2020-09-16 | Ban on converting apartment buildings into individual condominiums
11th Live Event | Meet the Expert
Ban on converting apartment buildings into individual condominiums
In our free live chat on September 29th, attorney Tobias Scheidacker answered your questions regarding the ban on conversion of apartment buildings.
According to the Senate Department for Urban Development and Housing, 12,689 rental apartments have been converted into condominiums in Berlin during the last year. Federal Building Minister Seehofer wants to legally authorize the administration to ban this conversion of rental apartments into condominiums in areas with a tight housing market for five years.
Expert: Lawyer Tobias Scheidacker
Mr. Scheidacker is a property law specialist. More information is available at: http://ikb-law.de/tobias-scheidacker/. You can find a blog by Mr. Scheidacker on the subject of real estate law worth reading at → hier.
Summerary of the Interview:
What can you tell us about the conversion ban?
In the meantime, we have a referendum draft, which is what the whole thing is called, because it is not yet a real bill, i.e. it has not yet been introduced as a bill in the parliamentary process. A referendum draft is basically already formulated in the same way as a bill, i.e. on the one hand we have a formulation of needs, on the other hand we have the provisions that are to be introduced and finally we have an explanatory statement. Experience shows that the contents are usually more or less modified when they are included in the draft legislation.
What is the purpose of the conversion ban?
That is a good question. The conversion ban is placed in the so-called Building Land Mobilisation Act, which has set itself the goal of promoting the creation of new housing. The justification for this paragraph has little to do with the other provisions of the bill. It does not lead to new housing by prohibiting the subdivision of existing housing. Therefore, it looks to me more as if something else is being introduced there for possibly political reasons, that it was agreed to give one person one thing and the other gets the other. Therefore, the meaning of this prohibition of conversion is not quite clear. The explanatory memorandum to the law states that the aim is to protect tenants from displacement.
In my view, it is questionable whether this can be achieved with a ban on subdivision, because the metres are actually already quite well protected against displacement. The current legal situation is that if you divide an apartment building into condominiums, the tenants who live there get two rights. The first is the right of first refusal, which means that if the flat is later sold after the division procedure, the tenant has the right of first refusal, i.e. he or she can enter into the purchase contract that was agreed with the purchaser as the new purchaser by means of a unilateral declaration. This means that the tenants have the opportunity to buy their flat, which is a great thing.
The second right is extended protection against dismissal. In Berlin, this is a 10-year period from the transfer to the first purchaser, within which the metre cannot be terminated because of personal need. After that, the extended statutory period of 9 months applies. This means that the tenant is essentially protected from a notice of own need for 11 years after the first sale, if he has not even exercised the right of first refusal and bought the flat himself. This is a very long time and there is no other form of protection against dismissal for personal use in German law. Normally only the simple statutory period of 3 – 9 months applies. I’m not sure if you’re not overshooting the mark a bit if you implement protection that extends beyond 10 years, or 11 with notice periods. Secondly, I don’t know if it’s really necessary.
Displacement would mean forcing a current resident out of the flat. Especially in cities, there is a high fluctuation. A student moves into a two-room flat and at some point, it’s a couple and then there are children, maybe children, and the need is completely different. Or someone who has lived in his flat for a long time might want to buy his flat at some point and gets to an age where he could afford it and then has to move because he can’t buy the flat he lives in because there is a ban on subdivision. In my opinion, all these things have not really been thought through.
What advantages does the Conversion Act offer tenants?
The tenant no longer has to expect that someone will buy his flat, because the flat does not exist if the subdivision is prohibited. The owner of an apartment building can of course terminate the lease at any time if he needs one of the flats for himself or his family. In this case, only the statutory notice period of 3-9 months applies. But if a house is divided into individual flats and then a lot of owners own one flat each, the risk that one of them will want to move in is naturally higher.
What advice do you currently give to owners of apartment buildings?
Here I would like to speak specifically for the Berlin market, because here we currently have to realise that the costs of keeping buildings will not become lower in the future, but possibly increase. Conversely, politicians are working hard to ensure that revenues do not increase, but rather decrease. This means that we have decreasing income and increasing costs, which is of course not so attractive as an investment. Against this background, if someone wants to sell an apartment building, they would have to find someone who wants to do so, and of course the better the income situation, the easier that is. This is because, in contrast to condominiums, only an investor can be considered as a buyer for apartment buildings.
Doesn’t the Conversion Act prevent you from getting into ownership?
One has to consider where the division of buildings actually came from. The Condominium Act was only passed shortly after the Second World War. Until then, there was no such thing as condominium ownership. You could either own an apartment building or not, which meant that only very wealthy people were able to buy property in inner-city locations. The situation that you could either only be on the tenant side or only on the side of the very wealthy, and there was nothing in between, led to the realisation that it would be healthy to make it possible for broad sections of the population to buy residential property as well. So basically, small shared ownership for a little less money and the reasoning behind the introduction of the Condominium Act at that time was that it is also cheaper in the long run for the person who lives in the flat, because he does not pay the return on capital or pays only to himself. So basically, we are taking a step backwards to the time before the Condominium Act, where we had a very strong concentration of wealth among a few and the broad population had no opportunity to accumulate wealth.
Doesn’t the conversion ban interfere with my property rights?
Yes, of course it is an encroachment, but encroachments are not fundamentally prohibited. The instruments of the Basic Law are always handled in such a way that a balancing of interests takes place. That is first left to the politicians, i.e. to determine what correlates with each other and then to set the weightings, and in the end that is then reviewed by the courts.
What is special about the fact that this is a federal law?
We already know the mechanics that are intended here from the Mietpreisbremse. At the federal level, a competence is created in favour of the Länder to determine individual areas in which this instrument is to be put into effect. This means that although it is federal law and therefore applies to the whole of the Federal Republic, it is left to local legislators to decide where it is actually applied, so that it does not apply to the whole of Germany, but only in certain regions.
What is the situation in other federal states?
It depends on the local legislator. That’s why I found it quite funny that the proposal came from Bavaria, because similar to the wind turbines or the current discussion about final storage sites, I could imagine that the Bavarians wouldn’t even put something like this into effect locally. Therefore, they don’t forgive themselves much if they introduce such a legislative project and then in the end don’t apply it at home. In Bremen it might come about, in Berlin for sure, I reckon, and how it will be handled in other big cities remains to be seen. In the countryside it is rather unlikely.
Are rented flats then not allowed to be used as owner-occupied?
The rules regarding owner-occupancy do not change as a result of the ban on conversion. However, the potential landlord who can give notice of own need is thereby restricted to a reduced group of people. If I own a block of flats and someone in my family needs a flat, I can freely give notice of termination in a block of flats.
Can applications for conversion already before the Land Registry be rejected by law?
The land registry must execute the whole thing when it is ready for execution, which presupposes that the partition plans are in proper form, that the certificate of seclusion is available, that if the building is in the millieu protection area, the approval of the district office is available and the declaration of division must be correct. If this is the case, then the land registry can and must carry out the division.
The new law mentions an exception for the sale to at least 2/3 of the tenants. What does this mean?
There are various exceptions to the prohibition of partition, and one of the exceptions provided for is that partition should be possible if the house is sold to at least 2/3 of the tenants. However, if you read the explanatory memorandum to the law, you will find that this must already be ensured at the time of the division, i.e. you need binding purchase commitments from at least 2/3 of the tenants. How a binding purchase commitment is defined and how 2/3 of the tenants are calculated is not yet regulated. The question arises, for example, as to whether this is to be done according to co-ownership shares or according to area or according to heads or according to the number of flats or according to the number of tenancies – none of this has been decided yet.