundestag decided to extend the authorisation basis of the federal states regarding the implementation of the Mietpreisbremse until 31 December 2025.

      In the following, we have created a table for you, which gives you an overview of the federal states that have implemented the rental prices (as of 14.01.2021).

      Rent brake for existing tenancy agreements

      For existing tenancy agreements, the so-called cap applies, §558 para. 3 S. 1 BGB. The landlord may therefore increase the rent by a maximum of 20% within 3 years. Nevertheless, the rent increase is initially limited by the amount of the local comparable rent. The local comparative rent can be proven, among other things, by factors such as a rent index, comparative flats, expert opinions or information from a rent database.

      The rent index indicates what prices have typically been charged for rental flats in the municipality in recent years.

      Rent increases after modernisation measures are not affected by the restriction to the local comparative rent. Special provisions are anchored in the law for this purpose.

      Landlords who have already agreed a higher rent with their tenants than the local comparable rent are also not affected, §556e BGB. In such cases, the landlord can still demand the agreed rent, but in principle can no longer increase it. In the case of graduated rents that have already been agreed, both the initial rent and each individual rent graduation (from the point in time at which the respective rent graduation is to apply) must be taken into account, §557a BGB.

      Exception – cap at 15%

      Since 2013, federal states have been able to designate areas of housing at risk by statutory order. In these areas, the supply of affordable housing is at risk. Here, the cap is not 20 %, but basically 15 %, § 558 para. 3 S.1 BGB. The cap – also known as a rent cap – is intended to prevent rents in existing tenancies from rising enormously. Federal states can designate these areas for up to five years.

      Federal states such as North Rhine-Westphalia, Bavaria, Hamburg and others have designated areas where the reduced 15% limit applies.

      In North Rhine-Westphalia, the cap has been lowered to 15% in 18 municipalities. This regulation is expected to apply until 30.06.2025. Among others, the administrative districts of Düsseldorf and Cologne are affected by the reduced cap. In the administrative district of Cologne, the lowered cap applies in the cities of Bergisch Gladbach, Bonn, Brühl, Hürth, Leverkusen, Wesseling, and many others.

      Regulations to reduce the cap are often examined for their legality. In this regard, the Federal Supreme Court found the Berlin cap regulation to be constitutional in 2015.

      We will be happy to advise you on this topic and answer any questions you may have.