Obligation of the condominium owners’ association to complete construction after developer insolvency

On 20 September 2024, the Federal Court of Justice (BGH) deliberated on a central question in condominium ownership law: Must the condominium owners’ association (WEG) complete a residential development when the developer becomes insolvent? KFR – Kanzlei für Real Estate explains the background and significance of the proceedings.

Background of the proceedings

The press office of the BGH confirmed the hearing date for 20 September 2024 at 09:00 a.m. Case reference: BGH V ZR 243/23. The press office of the BGH announced that the hearing on the above question will take place on 20.09.2024 at 09:00 a.m. Previous instances: AG Koblenz – Judgment of 18 May 2022 – 133 C 1875/21 WEG LG Koblenz – Judgment of 20 November 2023 – 2 S 29/22 WEG § 18 WEG, § 22 WEG, § 44 WEG

The facts: “Stalled” construction

A derelict property was to be demolished. Subsequently, a new building was to be constructed, in which condominium ownership was established. The developer ceased work and became insolvent. An owner demands, by way of a resolution proposal at an owners’ meeting, the completion of the demolition and the full construction of the building. The resolutions are rejected. By way of a resolution challenge and resolution substitution action, the owner contests the rejection of the resolutions.

Decisions of the lower courts

The district court dismissed the action. Upon the plaintiff’s appeal, the regional court partially upheld it. The defendant association, however, argues that the regional court did not sufficiently take into account the particularities of the so-called “stalled” construction. By analogous application of § 22 WEG, the initial establishment of common property could only be demanded if it had already been constructed to more than half of its value. In any case, however, the substitution resolution was not sufficiently specific. The BGH must now decide on this matter.

Practical note from KFR – Kanzlei für Real Estate

The BGH’s decision could bring clarity on a long-disputed issue. Particularly given the challenges that today’s developers face and the therefore likely insolvency of many developers to be expected, the decision could provide the “surviving” apartment owners with clarity as to whether the purchased apartment could realistically be completed – or whether the dream of condominium ownership was shattered with the developer’s insolvency.

Update: Read the ruling here.