TOM 12 2023

Page 13 GUEST CONTRIBUTION December 2023
Trade is change, politics (too often) standstill
Guest article by lawyer Niklas Langguth (law firm Langguth & Burbulla, Dusseldorf)
The insolvency of Galeria
Kaufhof was the final, momentous
stage in a development
that began with the Hertie insolvency
several years ago and
was announced much earlier.
To date, there has been no
comparable replacement for
the loss of department stores,
which were often the mainstay
of city centers. In recent years,
it has been possible to fill most
of the Hertie vacancies with
new concepts. This in itself
has proven to be a challenge.
This makes it all the more important
to find promising and
sustainable solutions within a
reasonable period of time.
The problem
In the case of the Galeria insolvency,
it is possible to draw
on the experience gained from
the revitalization of the Hertie
stores. However, department
stores are very individual locations
and properties with commercial
and real estate law problems
that have often developed
over decades. Accordingly, these
properties can only rarely be
restructured using a template.
And where the commercial and
legal aspects are usually difficult,
there is a further problem:
as a rule, these are locations that
shape the district, and the municipal
policy requirements for
urban development are correspondingly
high and varied.
The developer‘s
dilemma
Niklas Langguth
Project developers are often
caught in a dilemma here: even
an initial rough draft for the
development of such properties
involves considerable investment.
If the developer then
approaches the local authority
with such a design, there is a
high risk that the design will be
disliked, torpedoed or discussed
over several rounds.
On the other hand, local authorities
often do not feel compelled
to embark on urban land-use
planning on their own, despite
the corresponding mandatory
tasks. In these cases, it is possible
to find out about the city‘s
planning intentions. In this
constellation, all too often something
can only be initiated
if an investor drafts a restructuring
scenario at high risk, knowing
full well that his design is
unlikely to come to fruition and
that a competitor may end up
benefiting from the impetus if a
planning process gets underway
and is often only completed years
later.
The failure of many
local authorities
The problem with this constellation
often lies in the inertia and
inactivity of local authorities. A
brownfield site the size of a department
store in the best inner
city area is an urban planning
disaster that creates an urgent
need for planning.
The local authorities are not
only entitled, they are legally
obliged to comply with this
planning requirement (Section
1 (3) BauGB). The fact that this
obligation is not enforceable because
it is not legally enforceable
against third parties often
leads local authorities to ignore
the legal obligation.
The excuses are manifold, particularly
popular and often heard:
local authorities cannot afford
it. One wonders: a local authority
that does not see itself as capable
of forward-looking planning
even in the narrowest inner
city area has obviously given
up its urban planning will. Only
when an investor appears on the
scene do most local authorities
begin to think seriously about
their urban planning ideas.
This usually leads to extensive
discussions and arguments between
the council factions until
there is nothing left of the investor‘s
design. Only then does
the city start a planning process,
but it often comes to a standstill
again when the investor leaves
in frustration. Then the game
often starts all over again with a
new investor.
What the local authorities overlook
is that times have changed.
When the Hertie bankruptcy
had to be overcome, online platform
retail took its first steps. In
the meantime, online retail has
taken substantial market shares
from bricks-and-mortar retailers.
A city center location is no
longer a guarantee that an investor
will take the risks that such
a location entails and wait patiently
until the municipality has
finished its discussions. At the
same time, business taxes from
city center retail are generally
a significant proportion of municipal
revenues. If a solution is
not found quickly for the derelict
site, the remaining inner-city
retail trade could be damaged
along with the department store
and, in the worst case, become
deserted.
Unlike 15 years ago, the local
authorities do not have time
to wait until, after several attempts,
an investor comes up
with an idea that suits all political
groups. If the local authorities
want to design their city
centers effectively in the current
situation and preserve city center
retail, they will have to become
active in planning. And they
will have to do this themselves,
as they are legally obliged to do
so anyway.
You almost want to shout to the
local authorities concerned: Do
your job!