News for the housing market: The Building Land Mobilisation Act („Baulandmobilisierungsgesetz“)

On 7 May 2021, the German Parliament (Bundestag) passed the Building Land Mobilisation Act, which extends municipalities' competencies to create affordable housing and to protect tenants. With a series of instruments that will be regulated in the Building Law Code (Baugesetzbuch) and the Building Usage Ordinance (Baunutzungsverordnung), the new law restricts property rights in favour of social housing. However, the necessary approval of the Federal Council (Bundesrat) is still pending and is expected on 28 May 2021.

Sectoral development plan introduced

The new law introduces a new planning instrument for municipalities, the so-called "sectoral development plan". With this, municipalities can enact development plans that are exclusively targeted at the needs of social housing. By enacting a sectoral development plan it is possible to oblige developers to create affordable housing already at the planning level. As a consequence, the construction of luxury real estate is prevented. In addition, the amendment provides for facilitations for the granting of exemptions from stipulations of existing development plans in favour of housing construction. This is intended to create more leeway for residential uses. This objective is also pursued by the amendment that upper limits for the extent of building usage stipulated in the Building Usage Ordinance now represent mere orientation values. Hence, simplifying redensification by means of attic extensions and annexes.

As a further instrument for the development of inner-city areas, the Building Land Mobilisation Act expands the construction obligation. In future, it will be possible to require owners to erect residential buildings on derelict land and therefore, close building gaps. In doing so, the municipality can also prescribe the degree of usage. Previously, owners could only be required to erect buildings on their land that met the requirements of the development plan. In so doing the construction obligation could be met, e.g. in a mixed-use area, by erecting commercially used real estate.

Extended pre-emptive right for municipalities

The Building Land Mobilisation Act also grants municipalities an extended pre-emptive right, which facilitates the municipal acquisition of land for social purposes. Hence, the pre-emptive right no longer exists only for undeveloped land, but also for marginally developed land as well as for so-called "junk properties" that are neglected and have a negative impact on their surroundings. In addition, the period for exercising the pre-emptive right is extended from two to three months. Economically significant is the regulation that municipalities can no longer exercise the pre-emptive right at the purchase price agreed between buyer and seller, but at the market value determined by an expert. In addition, the conversion of rented housing into condominiums is impeded. The Building Land Mobilisation Act empowers the state governments to reserve approval for the conversion, whereby state governments can determine the size of the house from which the reservation of approval applies. The scope ranges from three to 15 appartments.

Impact on practice

The impact of the Building Land Mobilisation Act in practice is likely to vary depending on the municipality and the instruments chosen. Numerous municipalities already condition the granting of exemptions required for a building project on the creation of affordable housing, which is why the sectoral development plans are likely to bring practically few innovations in these municipalities. The same applies to the reservation of approval for the conversion of rental flats into condominiums. In areas where a social preservation ordinance applies, such reservation of approval already exists. The extensions of the construction obligation and the pre-emptive right are likely to be of practical significance. In addition to the changed exercise price of the pre-emptive right, above all the extended exercise period will have an influence on real estate transactions. It can be assumed that the municipalities will increasingly exhaust the exercise period granted and issue the negative certificate on the non-exercise of the pre-emptive right only at the end of the period. Since the negative certificate is regularly a prerequisite for the due date of the purchase price, corresponding delays in the closing of transactions are to be expected. Nevertheless, the pre-emptive right still does not apply to share deals, so that corresponding corporate law structures may be advisable.

The Building Land Mobilisation Act is criticised politically from different sides. While owners' associations criticise the far-reaching encroachments on the freedom of ownership, tenants' associations argue that the regulations do not go far enough and contain too many exceptions. Bavaria’s conservative party (CSU) already announced that it will deny the pending approval of the act in the Federal Council and that it will call on the mediation committee (Vermittlungsausschuss). The Federal Council's committee on housing reportedly rejected a corresponding motion submitted by the Bavarian State. Nevertheless, the Bavarian initiative is not yet off the table, as the majority ratios in the Federal Council's committees do not correspond to those in the plenary. Thus, it remains to be seen whether the Federal Council will give its approval on 28 May 2021 and whether the Building Land Mobilisation Act in its current version will actually come into force on 1 July 2021.

Co-author: Fabian Motazedi