Tenant protection at conversions

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When an investor buys a house to convert it into condominiums, tenants are often afraid of crowding out or rent increases. Defensive reflexes awaken, class struggle mood comes up, sometimes even takes on the local politics of the case (see here ).

The law provides for special, additional tenant protection for such cases, which is designed in such a way that the situation is actually advantageous for the tenants. I would like to shed some light on this below.

1. statutory right of first refusal of the tenant

If, after the conclusion of the lease, the house is converted into a condominium, then by law, tenants have a right of first refusal when their home is sold, § 577 BGB. This works so that the tenant of the apartment sold is informed by the notary that his apartment has been sold to a third party, together with the information that he has a right of first refusal and can exercise it within 2 months. If the renter declares that he exercises the right of first refusal, then he enters the purchase contract instead of the purchaser. For the previous buyer that is of course bad, he flies out of the contract and his financing he must mglw. Nevertheless, he has hopefully reserved for his bank a right of redemption. For the tenant, on the other hand, this is an extraordinary advantage: he gets the apartment for the final negotiated market price, knows the terms of the contract and has 2 months to arrange a financing.

His apartment can not be sold behind the back of the tenant, he has the guaranteed right to priority over all others.

This applies only to the first case of sale after conversion, ie in the very situation that is perceived as so precarious. Tenants who move into a condo already existing as condominium do not have such a right of first refusal, and tenants whose houses are not converted, of course, not.

2. 1o-year protection against personal use

Even in apartment buildings, it happens occasionally that one of the tenants is terminated due to personal needs of the landlord or one of his family members. However, this is not the normal case, usually rented houses serve as incomes of the landlord, which should not be reduced by self-use if possible. If the owner decides to make such a termination, the tenant is one of many whose dwelling comes into consideration, ie the risk that it will catch him and not someone else is relatively reduced.

This is different with a condominium, often it is the only property of its owner. Also, condos are often bought just for the purpose of self-use. The risk of termination increases significantly as a result of conversion.

The law compensates for this problem by providing extended protection against dismissal: the first 3 years after first sale can not be terminated on the basis of personal use, § 577a Civil Code, Each community can extend the deadline to 10 years. Berlin has made use of this opportunity (KündigungsschutzklauselVO, see also here ). So the new owner / landlord must 10 years wait before he can quit for personal use. After such a long time, at least one 9monthly notice period, § 573c Civil CodeThis means that the earliest possible time at which the landlord can terminate the contract due to an intended owner-occupation is 10 years and 9 months after his registration in the land register as owner. This period continues with subsequent resales, ie if the first buyer resells the apartment after 4 years, the new owner must also wait 6 years and 9 months. Only 10 years after the conversion and the first resale ends this special dismissal protection and it again apply the normal legal rules.

Other tenants are not protected in this way, ie the conversion brings the individual tenant here a tangible legal advantage.

3. Impact in practice

So what happens when an investor buys a tenement to divide it into condos and resell it? The tenant receives the unique opportunity to buy his own apartment at the current market price and thus free himself from the dependency of tenants, without having to move. If he does not want to or can not do so, he will get a more than 10-year special status and can not be quit regularly because of his own needs.

Incidentally, the market price at which he can buy his apartment is reduced. Because of the 10-year protection against dismissal, the apartment is only interesting for investors, but not for people who are looking for an apartment to move in by themselves. The circle of potential interested parties is therefore reduced to the part that wants to invest capital.

What potential buyers are prepared to pay is lower for this part. Self-users pay what they are worth to live there themselves, while investors only invest so much that the loan can be used to pay the loan and the house money, otherwise the investment would be a permanent loss. The tenant who exercises his right of first refusal is therefore usually. Take over conditions from which he can serve the loan and the house money with his rent - just as an investor would have done.

4. the big friction

In order to close the gap between owner-occupier price and investor price, investors often offer tenants to buy them out of the home. In fact, immense amounts are sometimes paid here. Depending on what the investor can afford, tenants will be offered between 150 and 500 Euro per square meter of living space when they give up and move out of the lease. This golden handshake may be enough to raise the equity and ancillary costs needed to refinance a condominium elsewhere. Suddenly the tenant finds himself on the other side and became a buyer of a flat.

After all, it can hardly happen to the tenants anything better than that an investor wants to buy her house and convert it into condominiums. It is not necessarily obvious that this should be prevented, whether by the designation of protected areas or by urban pre-emption rights.

An overview of my other contributions to legal, tax or political issues around the property can be found below or via "Home" in the menu at the top or bottom of this page.

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