In 2021, two main topics shaped our office work: rent controls and personal use.
Relationship between rent and willingness to rent
Even before the rent cap had been lifted, we noticed a connection between the possible rent on the one hand and the willingness of private landlords to rent out their apartments on the other. More precisely, it is a negative correlation: the lower the permitted rent, i.e. the less profitable and therefore sensible a rental, the more likely the owners are willing to forego renting out completely and use the apartment for other purposes themselves.
This year we have conducted a number of self-use proceedings, quite a few of them relatively soon after a rental price complaint by the tenant or after a dispute in connection with the rent cover. The tenants then always assume that their own needs do not exist and that it is only a return carriage for their price complaints. But that's usually true. not. It is correct that the willingness to sublet the apartment is reduced by the complaint. If you have already thought about whether you want to use the apartment yourself or leave it to a family member, such a complaint can be the triggering moment to finally make this decision. In the case of several apartments in the portfolio, such a complaint can be the triggering moment to terminate this and not another apartment. Both are legitimate.
Relationship between rent and willingness to sell
Owners who do not need their apartment for themselves or for someone from the family quickly come up with the idea of selling it when it is unprofitable. In the current Guthmann market report (here) we read that the median offer price as of December 08.12.2021th, 5.180 for existing properties for sale in Berlin is around 28.380 EUR / sqm, based on 12 offers from the last XNUMX months, spread across the entire city.
The only problem is: if the apartment is rented it is probably EUR 1.000 less, and if it is empty it is EUR 1.000 more.
empty apartments are more valuable than rented ones
The reason is that a vacant apartment is not measured by its return on investment, but by its return on comfort for the self-using buyer.
Buying a rented apartment, on the other hand, only makes sense if the rent can also be used to pay the monthly loan installment, and with the low rents in Berlin it becomes tight even with very sporty financings. Let us assume that the buyer gets a loan for 1% interest and repays it at 2%. Non-allocable ancillary costs, repairs, administration, etc. require an additional 1%. Then a 4% return is necessary to cover the loan installment and running costs. At 5.180 euros / sqm, 4% is 207 euros per year, which is around 17,25 euros per month. That would be the necessary net rent per square meter if you agree on the Berlin average purchase price, as Guthmann determined it. Any changes in interest rates or a more solid repayment have not yet been taken into account.
You usually have such a square meter rent for non-new buildings. not, at least not in the manner permitted by the rental price limit. Even with a purchase price of 4.000 euros per square meter, you still need a rent of 13,30 euros. That is miles away from the average of the Berlin rent index, which is still below 2021 euros at the end of 7. And now the selling owner does not want to achieve the 4.000 euros / sqm for rented apartments, but the 6.000 euros / sqm that you get for empty apartments even though his apartment is rented. So what to do
Increase in value through personal needs reports
Cancel even for personal use is not possible if the owner does not have any personal use. As long as the tenant pays his rent on time and does not violate the house rules seriously, he cannot be terminated for other reasons. The apartment is and remains rented at the time of the seller-owner, unless the tenant moves out of his own accord.
If, on the other hand, someone buys the apartment in order to move in, that person has personal needs. So the buyer can cancel. If he has bought a rented apartment with a corresponding discount and successfully gives it notice to move in himself, he has not only achieved a beautiful apartment for himself, but has also achieved a significant increase in the value of his investment. This fact has led to the fact that in the year 2021 we were processing an increasing number of cases in which buyers were specifically looking for a rented apartment that they could buy at a lower price in order to then terminate the tenant because of personal needs and move in there themselves. In each case, we were mandated to check carefully in advance for the buyer whether such a termination (after the purchase) is actually possible and promising. If we answered in the affirmative, we bought. Then it was our job to explain and enforce the termination.
This is less attractive for the seller, he receives a significantly lower purchase price and cannot even leverage the potential that the buyer realizes. So on the seller's side the need arose to sell the apartment “like empty” in an approach to the price without a rental contract, despite the fact that it was still renting, and to convey to the interested party that personal use would be possible.
As a mirror image of our work for buyers who were specifically looking for a cheap apartment because they were rented, the seller commissioned us to examine the buyer's possibility of termination after the sale, i.e. de facto to create one Personal requirements report. This was requested so often in the second half of the year that I can now offer a standardized process. It goes as follows:
- We receive the necessary documents from the owner willing to sell, with which we can check whether an acquirer could successfully terminate due to personal needs.
- If that's the case, I'll write an official legal opinion on this. In it I confirm the basic possibility of termination due to personal use and explain how long it currently takes based on my ongoing forensic experience and what it roughly costs.
- With this appraisal, the seller's broker (or the seller in his own marketing) can offer the apartment "as if empty" and thus also reaches those interested parties who are not looking for a capital investment, but something for themselves.
Even if the seller accepts a discount from the purchase price in the amount of the potential legal costs of the personal use process, he has the opportunity to achieve a significantly better price than without such an expert opinion.
Negotiation strategy with personal requirements report: mutual termination of the rental agreement against a transfer payment
If the owner gives the tenant our appraisal and the realtor offers the apartment with the note that the still existing contract can be terminated due to personal needs, negotiation possibilities can open up that would otherwise not exist.
This year we have found a three-way solution in several cases that was beneficial for everyone involved. The structure is that the seller and the tenant enter into a termination agreement, which the buyer pays (ie, the redemption). The purchase price is reduced by the amount of the transfer fee. If you set it up properly and follow a safe sequence, everyone involved can be certain: the tenant that he is receiving money; the buyer that he will get an empty apartment; and the seller that he receives a purchase price as for an empty apartment, minus a discount, which is, however, significantly less than that of a rented sale.
This solution was usually the case in the cases we looked after. only possible because the tenant was justified in the opinion that he would not be able to use the apartment for much longer after it was sold, and the existence of an acquirer with a desire for self-use actually made this tangible. The acceptance of the transfer fee against moving is then the lesser evil. Without an appraisal, moving, sometimes combined with a higher rent in the new apartment, is often the greater evil and the tenant's will to maintain the status quo.
What does the personal requirements report cost?
If, after examining the documents, I come to the conclusion that a termination for personal use is possible, I will prepare an expert opinion in which I explain this in detail and give a reliable explanation. We charge for this flat rate 1.490 euros plus VAT
If, when examining the documents, I come to the conclusion that a termination for personal use is not possible at all, or at least not possible within the next 3 years, I will inform the client and draw up a shortened legal assessment which explains the reasons in detail. For this we charge a reduced rate of flat rate 890 euros plus VAT. If, despite the information, the client does not only want an abbreviated presentation but a full report, I will prepare it, then the non-reduced rate applies. In the event of my negative assessment, the decision as to whether it should be one or the other is made by the client after receiving the information about this.
Which documents do we need for the creation?
- a current extract from the land register
- the lease and any supplements
- Information on whether particular hardship reasons are known or may be considered with regard to the tenant (e.g. serious illnesses, disabilities, old age, special circumstances)
- the declaration that a personal requirements report is to be drawn up and a confirmation of the flat-rate fee in the above-mentioned amount
- if you contact us as a broker: the information on whose behalf the test is to be carried out, as well as the owner's contact details
- everything that, from your point of view, could still be relevant for the assessment
Please send the documents and declaration by email to firstname.lastname@example.org. We will then contact you as soon as possible. If you have any questions about this or would like to coordinate with me in advance, you can make an appointment with me by phone or zoom through my secretary's office.