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22102020

Conversion of Rental Flats into Condominiums Remains an Option

The contentious condominium conversion ban for rental flats which the Federal Minister of the Interior, Horst Seehofer, had proposed some time ago will apparently not be written into law after all. Although the idea is still under discussion within the German government, the controversial measure has, for now, been taken out of the draft bill for the release of development land, which previously contained the condominium conversion ban. Under the original plan, the conditions for converting rental flats into condominiums would have been tightened to the point where they would have amounted to an outright ban for all intents and purposes.1

The term “conversion” is used whenever a multi-unit residential property is partitioned, and the individual flats in the building are converted into condominiums. The partitioning is the precondition for freehold ownership of the individual flats, which may then be bought either by the tenants to acquire the flats they occupy or by buy-to-let investors.
 

Conversions Increase the Supply of Condominiums on the Market

Especially in the major cities, the conversion of rental flats into condominiums plays a key role in creating a supply that prospective homeowners may tap into when looking for a suitable unit. For the thing is: Existing condominiums rarely come up for sale, and newly-built condominiums are comparatively expensive. If a condominium conversion ban had entered into force, the number of condominiums available on the market would have taken a nose-dive – making it even harder to pursue homeownership than it is anyway. Another argument against the ban is that tenants are often interested in buying the flat they inhabit. A condominium conversion ban would eliminate this option.

There is reason to believe that these are actually the main reasons why the condominium conversion ban was struck from the draft bill. Jan-Marco Luczak, the legal policy spokesman of the Christian Democrat bloc in the German parliament and an opponent of the contentious measure, argued in the Tagesspiegel daily that a condominium conversion ban effectively prevents the creation of condominiums, thereby driving up the prices and making it even harder for tenants to make the leap into homeownership.2
 

Tenants in Converted Flats are Particularly Well Protected against Evictions

Luczak emphasized moreover that a condominium conversion ban is not a good way to bolster tenant protection but has the opposite effect, if anything. Tenant protection is actually quite strong in the case of a conversion. Whenever a rental flat is converted into a condominium, the incumbent tenant is subject to special protection against eviction. For at least three years, the lease of such a tenant cannot legally be terminated, not even for the sake of intended owner-occupancy. Indeed, in some regions with strained housing markets, such as Berlin, the special tenant protection applies for a ten-year period.

On top of that, tenants are granted the right of first refusal if the flats they inhabit are converted. In fact, tenants are frequently offered their flats on more favourable terms. Luczak suggests it would be a better idea if the government actively supported tenants in their bid for homeownership.
 

1 www.faz.net/aktuell/wirtschaft/mietwohnungen-16979676.html
2 www.tagesspiegel.de/politik/tagesspiegel-debatte-ueber-den-berliner-wohnungsmarkt-macht-mieter-zu-eigentuemern/26242298.html