Legal Update from DSC Legal
Regulation on the conversion of rental flats into condominiums in Berlin
Feb 16, 2015
I. Background
In a press release on the 9th January 2015, the Senate Department for Urban Development and the Environment announced a new regulation on the conversion of rental flats into condominiums. It was previously agreed among the coalition parties at a closed-door meeting. According to the statement from the Senator responsible for Urban Development and Environment, Andreas Geisel, a political instrument will now become available to protect tenants against displacement and increasing rental costs in Berlin. In the past years, the number of conversions of rental flats into condominiums increased from 4,535 in 2010 to nearly 10,000 at present. The new regulation will be submitted for resolution to the Senate at the beginning of March 2015.
II. The Regulation
1. The legal basis of the regulation
With this statutory regulation, the Berlin Senate will obviously exercise the right authorized under section 172 para. 1 sentence 4 Federal Building Code. According to this provision, the state governments have the authority to determine by legal ordinance valid for up to five years in respect of plots in areas affected by a statute issued pursuant to section 172 para. 1 sent. 1 no. 2 Building Code (such areas are so-called “Milieuschutzgebiete”) that the establishment of individual ownership for personal use (i.e. condominium and part-ownership pursuant to sec. 1 of the Condominium Act) in respect of buildings which are scheduled either wholly or in part for residential use may only proceed where permission has been obtained.
2. Temporal and regional scope of the regulation
The ban on conversions may only apply in areas that have been designated by districts of Berlin pursuant to section 172 para 1 sent. 1 no. 2 Building Code in order to preserve the composition of the local residential population. Presently, there are twenty-one protected areas in Berlin which are located in the boroughs of Pankow (10), Friedrichshain/Kreuzberg (7), Tempelhof/Schöneberg (3) and Mitte (1). In these areas are approximately 160,000 apartments with 300,000 residents. Several boroughs have already announced future plans to designate additional protected areas, among them are Neukölln and Tempelhof/Schöneberg (Source: Berliner Zeitung, 12th January 2015).
The future regulation will most likely provide for the approval requirement pursuant to section 172 para. 1 sent. 4 Building Code relating to all city areas designated by a statute under section 172 para. 1 sent. 1 no. 2 Building Code (such statutes are so-called “Milieuschutzsatzungen”).
The statutory regulation is limited to a maximum of five years, with the possibility of an extension.
3. 3. The material scope of the regulation
The new duty of authorization for the purpose of apartment ownership, respectively part-ownership, is only applicable to existing buildings that fall within the scope of a special statute pursuant to section 172 para. 1 sent. 1 no. 2 Building Code, whereby currently about 10 percent of the rental apartments in Berlin would be affected (Source: Berliner Zeitung, 12th January 2015). The duty of authorization would apply to the establishment of ownership of condominiums (sec. 1 para. 2 Condominium Act) or part-ownership of non-residential rooms (sect. 1 para. 3 Condominium Act). It would thus cover cases where residential buildings are intended to be divided into condominiums and rooms used for commercial purposes.
However, the authorization duty would not affect the partition of newly constructed buildings.
4. Requirements for the refusal of permission for conversion
The permission for conversion may only be refused pursuant to section 172 para. 4 sent. 1 Building Code, where special urban development grounds exist to justify preserving the composition of the residential population. The danger of displacement of local residents, which according to jurisdiction may constitute sufficient ground for refusing the permission, may be indicated when refurbishment measures would lead to rents above the average rent determined for the protected area.
Since the law does not contain any further criteria as to what constitutes a danger of displacement, in practice the methods used to ascertain such a situation refer to maximum levels (thresholds) that are, for example, derived from the so-called area-specific rent. A danger of displacement may be assumed, if the intended refurbishment project would presumably cause a rent increase above the maximum threshold determined for the preservation area (VGH Kassel, order of 11 May 1992, ref.: 3 UE 174/89, NVwZ-RR 1993, 401; BVerwG, judgement of 18 June 1997, ref.: 4 C 2/97, ZfBR 1997, 311). According to case-law, such critical maximum levels must be determined in a manner which is sound, fair and transparent. In addition, a threshold must be determined after which a displacement would have to be expected.
5. Requirements to authorize a conversion
a) Authorization requirements in cases of economic unreasonableness
Permission for conversion shall also be granted when refraining from the establishment of individual ownership is no longer economically viable even in due consideration of general public interest. The common good must thus be weighed against the economic reasonableness of the non-establishment of ownership.
Furthermore, section 172 para. 4 sent. 3 no. 2-6 Building Code contains several cases in which permission would be granted. An authorization for conversion is hereafter compulsory when:
the property forms part of a decedent’s estate and application has been made for individual ownership in favour of joint heirs or legatees to be established,application has been made for individual ownership for personal use to be alienated to members of the owner’s family,in the absence of permission it would be impossible to meet claims to individual ownership lodged by third parties for whose protection a priority notice has been entered in the land register prior to the reserved right to require permission to be granted becoming effective,
at the time of the application for the establishment of individual ownership the building is not being used for residential purposes, orthe owner undertakes to sell individual dwellings only to the respective tenants within a period of seven years of the establishment of individual ownership.
DSC Legal specializes in providing legal advice on the acquisition and sale of real estate and offers notarial services, in particular with regard to the partition into residential ownership (i.e. condominiums). We will be pleased to advise you on the application of the new regulation and its implications on your project.