Real estate purchase

Real Estate Glossary

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Individual freehold ownership, condominium declaration, common ownership, maintenance reserve, HOA manager, individual freehold property manager, etc. – during a condominium acquisition you will sooner or later come across some or all of these terms.

Our job is to shed some light on this arcane terminology. We will help you make the acquisition of your condominium a piece of cake. Let us initiate the joint process right here, as we brief you in this guideline on the standard steps involved in condominium acquisitions – from your initial wish to buy, all the way to the eventual transfer of title.

The conveyance is an important step in the purchase process on the way to the condominium. With the conveyance, the buyer and seller agree that the apartment or the property will now become the property of the buyer. To this end, both parties first conclude a purchase agreement together with a conveyance. The conveyance is required for the change of ownership, since under German law a change of ownership cannot take place solely with the notarization of a purchase agreement (principle of separation). The purchase contract is an obligation transaction, the conveyance is a disposal transaction.

The next step is for one of the two parties, usually the buyer, to register a priority notice of conveyance in the land register. This officially establishes that the property already has a buyer and cannot be sold a second time. Once the purchase price has been paid, the conveyance takes place: the buyer is now the owner of the apartment and therefore also responsible for the costs incurred for the apartment. Finally, the registration of the buyer in the land register makes the purchase of the apartment complete.

Operating costs include all costs that you incur on an ongoing basis as a result of owning the property and using it. One-off costs are not included. Operating costs thus include expenses for water supply and disposal, heating, street and building cleaning, garbage collection, lighting and necessary insurance. In addition, property tax and the maintenance and cleaning of heating and hot water supply systems are also included. If your condominium is rented out, it is usually agreed in the rental contract that the tenant bears the operating costs. In this case, you must prepare an operating cost statement for him once a year. If, on the other hand, you are an owner-occupier, you must pay all the costs yourself. Non-apportionable operating costs include, among other things, administrative costs that you incur for managing your apartments, as well as maintenance and repair costs. You cannot apportion these costs to the tenant.

The operating costs statement is prepared once a year by the landlord for the tenant. Operating costs are all ongoing costs incurred as a result of the use of the property. For condominium owners, it is important to note that these are the apportionable cost portions in the statement of property charges. Exactly which costs these are is regulated by the Operating Costs Ordinance. These include the costs for water, heating, waste disposal and gardening. The maintenance reserve and management fee, on the other hand, are non-apportionable costs that cannot be passed on to the tenant.

As a landlord, you must comply with data protection regulations. This also applies if only one condominium is rented out. According to Section 28 of the Federal Data Protection Act, you may only query and collect data from your tenant that is relevant to the rental agreement. Therefore, for example, you are not allowed to collect information about political views or the health of your tenants. You are also not allowed to pass on the phone number without your tenant's consent. Exceptions are only possible if there is imminent danger.

The commission is a premium, which is usually paid for a conclusion of a sale or the mediation of business opportunities. In the real estate business context, the commission is a premium for the real estate agent if he enables a rent or a sale.

The amount of the commission fee varies from case to case. When arranging a lease, the commission is limited by the law and must not exceed the sum of two monthly net rents plus VAT. When arranging a sale, the real estate agent receives a commission which refers in most cases to the amount of purchase price.

The maximum amount of commission varies from state to state. The commission is the lowest in Saarland, Bavaria and Baden-Württemberg with 3.57 percent. A real estate agent may charge up to 7.14 percent of the purchase price plus VAT in Berlin and Brandenburg. Therefore those two states are “the leader” in Germany.

It is not legally defined who pays the commission fee. In most cases the commission is paid by the tenant or either the buyer. Currently they are discussing to introduce a so-called lawfully ordering principle. That would be, that the person who hired the real estate agent has to pay him. Whether this regulation will enter into force, is still unclear.

A clearance certificate proves that a person has no outstanding liabilities of a tax nature. It is issued by the tax office and is limited in time. A clearance certificate is required, among other things, to extend a residence permit, to obtain a restaurant license or to purchase real estate. In this case, it proves that the buyer has paid the real estate transfer tax for the condominium or house. The notary must submit the clearance certificate together with the notarized purchase agreement to the relevant real estate transfer tax office. This is issued by the tax office and forwarded to the land registry via the notary. A transfer of ownership is only possible with proof of the clearance certificate.

Whenever a freehold or condominium owner develops a personal need for the apartment acquired as private investment, he or she may claim his or her right to owner occupation. Under German law, however, terminating a tenancy due to intended owner occupation is permissible only if the owner can quote a plausible and demonstrable reason for giving notice. Qualified reasons include, without being limited to, the fact that one of the owner’s children needs the flat. Important to note here: The reason for the intended owner-occupation or owner’s-dependent-occupation must still apply at the time at which the termination takes effect, not just at the time at which notice is given. Another thing to remember: The person claiming owner-occupation rights need not necessarily be the owner himself or herself. In addition to children, eligible dependents include parents, siblings, grandchildren nieces and nephews. This is true even for persons not actually related directly to the owner, but cohabiting with him or her, e.g. the owner’s spouse or lifetime companion.

Intended Owner-Occupation: Written Notice Mandatory

Assuming these requirements are met, there are certain formalities to observe. Notice must be given in written form. The owner must be able to substantiate that the notice was actually delivered. Notice periods may vary from one case to the next: Depending on how long the tenant has already lived inside the flat, the notice period can be anywhere from three to nine months. If the removal implies particular hardship for the tenant – for instance, if the tenant has lived in the flat for a very long time or is of advanced age – the tenant may object to the termination of tenancy. Indeed, the owner is held to inform the tenant of his or her right to object to the termination.

Termination of Tenancy for Intended Owner-Occupation: Observing Lock-up Periods

Special rules apply whenever the house in which the condominium is located has only recently been converted into freehold property. As often as not, lock-up periods will be in place that protect incumbent tenants against termination of tenancy for up to ten years following a condominium’s acquisition. Just how long the lock-up period is can vary even inside the same municipality. Owners wishing to claim intended owner-occupation are therefore well advised to check the exact waiting periods in their hometown first.

All owners of a residential complex together form the owners' association. One of their most important tasks is to jointly manage the property. The owners' meeting, as a body of the owners' association, is the most important party in the administration and meets at least once a year, among other things to vote on the economic plan, the annual statement and possible renovation measures as well as repair work on the common property.

The German energy performance certificate (“Energieausweis”) provides details on a building's conditions in terms of energy consumption. This is a four-page document. The first page lists general information regarding building type, building age, and existing usable area. Pages two and three use a colour scale from green to red to rate the imputed or actual energy need of the building. If you acquired a condominium, you will usually receive a consumption-oriented energy performance certificate that was compiled on the basis of the actual quantity of energy the building consumed over the past three years. The certificate will also quote comparables for a variety of building types. Moreover, it will explain the technical terminology used, and list recommendations for possible modernisation measures.

The German energy performance certificate was introduced in 2007 by the German Energy Saving Ordinance (EnEV), and must be made available to you as potential condo buyer upon request – regardless of the building's age. The energy performance certificate is always compiled for the building as a whole, even if you are acquiring just one of its units.

A parcel is a clearly defined and officially surveyed part of the earth's surface. In the real estate cadastre, each parcel is assigned its own parcel number. A property can consist of one or more parcels.

The common property comprises the property as well as the parts of the building that are not separate property. In particular, this includes all parts of the building that are necessary for the existence or safety of the house, for example, the exterior walls, the roof, the foundation and the staircase, as well as windows and entrance doors. In addition, it includes all facilities and equipment that the apartment owners can use jointly. These include parking spaces or green areas, but also, for example, a swimming pool. All apartment owners manage the common property together and are jointly responsible for its maintenance.

Every community needs rules for orderly and peaceful coexistence. In the community of owners, the relevant provisions are found in the community rules. They contain the rights and obligations of the condominium owners within the condominium and are therefore also referred to as the "constitution of the condominium". They are drafted specifically for each residential complex and are usually recorded in the land register together with the declaration of division. House money, distribution of votes and keeping of animals: common components of the community rules One of the most important points in the community rules is the distribution of costs. They often contain a cost allocation key according to which the expenses for maintenance and repair work on the common property are apportioned among the owners. Likewise, the payment provisions of the house money may be stipulated in the community rules. Since the distribution of votes in the owners' meeting may be regulated differently, it may also be part of the community rules. Normally, voting is based on the object principle, according to which one vote is allotted to each apartment. If this principle is applied, it must be stipulated in the community rules. In addition, the community rules can, for example, prohibit the keeping of animals or contain certain conditions for renting out the apartments. They can also prohibit the use of the apartment for commercial purposes. The community rules - compulsory reading for every potential owner Although the community rules are registered in the land register as part of the declaration of partition, the owners' association can amend, expand or, if none exist, draft them. For such a step, the entire community of owners must agree in each case. If the owners agree, provisions that deviate from the Condominium Act can also be entered in the community regulations. However, some legal regulations are binding in any case and cannot be overridden by the community rules. The existence of a community order is not obligatory, but it is expedient, especially in the case of large condominium associations. Since the community rules provide information about the rights and obligations of the individual owner, they are one of the most important documents that you as a prospective buyer should check before purchasing.

The land register is a public record for evidence of title or other rights of use to properties. The German name is “Grundbuch.” In Germany, the land register provides the following data on each property:

  • location and size of the property

  • leasehold rights (including without being limited to ground leases or freehold ownership rights)

  • the name of the owner and, whenever there is more than one owner, the share owned by each

  • land charges and restrictions (including, inter alia, priority notices of conveyance, easements, and restraints on disposal, such as rights of pre-emption or rights of residence)

  • mortgage liens, such as, mortgages and property charges

The records of the land register are kept by the land registry. However, if changes to the land register need to be made, e.g. due to the purchase of a freehold, an application must be filed that is processed by the proper district court.

Anyone buying real property in Germany becomes subject to real estate transfer tax. The tax also becomes due when you acquire a freehold or condominium because the acquisition makes you part-owner of the property on which your freehold sits. The tax becomes due for payment once the legally effective deed between seller and buyer has been signed. The notary facilitating the acquisition process will notify the inland revenue office of any taxable condominium acquisition. Next, the inland revenue office will calculate the amount of tax due, and charge you accordingly in a written tax note. Once you remitted your real estate transfer tax dues, the office will issue a clearance certificate to you. You will need the certificate to be entered into the land register and thereby become the rightful owner of your condominium. Until September 2006, the tax rate for the real estate transfer tax was 3.5 percent of the purchase price across Germany. Since then, however, the German states have been at liberty to set their own tax rates, making your tax rate effectively dependent on the state in which you buy property. At the moment, the rates range from 3.5 percent in Bavaria and Saxony to 6.5 percent in Saarland, North Rhine-Westphalia and Schleswig-Holstein.

Land can be encumbered with a security right over real property as collateral for loans taken out. The security right over real property is considered a "real right of realisation": it allows the creditor to satisfy his claims by forced sale or administration if necessary. Encumbrances on real property are entered in the land register. In Germany there are three types of security right over real property: the mortgage, the land charge and the annuity debt.

1. The Mortgage A mortgage is a so-called accessory mortgage. It therefore always corresponds to the amount of the existing claim. So if 70,000 euros of a mortgage of originally 100,000 euros has been repaid, the mortgage still has an amount of 30,000 euros. When the total amount is repaid, the mortgage expires completely. In practice, the mortgage is increasingly being replaced by the land charge.

2. Land Charge The land charge is an abstract mortgage. This means that it exists independently of the existence of a specific claim. Even if a loan is not taken up or only to a lesser extent, the land charge remains unchanged. So if 70,000 euros of the original 100,000 euro land charge have been repaid, the amount of the land charge remains 100,000 euros. Even if the entire loan has been repaid, the land charge remains in place for the time being. However, with a notarised deletion authorisation, the deletion of the land charge can be applied for at the land registry. Compared to the mortgage, the security right over real property is somewhat more flexible: debt rescheduling, adjustments of conditions or assignments are easier and less expensive.

3. Annuity Debt The annuity debt is a subtype of the land charge. Instead of a specific capital sum, regular dates are agreed for the annuity debt on which a monetary annuity is to be paid from the property. An amount must be entered in the land register at which the owner - and only the owner - can redeem the annuity debt. The annuity debt plays a subordinate role as loan collateral.

As condominium owner, your freehold ownership also makes you pro-rata owner of the plot on which your freehold property is situated. As a result, you become subject to property taxation. Property tax is levied on the ownership of plots and the built-up structures upon them. The tax dues depend on the value of the plot, and are remitted to the respective municipality. The property tax burden varies from one municipality to the next.

The property tax is not covered by the home owner association's budget, but is remitted by each condominium owner personally. If you acquire an occupied condominium as private investment, you may allocate the property tax to your tenant as part of the operating costs.

Land valuation committees represent panels of property experts. In Germany, these include representatives of competent authorities and pro-bono members, such as architects or civil engineers, for instance. The surveyor committees operate autonomously and independently, even though they are affiliated with government authorities whose exact nature varies from one German state to the next (including, e.g. district offices, official surveying agencies, and land registries). The committees were created with the ratification of the German Federal Building Code (BauGB) in 1960.

Once a property deed is signed, it is forwarded to the competent property valuation committee by the notary. The data detailed in the deed, such as the purchase money, the location, and the size of the property, are aggregated, evaluated, and published in summarised form. The data serves as basis for fair market valuation reports on properties or mortgage appraisal reports compiled by banks.

These fair market valuation reports for developed and undeveloped properties are drafted by the committee. The reports are subject to a charge, and may be commissioned by private individuals, too. Other responsibilities of the committees include the determination and publication of standard land values and other data used to determine the value of a given property.

Among your most important obligations as a condominium owner is the payment of the condominium fee. The proceeds of this fee are used to cover the costs accruing for the management, maintenance, and administration of the commonhold property you jointly own together with the other owners in the building. The legal basis for collecting the fee is the German Condominium Act (WEG). It provides that owners should bear these costs collectively and split them among themselves. As a rule, the condominium fee is paid to the estate manager. The condominium fee receipts are earmarked, on the one hand, for the maintenance reserve that is set aside for major reinstatement work such as the replacement of the central heating system. On the other hand, it is used to cover smaller current maintenance measures as well as the costs for managing the house. The overhead, too, is covered by the condominium fee. If a condominium is not owner-occupied but let to a third party, the overhead can be recovered from that tenant. The remaining shares of the condominium fee are borne by you as the owner.

On top of the current assessments that owners advance toward the aforesaid expenditures, the condominium fee is collected in the form of so-called settlement fractions. These are additional payments collected whenever the costs incurred during the past financial year exceeded the the sum total of the assessments. Moreover, special assessments might become due for you as owner if unplanned expenses are subsequently added to the budget, e.g. the unforeseen costs of legal action. Finally, the condominium fee might be compounded by payments from a contractual obligation an owner may have vis-à-vis the home owner association (HOA), such as the rent for parking spaces that are part of the commonhold property. The exact amount of the condominium fee is calculated on the basis of the business plan. The budget of a home owner association (HOA) is known as business plan. It is drafted for the next calendar year by the manager, and includes both the revenues and the expenditures for the housing estate. The business plan also includes an allocation key that breaks down the condominium fee to be paid up by each owner. These assessments represent advance payments. Most home owner associations have their owners pay their pro-rata condominium fee in monthly assessments. Occasionally, you will also find annual assessments. The condominium fee accounts are kept by the manager.

The annual statement of property charges is prepared once a year by the property manager and must be approved by the community of owners at the owners' meeting. All income and expenses of the previous fiscal year are listed and offset against each other in the statement of condominium fees. As a rule, the financial year coincides with the calendar year - possible exceptions are regulated in the declaration of division. The statement of property charges must be complete, clear and understandable even for laypersons. It must provide information on reserves, liabilities and income of the owners' association. The income includes, on the one hand, the owners' house payments. It may also include rental income from leased common property and interest income. Another item to be listed are costs incurred during the business year: on the one hand the total costs of the community of owners, on the other hand the proportional costs for each owner. In addition, the manager must indicate the distribution keys on the basis of which he calculated the costs - including the derivation of these distribution keys. In addition to the statement for the entire community of owners, the manager also prepares an individual statement for each owner. This also includes possible additional payments or credit balances. Each owner should therefore check the statement carefully. The costs for each owner can be divided into an apportionable and a non-apportionable share. For capital investors, please note: Only the apportionable costs can be passed on to the tenant. The Operating Costs Ordinance regulates which costs are included. Among other things, the costs for water, heating and waste disposal are included. Maintenance, capital and management costs, on the other hand, cannot be passed on to the tenant.

Mit dem Besitz einer Immobilie sind eine Menge Verwaltungsaufgaben verbunden – in einer Wohnanlage mit mehreren Eigentümern ist die Immobilienverwaltung Aufgabe der Eigentümergemeinschaft. Deren Gremium, also die Eigentümerversammlung, tagt in der Regel einmal im Jahr, um Entscheidungen über die Wohnanlage zu treffen. Unter anderem stimmt sie über den Wirtschaftsplan und die Jahresabrechnung ab.

Der Verwalter – Exekutive der Eigentümergemeinschaft

Eine der wichtigsten Aufgaben der Eigentümerversammlung ist es, einen Verwalter zu bestellen, der die Immobilienverwaltung übernimmt. Dazu ist die Eigentümerversammlung laut Wohnungseigentumsgesetz (WEG) verpflichtet. Dies kann entweder ein externer Dienstleister oder auch ein Mitglied der Eigentümergemeinschaft sein. Er wird in Regel durch einen Beschluss der Eigentümerversammlung bestellt, eine einfache Mehrheit ist hierfür ausreichend.

Auch die Aufgaben des Verwalters sind im WEG festgelegt. Dazu gehört in erster Linie, dass er die Beschlüsse der Eigentümerversammlung umsetzt. Daneben verwaltet er ihre Gelder, das heißt, er ist Empfänger der Hausgeldzahlungen und begleicht damit die anfallenden Ausgaben. Die Instandhaltung und Instandsetzung der Wohnanlage ist ebenfalls Aufgabe des Verwalters: Er muss erforderliche Maßnahmen in die Wege leiten, Reparaturbedarf melden und Bauarbeiten abnehmen. Er ist auch dafür verantwortlich, dass die Hausordnung eingehalten wird. Unter anderem muss er zum Beispiel sicherstellen, dass Rettungswege im Haus freigehalten werden. Bei Nichterfüllung dieser Pflichten haftet er. Der Verwalter erstellt außerdem den Wirtschaftsplan für das folgende Wirtschaftsjahr und die Jahresabrechnung für das vergangene Jahr und beruft die Eigentümerversammlung ein. Die Teilungserklärung, die Gemeinschaftsordnung, der Verwaltervertrag oder auch Beschlüsse der Eigentümerversammlung können die Aufgaben des Verwalters erweitern.

Der Verwaltungsbeirat – nicht obligatorisches Organ in der Verwaltung der Wohnanlage

Das dritte Organ in der Verwaltung der Wohnanlage ist der Verwaltungsbeirat. Er besteht aus mindestens drei Eigentümern und unterstützt den Verwalter. Der Verwaltungsbeirat prüft die Jahresabrechnung und den Wirtschaftsplan, den der Verwalter erstellt, und vermittelt zwischen ihm und der Eigentümergemeinschaft. Das WEG schreibt nicht vor, einen Verwaltungsbeirat zu wählen. In der Teilungserklärung oder der Gemeinschaftsordnung kann die Wahl eines Beirats jedoch ausgeschlossen oder verpflichtend sein. Bei einer großen Eigentümergemeinschaft ist es für die Immobilienverwaltung sinnvoll, einen Verwaltungsbeirat einzusetzen, gegebenenfalls auch mit mehr als drei Personen.

A key component of the budget is the maintenance reserve (also called maintenance provision or simply reserve) paid monthly by every owner. Pursuant to the German Condominium Act (WEG), saving up an adequate reserve is prerequisite for the proper management of a housing estate. The money earmarked for the reserve is taken out of the condominium fee that you pay as condo owner. The funds collected this way are primarily intended to cover major reinstatement measures involving the commonhold property, such as the replacement of the roof or of the heating system. Paying into the maintenance reserve in regular instalments distributes the financial burden of major investments across several years. There is no general benchmark regarding the exact amount you will have to set aside toward this reserve each month. Rather, the amount depends on the age, condition and fit-out of the house where your condominium is located.

You will find an explanation of the term under "Hausgeldabrechnung".

Mittels einer Kapitalanlage können Sie Ihr Vermögen langfristig sichern und vermehren. Dabei existieren verschiedene Anlagemöglichkeiten: Sie können sich für Geldanlagen wie Sparkonten und Wertpapiere entscheiden, aber auch in Sachwerte wie Immobilien investieren. Wenn Sie beispielsweise eine vermietete Wohnung erwerben, handelt es sich um eine Kapitalanlage. Sie erhalten die monatlichen Mieteinnahmen und profitieren von den Wertsteigerungen Ihrer Eigentumswohnung. Darüber hinaus können Sie häufig Steuervorteile in Anspruch nehmen. Keine Kapitalanlage ist es dagegen, wenn Sie eine Wohnung kaufen, um selbst darin zu wohnen.

For an explanation of the term, see Rental deposit.

The real estate cadastre serves as an official register of all properties. It is the basis for the proof of ownership in the land register. All parcels of land and buildings are mapped and described in the real estate cadastre. On the basis of surveys, the land is divided into parcels. Properties such as the exact location, size, existing buildings and type of use of the parcels are recorded.

If you are the owner of a let apartment you may raise the rent to offset the effects of inflation, for instance. There are strings attached to rent hikes, though, and they may be more numerous in Germany than elsewhere. Here are the most important ones: You always need the tenant's consent to make a rent increase effective. Then again, the tenant is generally obliged to consent to the increase as long as you observe the applicable formal and legal requirements. For one thing, you need to communicate and justify the rent increase in writing. The German Civil Code (BGB) permits rent increases up to the level of the local reference rent (Art. 558) on grounds of modernisation measures (Art. 559) or if a graduated or indexed rent was agreed in the lease (Art. 557).

Rent Increase up to the Local Reference Rent

You may raise the rent up to the level of the local reference rent if the rent has not been changed for the past 15 months at the time of the contemplated rent hike. Moreover, at least one year must have passed since the previous rent hike before you may request the next rent increase. You also need to consider the so called rent increase cap, which limits rent increases to a maximum of 20 percent inside a three-year period. A legal amendment that entered into force in May 2013 authorises German states to lower the ceiling even further to 15 percent over three years in municipalities with a strained housing market. The arguments you quote to justify a rent increase need to reference one of the following sources to document the local reference rent: three comparable apartments, an expert opinion by a surveyor, or data obtained from a rent database or rent table.

Rent Increase due to Modernisation

You may raise the rent due to modernisation measures after you or the home owner association (HOA) undertook structural measures that enhance the practical value of the apartment, permanently improve the living conditions, or result in sustainable energy or water savings. Qualifying measures include, for instance, the addition of a balcony, the replacement of single-pane windows with multiple glazing, or the installation of an intercom system. In this context, you may raise the rent by up to eleven percent of the amount spent on the apartment's modernisation.

Graduated Rent and Indexed Rent

If a lease you signed with your tenant stipulates a graduated rent pursuant to Art. 557a, German Civil Code, the rent will automatically increase by the set amount at the appointed time. However, the interval between rent increases must be no less than one year, while additional rent increases are ruled out as long as the graduated rent arrangement remains in place.

Whenever an indexed rent pursuant to Art. 557b, German Civil Code, was agreed, the rent will increase in proportion to the price index for the cost of living of private households in Germany as determined by the Federal Statistical Office. As with graduated rents, indexed rents are limited to one increase per year while ruling out any additional rent hike. The only permissible type of rent increase out of turn presupposes a modernisation not subject to your control as a landlord because it was decreed by the home owner association.

If you decide to buy an apartment that is already occupied by a tenant, the vendor will hand you over all lease related contracts and papers as well as the rent deposit after the purchase. The deposit is paid by the tenant, when signing the lease with the landlord. A deposit comprises a maximum sum of three times the monthly net amount of rent and is intended to protect the landlord against claims resulting from the tenancy agreement, for example damages the tenant caused in the apartment or legal expenses.

The landlord is legally bound to set up a bank account for the deposit that is managed separately from other assets and pays interest at the standard rate for savings deposits at three months notice. The tenant is entitled to the interest earnings.

The tenant is reimbursed the deposit after having given notice, provided there are no claims against him or her. If the operating costs are still to be billed, the landlord may hold back a reasonable amount of the deposit, if it is foreseeable that the tenant will have to make subsequent payments for the operational costs. In this case the legally set period to repay the deposit is extended to up to twelve months.

The “Mietspiegel“, German for rent index, provides an overview of the local reference rent in one or more municipalities. The rent index derives itself exclusively from privately constructed apartments. The rent index is jointly authored by municipalities and city administrations, who cooperate with owner associations and tenant associations for this purpose. The index is a means to justify rent increases. As there is no legal obligation for rent indexes, not all municipalities provide issues. If a municipality decides to publish a rent index, however, it is legally required to update it regularly.

If you acquire a let apartment as private investment, the existing tenancy will survive the change in ownership. Prior to the sales transaction, you will be given all relevant lease contract documents, such as the lease itself and supplementary agreements, if any. Once you acquired the apartment, all remaining lease contract documents will be turned over to you. These include the running cost settlements of recent years, along with an overview of the rent receipts. Upon request, additional details that the tenant may have provided when renting the apartment, will also be disclosed to you. Relevant documents that come to mind include proof of income, a credit rating from the German Credit Protection Agency SCHUFA, or a proof of rent payment certificate.

Operating costs include all those current costs that arise from property ownership and the way you use your property. They do not, however, include one-off cost items. Accordingly, expenditures for water supply and grey water disposal, heating, street cleaning, facility cleaning, garbage collection, lighting, required insurance policies, and other service charges qualify as operating costs. Among other eligible cost items are, for instance, the property tax, as well as the cleaning and maintenance of heating and hot water supply installations.

If you let your condominium, the lease contract will normally allocate the operating costs to the tenant. In this case, you need to compile a running cost settlement for the tenant each year. If, by contrast, you owner-occupy your condo, you pay for the overhead out of your own pocket.

Non-recoverable operating costs include, inter alia, management costs arising from the management of your residential property portfolio, as well as maintenance and reinstatement costs. This sort of cost item cannot be allocated to the tenant.

Der Mieter einer Wohnung ist verpflichtet, alle vorhersehbaren Schäden in dieser zu verhindern. Er muss die Wohnung pfleglich behandeln und darf bei der Einrichtung und Nutzung die Bausubstanz des Gebäudes nicht beschädigen. Unter die Obhutspflicht fällt es beispielsweise, bei Regen die Fenster zu schließen und im Winter regelmäßig zu heizen, um das Einfrieren von Wasserleitungen zu verhindern. Auch wenn der Mieter längere Zeit verreist ist, bleibt die Obhutspflicht bestehen. Ein weiterer Teil der Obhutspflicht ist es, dass der Mieter seinen Vermieter sofort informieren muss, wenn Schäden in der Wohnung aufgetreten sind.

Financial security in old age, a home of one's own, and an inflation-resistant investment – a condominium delivers a variety of benefits. Then again, homeownership entails a number of duties as well. For starters, each owner – whether owner-occupier or private investor – shares in the administrative overhead, which are paid for through the condominium fee along with the provisions set aside.

Owner-occupiers need to remember: The owner may use the commonhold property only to the extent that such use does not infringe upon the other owners. Practically speaking, this means, for instance, that a condo owner may not keep furniture or bicycles in the stairwell except with the other owners' consent. But more than that: Even if the home owner association does not object, the owner must uphold fire prevention and protection regulations. And even the use of the individual freehold property, that is, the condo, may not infringe upon the other owners.

The Meeting of Owners: Attendance Not Mandatory, but Sensible

The duties of the owners of a given housing estate are all listed in the respective condominium regulations. Attending the meeting of owners is admittedly not binding. However, attendance recommends itself because it gives owners the chance the play an active part in key decisions concerning the housing estate. Whenever an owner is unable to attend the meeting, he or she may normally send a proxy: The condominium regulations also specify who qualifies as an owner's authorised agent.

Minutes should be kept during every important meeting in order to note decisions and responsibilities, and a meeting of owners is no exception. According to the German Condominium Act (WEG), owners' meeting minutes must take the written form. This is the responsibility of the chairperson elected at the start of each owners' meeting. While the manager often takes on this role, it could just as well be one of the owners.

Contents of the Minutes: Attendees and Outcomes

The minutes should note first of all the exact nature of the owners' meeting, preferably stating the address of the housing estate at issue. Moreover, they should identify the location and date of the meeting, along with the name of the meeting's chairperson. Another key elements of the minutes is a list of the persons in attendance complete with their respective functions. This means specifically that any person attending who is not an owner, which could e.g. be a proxy representing an absentee owner or a member of the administrative advisory board, should be identified as such. The minutes should moreover state whether the meeting was regularly convened.

One of the most important items in the owners' meeting minutes is the documentation of the resolutions passed. The resolutions need to be detailed complete with the exact number of votes that carried them. It is better yet if the minutes, rather than limiting themselves to the outcome of a vote, cover the preceding debate, because this will make the decisions more plausible later on. Important to note: It is of the essence that the minutes remain unbiased and be kept free of personal assessments.

The Owners' Meeting Minutes – Mandatory Reading for Leads

As the meeting winds up, the chairperson of the meeting, the chairperson of the administrative advisory board, and one owner have to endorse the minutes. Deviations from this rule, for instance if two owners endorse the minutes, must be authorised by the condominium regulations to be effective. Since resolutions of a home owner association can be contested up to one month after the meeting, the minutes should directly be made available to all owners. It is the manager's responsibility to see to that. The managers must also archive the minutes in such a way as to make them accessible to future owners. After all the minutes of the home owner association are an invaluable source of information for prospective freehold owners. For one thing, they reflect the level of harmony in the home owner association and the procedure it follows to pass its resolutions.

When managing a residential complex, the condominium owners' association has to make all kinds of decisions. These must be decided by a majority of the owners. But beware: a majority is not the same as a majority. For a simple majority resolution, it is sufficient if the number of condominium owners voting in favor of a proposal is greater than the number voting against it. However, if a qualified majority resolution is required, the votes in favor must account for a certain proportion of the total number of votes. As a rule, two-thirds or three-quarters of all votes are then required for the resolution to be valid. In the case of particularly important decisions, a double qualified majority resolution may be necessary. For this, not only must a certain proportion of all condominium owners vote in favor of the proposal, but the approving owners must also hold more than half of the co-ownership shares. One such case is a vote on a modernization project that goes beyond the proper maintenance and repair of the building. According to the WEG, three quarters of the condominium owners and more than half of all co-ownership shares must vote in the affirmative for the construction measure to start (cf. WEG Section 22 (2) Sentence 1). Which type of majority is required for which resolution can be read by the condominium owners in the community rules, which are usually included in the deed with the partition approval.

Smoke detectors are battery-operated devices that are installed in buildings and that trigger fire alarm to warn the people in the building. In some the states, the installation of smoke detectors is regulated by the law. Currently, this affects all states with an exception of Berlin, Brandenburg and Saxony. The owners of residential buildings or condominiums in those states are responsible for the installation of smoke detectors, with an exception of Mecklenburg-Vorpommern. Here the dweller, this means the tenant or the owner-occupant, is responsible for the installation. However, smoke detectors must not only be built, but also be functional and ready to use at all times. It differs from state to state who is responsible for that. For example in Bremen and Bavaria the occupant of the apartment has to take care of that, in Hamburg the owner of the apartment or the landlord.

The term „return on investment “refers to the ratio between of income and expenditure for a capital investment. The return on investment is usually expressed per year and as a percentage. In the case of a condominium that is rented, the net rental return is important. It indicates what proportion of the cost of acquisition plus incidental costs over the annual rent flows back to the owner-occupier.

Would a condominium for example cost 100.000 Euro, amounted to five percent real estate transfer tax, the commission fee seven percent and notary fee 1.5 percent, the total investment cost would be 113.500 Euro. The annual rental income would be 7.200 Euro if the monthly net rent would be 600 Euros.

Since the housing fee includes not only the fixed running cost (difference between cold- and warm rent) one has to subtract the „non recoverable cost“ of the economic plan from the net rent.

Example:

total investment cost: 113.500,00€ annual net rent: 7.200,00€ non recoverable costs: 600,00€ (7.200-600) % 113.500 = 5,81% p.a.

The German Condominium Act (WEG) refers to all those parts of a property belonging to a single owners outright as individual freehold property. So it represents the opposite to commonhold property. As a condominium owner, you may alter any room or building part that you hold in individual freehold ownership without infringing upon the ownership rights of the building's other freehold owners. That being said, certain restrictions apply in the case of listed buildings. Individual freehold ownership covers both the actual apartment and those facilities in the buildings that, while not serving as living space, are yours to use, such as a basement cubicle, a section of the yard, or a garage. Your individual freehold ownership of an apartment along with your share of the commonhold property

The German Condominium Act (WEG) refers to all those parts of a property belonging to a single owners outright as individual freehold property. So it represents the opposite to commonhold property. As a condominium owner, you may alter any room or building part that you hold in individual freehold ownership without infringing upon the ownership rights of the building's other freehold owners. That being said, certain restrictions apply in the case of listed buildings. Individual freehold ownership covers both the actual apartment and those facilities in the buildings that, while not serving as living space, are yours to use, such as a basement cubicle, a section of the yard, or a garage. Your individual freehold ownership of an apartment along with your share of the commonhold property

Parts of a property or of a building that are jointly held by all of its owners are called commonhold property. If one of the owners has sole use rights to such commonhold areas, the privilege is referred to as rights of separate use. Arrangements of this sort often involve parking spaces, parts of the yard, or basement units. Important for owners: Even if an area is subject to rights of separate use, the home owner association still pays for the maintenance and reinstatement of that area. Rights of separate use are governed by the condominium declaration.

As a condominium owner, you may become due for a special assessment whenever the home owner association's existing maintenance reserve falls short of covering the management and maintenance costs for the commonhold property. Such expenditures are usually paid with the condominium fee collected. Yet the regular maintenance assessments may not always suffice to pay for major repair work. Specifically, a special assessment may be occasioned by the repair of major or unexpected damages to the building, non-payment of condominium fees, or a too tightly calculated budget.

The amount of the special assessment depends on the estimated costs for the measure at hand. The special assessment is deemed a supplementary budget and presupposes a favourable majority vote by the meeting of owners.

Pursuant to the German Condominium Act (WEG), part ownership refers to those areas of a housing estate defined in the condominium declaration as individual freehold ownership of rooms not intended for residential use in connection with the co-ownership share of the commonhold property (Art. 1, Sec. 3, WEG).

Areas in question may include other rooms outside the enclosed apartments, such as a basement cubicle, a share of the attic, or a commercial unit.

Aside from part-owned property in the strict sense, the condominium declaration may expressly rededicate individual freehold property to alternative usage, such as residential use possibly in combination with other use types. Then again, the term part ownership refers to a condo owner's share in the commonhold property, meaning common areas such as the stairwell.

Prior to the acquisition of a condominium, a host of questions present themselves to future homeowners, including the following: Which parts of my property of choice do I own outright, and which are held in common ownership? This question is answered in the condominium declaration. It provides valuable information for leads regarding the distribution of rights and duties in a given housing estate.

Mine, Yours, Ours – Commonhold Property, Individual Freehold Ownership, and Rights of Separate Use.

The condominium declaration or the deed of partition separates freehold from commonhold property. In concrete terms, this means: The condominium declaration defines which parts of the plot and of the property belong to an individual owner and which to the home owner association. Parts held by the latter represent commonhold property. Commonhold property includes primarily the plot. In addition, the property components that are essential for its upkeep and use, e.g. load-bearing walls, the roof, staircases and, where applicable, the heating system are usually jointly held by all owners. Conversely, all those parts of the property that are held by individual owners represent individual freehold ownership.

If any one owner holds the sole rights to use a given commonhold property area, that privilege is referred to as rights of separate use. This, too, is governed by the condominium declaration. Rights of separate use are often granted for basements, parts of the yard, or car parking spaces.

The Condominium Declaration: the Basis for Allocating the Maintenance and Repair Costs

The breakdown into freehold and commonhold property is particularly important when it comes to allocating the costs for maintenance and repair work. While the owner pays for the maintenance of his of her freehold property (the condominium), the costs of maintaining the commonhold property are borne by the home owner association. The way freehold and commonhold property is assigned can differ from one housing estate to the next. Accordingly, potential costs for the individual owner can differ significantly. As you can see, the condominium declaration represents an important source of information for you as future owner.

If a condominium is rented, the operation cost can be partially passed on to the tenant. The criteria for redistribution as the apartment size or the consumption for example water or heating oil determine the amount of costs for each tenant. The landlord of the apartment is responsible to send the tenant the operational cost account to a maximum of twelve month after the end of the accounting period.

The operating costs ordinance regulates which cost positions are allocable costs. The following costs are allocable:

  • Current taxes, that are incurred for the property, such as land

  • Fees for water

  • Fees for drainage

  • Heating costs

  • Fees for hot water supply

  • Costs related to heating and hot water supply

  • Operating costs for elevator

  • Fees for waste disposal and street

  • Charges for residential building cleaning

  • Charges for garden care

  • Fees for the lightings of rooms, which are used by all, and also for outdoor lighting

  • Fees for the chimney

  • Premiums for property and liability insurance

  • Fees for the janitor

  • Costs for the media supply, for example to operate a community antenna system

  • Costs for the operation of washing machines and dryers

  • Other operating costs such as a sauna and a swimming pool

 

The following costs are not allocable:

  • Capital cost effect

  • Fees for the administrative authority

  • Cost of maintenance and repair

“Local reference rent” is a term used by the German Civil Code (BGB). It marks the ceiling up to which rent increases are lawful pursuant to Article 558, German Civil Code.

Quoted reference rents differentiate between apartment size, fit-out, and location, and represent the median of the past four years. Calculation of the reference rent takes both rents on new leases and current rents into account. By contrast, it does not consider apartments that are subject to rent control and / or that were raised within the framework of public housing construction.

The local reference rent always refers to a specific municipality. If a community publishes a rent table, it will list the reference rents. If not, a good way to obtain a reference rent is by comparing at least three properties of similar size, fit-out and location, or through an expert valuation.

The “fair market value” or just “market value” is calculated as the average selling price currently achievable. It represents that price for which a plot or a property would sell on the open market at a given moment in time. Accordingly the value always references the time at which it was determined. It needs to take the characteristics, the nature, and the location of the developed or undeveloped plot or of the property into account. Price variances caused by unusual or personal circumstances, by contrast, will not enter into the calculation of the average value. The fair market value is appraised by a surveyor committee in a so-called fair market valuation report.

If a home owner association (HOA) decides to appoint a manager, it is of the essence to sign a management contract with a manager rather than just appointing one. Otherwise, the appointment will be legally ineffective. The contract must be negotiated with the manager, and then approved by majority vote at the meeting of owners. Afterwards, the manager and one or several owners authorised for this purpose by the home owner association sign the contract. Not until then does the manager's appointment become legally effective.

Contents of the Management Contract: Responsibilities, Term, and Remuneration

In addition to explicitly identifying the parties to the contract, the management contract should specify the contract term and the notice period A manager may serve for a maximum term of five years – though there is the option to re-appoint the manager again. If a manager is re-appointed, a new management contract is rarely required. The first-time appointment of a manager by a home owner association (HOA) is legally limited to three years.

One of the key aspects in the management contract is the section defining the manager's responsibilities and duties. Some of these are set forth in the German Condominium Act (WEG), whereas others are governed by the respective condominium regulations and the resolutions passed by the meeting of owners. Among the main responsibilities is the management of the home owner association's finances. The finances, especially the investment of the maintenance reserve, should also be regulated in the form of contractual provisions. It makes sense to use a trust account toward this end.

The management contract should also clarify vis-à-vis which entities the manager has power of representation: These are usually authorities and courts, among other entities. Another aspect to be governed by the contract is the amount of remuneration along with the mode of payment. On top of that, the contract should specify under what circumstances the owner may view the manager's files and how often the managers should appraise the condition of the property at issue. Finally, the management contract frequently grants the manager the right to authorise another person to perform his duties.

A third party that plays a role in freehold ownership, in addition to the home owner association (HOA) and the manager, is the administrative advisory board. It is composed of three owners who tend to discharge their office on a pro-bono basis. On the one hand, it is the advisory board’s job to mediate between manager and owners On the other hand, the board supports and monitors the manager. Part of the second responsibility is specifically that the advisory board should review the budget compiled by the manager. Important to know for home owner associations: Setting up an advisory board is not mandated by law. Rather, it is up to the home owner association to decide whether it makes sense to create one. The usefulness of this institution rises in proportion to the size of a given home owner association. In case the owners do opt in favour of a administrative advisory board, the meeting of owners moves to appoint such a board, after which the board members are elected.

The budget of a home owner association (HOA) is known as business plan. The manager compiles it by listing all anticipated revenues and expenditures for the year to come, including a breakdown of the costs for each owner. The business plan moreover specifies the share of the condominium fee that is set aside for the maintenance reserve. Also, the business plan is the basis for assessing the amount of the condominium fee. If a given home owner association has appointed an administrative advisory board, it will audit the business plan. Finally, the business plan must be approved by the meeting of owners to become effective.

The German Condominium Act (German acronym: WEG) constitutes the basis for all legal regulations involving individual freehold ownership. Among other things, it governs the principles of freehold ownership, the rights and duties of home owner associations (HOA), and the management of condominiums. Moreover, the German Condominium Act regulates court proceedings involving condominium owners' associations. While the original German Condominium Act dates back to 1951, it was re-enacted in 2007, revising a number of provisions. One of the results of the re-enactment is that home owner associations are now invested with partial legal capacity. This means that a home owner association represents an entity with rights and duties that may conclude contracts and, for instance, open bank accounts. Previously, the legal status of home owner associations had merely been that of a group of persons, and its rights and duties used to be limited to those held by its members. The German Condominium Act divides the right of ownership in its first article into homeownership, individual freehold ownership, part ownership, and commonhold ownership.

Further readings

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