Compensation Amount Under Reorganization Law

Owners of a parcel of land or a condominium unit within a formally designated redevelopment area are required to pay a monetary compensation amount to the City of Jena upon completion of the redevelopment measures to contribute proportionally to the financing of the redevelopment.

These compensation payments represent the property owners’ contribution to the total costs of the redevelopment project. The payment does not cover the actual costs incurred, but rather only the increase in land value attributable to the redevelopment, as determined by an expert appraisal. 

The German Building Code (BauGB) defines the increase in land value in Section 154(2) as follows:

The increase in the land value of the property resulting from the redevelopment consists of the difference between the land value that would have resulted for the property if redevelopment had neither been intended nor carried out (initial value), and the land value resulting for the property from the legal and actual reorganization of the formally designated redevelopment area (final value).

The property owner therefore does not pay for the increase in value that has occurred since the start of the redevelopment, but only for the difference between the value the property actually has at the completion of the redevelopment and the value it would have had if no redevelopment had been carried out.

During the redevelopment period, special urban planning laws apply in formally designated redevelopment areas under the German Building Code (BauGB). Public funds are used to significantly improve and redesign large areas that suffer from significant urban planning deficiencies. This is achieved, for example, by improving infrastructure, expanding streets and public squares, gutting densely built-up blocks, and demolishing dilapidated structures.

These measures are primarily financed through public subsidies and benefit both the general public and the owners of properties located within the redevelopment area. The revitalization of these areas can increase the market value of the corresponding properties.

But the designation of a redevelopment area brings even more benefits; for example, property owners can receive grants for certain modernization measures and claim tax benefits.

To ensure equal treatment of all citizens, the legislature has stipulated that property owners in the redevelopment area must also contribute to the financing of the overall project.

The legal basis is Section 154 of the Building Code:

The owner of a parcel of land located within a formally designated redevelopment area must pay the municipality a monetary compensation amount to finance the redevelopment, which corresponds to the increase in the land value of the owner’s parcel resulting from the redevelopment (Section 154(1), first sentence, BauGB).

The values on which the compensation amount is based are determined by an appraiser in consultation with the Appraisal Committee for Real Estate Values for the Saale-Holzland District, the Saale-Orla District, and the independent city of Jena—whose office is located at the Thuringian State Office for Land Management and Geoinformation in Pößneck—following a precise valuation. The Appraisal Committee is an institution independent of the City of Jena.

During the valuation process, within a clearly structured evaluation framework, the deficiencies prior to the redevelopment and the measures implemented to remedy them are classified and weighed against one another. Subsequently, the corresponding redevelopment-related increase in land value is determined using a mathematical-statistical calculation model.

This renovation-related increase in land value serves as the basis for determining the compensation amount. The increase in land value is calculated as the difference between the land value the property would have had if remediation had not been carried out (initial value) and the land value resulting from the remediation (final value). Both values refer to the date on which the redevelopment process is completed and the redevelopment ordinance is repealed.

The compensation amount applies only to the increase in the property’s value resulting from the redevelopment. General—that is, cyclical—increases or decreases in land value, however, are not taken into account.

Since individual subareas within the redevelopment zone often benefit to varying degrees from the redevelopment, this is taken into account when calculating the compensation amounts by always determining them on a property-specific basis (location, size, etc.) and on an individual basis.

The person liable for payment is the individual who, at the time the redevelopment ordinance is repealed, holds ownership of a parcel of land located within the redevelopment area—that is, who is registered in the land register at that time.

Co-owners are jointly and severally liable. In the case of condominium or fractional ownership, the respective owners are liable only in proportion to their share of co-ownership (Section 154(1), second sentence, of the German Building Code (BauGB)).

The city of Jena must collect a compensation payment from the property owners. This collection is not at the city’s discretion; the legislature has made it mandatory under the Building Code.

Since the scope of the remediation measures has varied greatly from area to area—and the impact on land value consequently differs accordingly—it is not possible to provide a blanket answer to the question of the financial burden for a sample property. The compensation amount is always determined individually for each property.

An early settlement of the compensation amount may also be considered, which, among other things, offers financial advantages to the party ultimately responsible for payment.

The Urban Redevelopment Team is happy to answer any questions regarding a specific property.

The basis for determining the compensation amount is the increase in land value resulting from the redevelopment. The increase in value of the buildings standing on this land is not taken into account.

Increases in land value that owners have lawfully brought about through their own expenditures may be credited against the compensation amount if a corresponding agreement has been concluded with the City of Jena. These include, for example, the demolition of buildings or the construction and modification of infrastructure facilities.

The eligibility of measures carried out by the owners themselves may be discussed on a case-by-case basis during the hearing prior to the issuance of the notice assessing the compensation amount.

Upon completion of the urban redevelopment measures—that is, upon repeal of the redevelopment ordinance for the relevant area—the obligation to pay the compensation amount arises. This means that, following the repeal, the City of Jena will determine and assess the compensation amount by means of an official notice. The assessed compensation amount must be paid within one month of the notice being issued (Section 154(3) and (4) of the German Building Code (BauGB)). 
Before the compensation amount is determined, each person liable to pay compensation is given the opportunity to comment on and discuss the circumstances relevant to the valuation of their property, as well as the amounts that may be credited pursuant to Section 155(1) of the BauGB (hearing).

For all remaining redevelopment areas, the City of Jena offers property owners the option to voluntarily settle the compensation amount—with additional benefits—through a public-law contract (redemption agreement) before the redevelopment ordinance is repealed (Section 154(3) of the German Building Code (BauGB)).

We have compiled detailed information on this page regarding the early redemption of the compensation amount and its benefits, such as a discount of up to 25%.
 

If the owner cannot reasonably be expected to fulfill the payment obligation using either their own funds or third-party funds, the City of Jena has the option of converting the compensation amount into a repayment loan. 

This amortizing loan is subject to interest and must be secured in the land register (Section 154(5) of the German Building Code (BauGB)).

To this end, the owner submits an informal written request after receiving the notice.

For redevelopment areas that have already been dissolved, early termination is no longer an option.

For all remaining redevelopment areas in the city of Jena, the redevelopment process generally extends over several years until it is declared complete. The redevelopment ordinance must then be repealed in accordance with § 162 of the German Building Code (BauGB). The City of Jena subsequently requests the land registry office, ex officio, to remove the redevelopment notes.

Another option is to issue a declaration of completion for individual parcels of land before the overall project is completed. If the parcel in question has been developed in accordance with the goals and purposes of the redevelopment, or if the building has been modernized or repaired, the redevelopment for that parcel may be declared complete (Section 163 of the BauGB).

In this case, the owner receives a notice of release from the redevelopment and—if not already voluntarily redeemed—a further notice regarding payment of the compensation amount. The redevelopment notation is deleted from the land register prior to the repeal of the ordinance. Properties can then be sold without having to pay the compensation amount. It is not possible to release individual co-ownership shares from the redevelopment.

Early release from the redevelopment program—and, as a result, early deletion of the redevelopment notation from the land register—may offer certain advantages but can also entail significant disadvantages. We always recommend seeking detailed advice from the Urban Redevelopment Team prior to submitting such an application, as withdrawal from the redevelopment program—if legally possible at all—would be final, and thus the potential disadvantages of early withdrawal could no longer be remedied.

Under certain conditions, compensation payments may be claimed for income tax purposes. To do so, the property owner must apply to the City of Jena for a certificate regarding compensation or buyout payments under redevelopment law, which can then be submitted to the relevant tax office. The tax office will then determine the portion of the costs to be claimed.

Tax advisors and the relevant tax office can provide you with further information on this matter. The information provided here should be understood as general guidance.