Tuesday, 5 June 2018

How much does it cost to split my apartment block into condos?

Many owners of apartment buildings in Germany are contemplating a title split for their property. There are various reasons why property owners might want to divide a property into separate legal units and this is not limited to apartment buildings. However, the purpose of this article is to cast a light on the steps involved and their cost based on an “average” building in an average location.

Profile of our “average” building:


  • The rental area is 1,660 m².
  • There are 20 apartments.
  • The monthly rent is 6.00 €/m² resulting in an annual rent of 115,000 €.
  • The fair market value is 115,000 € annual rent x multiplier 25 = ca 2.9 MM €
  • The gross floor space is 2,000 m² (including ca. 17% construction and traffic area).

As-Built Measurements

The single largest cost is producing exact plans and measurements if not readily available. This will mostly be the case with pre-war buildings. The first step would be checking the archives, including the local council’s archives for building permits. If plans and measurements are not available there is no way of getting around having a surveyor take every measurement of the building and drawing up new plans. There are different cost models for this type of work; a widely used one refers to the actual measured gross floor space.

Photo by Lorenzo Cafaro from Pexels

In the case of our “average” building, this could be 6.00 €/m² gross floor space = 12,000 € plus VAT = 14,280 €.
As all apartments need to be accessed by the surveyor there is a great coordination requirement with the tenants by the property manager which he might well want to charge for but this is not included in this calculation.



The next cost items are incurred in any case, independent of the origin of the plans and measurements.

Plans and Certification

A set of plans including the land surveyor plan of the plot have to be prepared according to specifically defined requirements issued by the local council. The cost for the production and submission of the application for the certification of the partition plan (ger. Abgeschlossenheitsbescheinigung) will in our example be about 2,000 €.
The charges levied by the local council for issuing the certificate for the partition plan depends on the level of complication, for our “average” building I am estimating 10 € per unit = 2,000 €.

Declaration of Division

The declaration of division (ger.Teilungserklärung) is a notarized document based on the plans as certified by the local council which also includes statutes of the owners association. It refers in most parts to the code of the Wohnungseigentumsgesetz (WEG). An English translation of the code is available here: https://www.gesetze-im-internet.de/englisch_woeigg/index.html
The draft of the declaration of division should be done by an experienced lawyer/notary in conjunction with someone knowing the strategy for the property. e.g. planned rooftop development, expansion of an existing building or a separate new building on the plot, parking lot spaces, garages etc..

The fee scale for the notary (assuming he produces the draft) is based on the fair market value of the property, in the case of our “average” building it would be ca. 6,200 € incl. VAT and sundries.
The execution of the title split in the register is also value based and would be 2,450 € in our example case.

Project Management

I strongly suggest engaging a project manager experienced in this field to manage the process if you are not in the position to confidently deliver the task yourself. Poor concepts for the declaration of division can create big problems, are costly to rectify and in some cases irreparable once only one unit is sold to an external owner. ANY change to the Declaration of Division or the statutes needs 100% votes. A new co-owner might demand payments to agree to the changes. Even if changes can still be made, it will produce further, unnecessary cost.
In the case of our “average” building the project management cost is estimated at 3,800 € incl. VAT.

Cost Summary


Notary
6,200.00
Based on value incl. VAT and sundries
Register
2,450.00
Based on value
As built measurements and plans
14,280.00
6 € per m² gross floor space
Producing split plans for the property register
2,000.00
Time fee and reproduction and submission of application at local authorities
Certified Partition Plan by local authorities
2,000.00
Ca. 100 € per unit, depending on the level of complication
Property Management for access coordination with tenants
?
Depends on contract and relationship with the property manager
Management of the project
3,800.00
Estimated 4 days at a daily rate 800.00 plus VAT
Estimated total cost
30,730.00
 With new measurements and plans

Conclusions

The cost of the conversion of your apartment block into a condo building is roughly 1 % of the value. This is not a formula for the estimation just the outcome for our “average” building but it provides an idea of scale to “plug in” your preliminary business plan. As mentioned at the outset, the motivation for the process and the timescale are central elements to the decision.
Further considerations
There are areas in big cities in Germany where title splits are blocked to prevent “gentrification”. However, this block can be avoided when the strategy for the property is long term. More information about the legal block: http://germanproperties.blogspot.com/2018/03/thinking-about-dividing-apartmentblock.html. Please contact me if you are interested in long-term strategies as the level of detail would go far beyond this article.

Glossary

Here are further terms describing the process of dividing a property into individual, legally tradeable independent units

  • declaration of division
  • declaration of apportionment and the apportionment plan
  • statement of partition
  • title split
  • Teilungserklärung (ger.)




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