Reorganization compensation amount

Owners of a property or condominium within a formally defined redevelopment area are obliged to pay a compensation amount in cash to the city of Jena after completion of the redevelopment measures in order to finance the redevelopment on a pro rata basis.

Compensation amounts are the property owners' contribution to the total costs of the redevelopment measure. It is not the actual costs incurred that are to be reimbursed, but only the increase in land value of their properties as determined by an expert.

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

The increase in the land value of the property caused by the redevelopment consists of the difference between the land value that would result for the property if redevelopment had neither been intended nor carried out (initial value) and the land value that results for the property as a result of the legal and actual reorganization of the formally defined redevelopment area (final value).

The landowner therefore does not pay the increase in value that has occurred since the start of the redevelopment, but only the difference between the actual value of the land at the end of the redevelopment and the value it would have had if no redevelopment had been carried out.

There is a special urban development law for the redevelopment period in formally designated redevelopment areas in accordance with the German Building Code. Public funds are used to significantly improve and redesign larger areas with significant urban development deficiencies. This is done, for example, by improving the infrastructure, expanding roads and squares, gutting overly densely built-up blocks and demolishing dilapidated buildings.

These measures are mainly financed through the use of public funding and benefit both the general public and the owners of properties located in the redevelopment area. Upgrading the redevelopment areas can increase the market value of the properties in question.

But the designation of a redevelopment area also brings other benefits, for example, property owners can receive subsidies for certain modernization measures and claim tax benefits.

In order to ensure equal treatment of all citizens, the legislator has stipulated that property owners in the redevelopment area must also contribute to the financing of the overall measure.

The legal basis for this is Section 154 of the Building Code:

The owner of a property located in the formally defined redevelopment area must pay the municipality a compensation amount in cash to finance the redevelopment, which corresponds to the increase in the land value of his property caused by the redevelopment (section 154 (1) sentence 1 BauGB).

The values on which the compensation amount is based are determined by experts in consultation with the expert committee for property values for the area of 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 an exact valuation. The expert committee is an institution independent of the city of Jena.

In the valuation process, the deficiencies prior to the redevelopment and the measures taken to eliminate them are classified and compared in a clearly structured valuation framework. A mathematical-statistical calculation model is then used to determine the corresponding redevelopment-related increase in land value.

This redevelopment-related increase in land value is the basis for determining the compensation amount. The increase in land value results from the difference between the land value that the property would have had if the redevelopment had not been carried out (initial value) and the land value that results after the redevelopment (final value). Both values refer to the day on which the redevelopment process is completed and the redevelopment statutes are repealed.

The equalization amount relates only to the increased value of the property resulting from the redevelopment. General, i.e. cyclical, increases in land value or reductions in land value are not taken into account.

As individual sub-areas in the redevelopment area have often benefited to varying degrees from the redevelopment, this is taken into account when calculating the compensation amounts by always determining the amount on an individual property basis (location, size, etc.).

The person liable for payment is the person who holds the title to a property located in the redevelopment area at the time the redevelopment statutes are revoked, i.e. who is entered in the land register at that time.

Co-owners are jointly and severally liable. In the case of condominium or part ownership, the respective owners are only liable to pay in proportion to their co-ownership share (Section 154 (1) sentence 2 BauGB).

The city of Jena must levy a compensation amount from the owners. The levy is not discretionary. The legislator has made this mandatory in the Building Code.

As the scope of the redevelopment measures varies greatly from area to area and the impact on the land value therefore also differs accordingly, it is not possible to provide a general answer to the question of the financial burden for a sample property. The compensation amount is always calculated individually for each property.

An early redemption of the compensation amount may also be possible, which is associated with financial benefits for the subsequent payer, among other things.

The urban redevelopment team will be happy to answer any questions regarding a specific property.

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

Increases in land value that the owners have permissibly brought about through their own expenditure can be offset against the equalization amount if a corresponding agreement has been concluded with the City of Jena. This includes, for example, the demolition of buildings or the construction and modification of development facilities.

The eligibility of self-implemented measures can be discussed on a case-by-case basis before the decision to levy the compensation amount is issued as part of the hearing.

The obligation to pay compensation arises upon completion of the urban redevelopment measures, i.e. when the redevelopment statutes for the relevant area are repealed. This means that following the repeal, the compensation amount is determined and levied by the City of Jena by means of a notice. The determined compensation amount must be paid within one month of notification of the decision (§§ 154 Para. 3 and 4 BauGB).

Before the equalization amount is determined, each party liable for the equalization amount shall be given the opportunity to comment on and discuss the circumstances relevant to the valuation of their property and the amounts chargeable pursuant to Section 155 (1) BauGB (hearing).

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

This repayment loan is subject to interest and must be secured in the land register (Section 154 (5) BauGB).

The owner submits an informal written application for this after receiving the decision.

For redevelopment areas that have already been revoked, early release is no longer an option.

For all existing redevelopment areas, the city of Jena offers property owners the option of voluntarily paying off the compensation amount before the redevelopment statutes are repealed by means of a public-law contract (redemption agreement) (Section 154 (3) BauGB).

This has the following advantages for both the owners and the city:

• A redemption agreement creates consensual and final legal certainty for both parties. Compensation amounts can then no longer be levied by notice. Additional payments, but also reclaims, are excluded. Properties can then be sold "free of compensation amounts".
• The redevelopment note entered in the land register is deleted after payment. The special approvals under redevelopment law for e.g. purchase agreements and mortgages are no longer required.
• The compensation amounts collected through redemption agreements can be used for further eligible measures in the redevelopment area as part of the ongoing redevelopment, thereby improving the general quality of life and living. In this way, the funds remain in the city and do not have to be paid back to the state and federal government after settlement.
• The administrative burden is reduced.
• The payment modalities (installments, payment dates) can be arranged flexibly. By contrast, the compensation amount determined by means of a notice following the revocation of the redevelopment statutes is due one month after the notice is issued - even in the event of an objection.

Another option is the declaration of completion for individual properties before the overall measure is completed. If the property in question has been developed in accordance with the objectives and purposes of the redevelopment or the building has been modernized or repaired, the redevelopment can be declared complete for the property (§163 BauGB).

In this case, the owner receives a notice of release from the redevelopment and a further notice of payment of the compensation amount.

As with the redemption procedure, the redevelopment notice is deleted from the land register before the statutes are repealed. Properties can then be sold free of compensation and the proceeds invested in the redevelopment area.

Compensation amounts can be claimed for income tax purposes under certain conditions. For this purpose, the owner applies to the City of Jena for a certificate of compensation or redemption amounts under redevelopment law, which can be submitted to the relevant tax office. The proportion of the costs to be claimed is then determined by the tax office.

Further general information can be found in the service portal. Detailed information on this can be obtained from tax consultants and the relevant tax office. The information provided here is to be understood as general information.