GER: Legal Costs Should Not Only Fall on the Losing Side

Aug 9, 2024 Benn-Ibler Rechtsanwälte

A reform of the German Condominium Act will now cause that legal costs imposed on the losing condominium owners’ association in a declaratory action shall be considered to be administrative costs and are to be apportioned according to the general formula for the distribution of costs. This means that the successful plaintiff will also have to bear a part of the costs of the proceedings.

In the case at hand, three members of a condominium owners’ association had brought an action against the association itself. The rules of the association from the year 2019 provide that administrative costs are to be divided equally among the residential units. In 2021, the plaintiffs challenged a resolution of the owners before the district court, which upheld the claim and ordered the association to pay the costs of the proceedings. In April 2022, the owners decided to finance these costs through a special levy. Each condominium unit was to pay approximately EUR 800, including the plaintiffs.

The plaintiffs are challenging this decision in their action for annulment.

The Fifth Civil Senate of the German Federal Court of Justice ruled as follows:

Since 1 December 2020, actions for declaratory judgement are no longer to be directed against other condominium owners, but against the condominium owners’ associations.

This means that the procedural costs imposed on the association in a declaratory action pursuant to Section 16 (2) Sentence 1 of the German Condominium Act (Wohnungseigentumsgesetz, hereinafter WEG) are administrative costs of the association to which all condominium owners must contribute, regardless of their party status in the proceedings. These costs must therefore also be apportioned to all condominium owners.

All condominium owners, regardless of their party status in the proceedings, must contribute to the administrative costs of the community. A restrictive interpretation of Section 16 (2) sentence 1 WEG is not possible from a valuation point of view. The Federal Court of Justice recognises that this financial consequence, especially for small owners’ associations, may deter potential plaintiffs from bringing an action. However, there is no intentional legal loophole.

The Federal Court of Justice has left open the question of whether it is conceivable that the successful plaintiffs in the resolution could claim reimbursement of the costs from the association.

BGH V ZR 139/23 (19 July 2024)