Saturday 12 August 2017

Property claims: How Germany did it

September 18, 2016

By Esra Aygin
Following WWII, nearly 4.9 million Germans abandoned their properties in East Germany and fled to the West.
When Germany was united on August 31, 1990, a new Division for Open Property Questions was established under the Federal Ministry of Finance to settle the property disputes that had arisen in 40 years of division.
Dr Hermann-Josef Rodenbach, a specialist in the fields of constitutional, civil and commercial law, in particular as regards property rights, served as Head of Division for four years.
At the beginning of the process, there were thousands of workers in a decentralised system that had 220 offices in different federal states. Today, with nearly 99% of the property disputes solved, only a hundred people are employed.
“The remaining are mostly Jewish property because it is very difficult to find the heirs,” said Rodenbach.
At the beginning, the principle was for the restitution of properties, but this worked out differently in practice.
“In practice, there were many more cases of compensation than restitution. We had about 2.7 million claims for restitution – 2.2 million for real estate – and the restitution rate has been only 23%.”
As a result, around €6.4bn was paid in compensation. The main reason for low restitution rates was the principle of acquisition in good faith. 
“That means people who had acquired property after WWII in East Germany are protected against restitution. But it is necessary that it was in good faith, in a correct order, and that a normal East German price was paid,” he explained. Purchases deemed to be in good faith covered around 95% of cases.
As for the small percentage who acquired a property by force or by not paying for it, “they were not protected against restitution”.
Handling the opposition
There was, of course, opposition.
“The expectations of the older owners were very high, especially because West Germany, until the reunification talks, never formally accepted or formally recognised these expropriations.”
Politicians swore they would never recognise expropriations and the media objected to what it described as “victims compensate victims”.
Low compensation payments also created resentment. However, the desire for peace was paramount.
“We wanted to have peace in Germany and we didn’t want to have war between old owners and new owners. I think that was one price for the reunification. No new compulsions,” he said.
Many of the decisions taken by the Property Division were challenged in the courts. However, out of 64,000 procedures and 40,000 judgments, the state won in 35,000 cases.
“The decisions were found correct,” Rodenbach said.
Fixing compensation levels
Rodenbach said at the beginning they thought of paying a small amount of compensation based on east German prices and levying a property tax for those who received their properties back, with the logic that those being reinstated would benefit from the rapid increase in values. However, this was rejected by parliament.
“The final decision was to pay it on the basis of a so-called fictive market value of 1990 – the date of reunification. The second step was that all payments the old proprietors had already got – in Germany we had already paid compensations for the loss of property in East Germany – would be deducted.”
On the other hand, if a property was reinstated, the owner had to pay back any compensation received by the state before reinstatement.
“That also diminished compensations,” he said. On the other hand, in retrospect, he says: “Today I can say that the compensations should have been a little bit higher because it would have brought more peace and justice.”
Privatisation paid
Compensation funding came primarily through privatisation revenues and taxation.
“We said the Trust Company, which had the job to privatise these, had to pay 1.5 billion German marks [about €750m] to the compensation fund.”
Another €1 billion came from selling property of the former German Democratic Republic, including state forests.
A small amount came from people who left unbuilt land but were reinstated with land plus buildings (known as ‘significant improvement’ in Cyprus). In these cases the state took ‘equalisation pay’, although Rodenbach says there were few cases like these.
As unresolved property cases had a negative impact on the East German property market, the Property Division also prioritised purchases for investment.
If a prospective buyer promised investment or guaranteed employment they would get priority over the owner.
“The applicant for restitution is then excluded but gets the result of this purchase and even has to get at least the market value of the asset,” Rodenbach explained.
Advice for Cyprus
Asked for advice in the Cyprus case Rodenbach called for simplicity.
“Don’t make it too complicated. We had a very complex system in Germany, very difficult to read, especially in the field of restitution of enterprises,” he said.
“I think description of the facts in the law should be very clear. There should be only little room for interpretation because interpretation is always a cause of dispute … Then very short, fixed deadlines.”
He also advises against long formal procedures.
“Make it as simple for the people, to avoid people having to go to a lawyer and paying a lot of money for it.”
He also advises a “public law determined procedure”, for those who are dissatisfied.
“The office makes a decision and anybody, either the applicant or users, has a right to go to the court then.”
A fair and fast system is his main advice.
“I think the faster you give back the property, and if you have a just system, the more people will be content.”

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