By decision of 29 January 2019, the Federal Administrative Court (Bundesverwaltungsgericht) clarified an important question concerning the determination of land value in urban redevelopment areas: which floor area ratio is decisive – the one actually realized or the one permissible under planning law? The court confirmed that, for the purposes of the compensation payment (Ausgleichsbetrag) pursuant to § 154 BauGB, the usage realizable as of the valuation date governs, provided that ordinary market participants regard this as relevant to value. The decision has direct significance for valuers who carry out land value determinations in redevelopment areas.

Facts of the case: Mainz old town and the compensation payment

In the old town of Mainz (redevelopment area "Südliche Altstadt"), a property owner was assessed by the City of Mainz for a compensation payment pursuant to § 154 (1) sentence 1 BauGB. This amount corresponds to the increase in land value caused by the urban redevelopment – calculated as the difference between the land value without redevelopment influence (initial value, referenced to the quality date of July 1968) and the land value with completed redevelopment (final value).

The subject of the dispute was the calculation of the initial value: the Higher Administrative Court of Koblenz (OVG Koblenz) had applied a realizable floor area ratio (FAR) of 2.4 as the decisive property characteristic, rather than the actually realized FAR of 1.3, which corresponded to the existing development. The claimant considered this an error – arguing that only the realized FAR reflected the actual condition of the property in 1968. The Federal Administrative Court dismissed the appeal and confirmed the decision of the OVG as being free of legal error on appeal.

Quality date and valuation date: two different points in time

The court confirms a fundamental methodological distinction under the German Real Estate Valuation Ordinance (ImmoWertV):

Valuation date (§ 3 ImmoWertV): The point in time to which the determined value relates – for the initial value in redevelopment areas, this is often a point far in the past.

Quality date (§ 4 ImmoWertV): The point in time to which the property condition relevant for the valuation relates. For the initial value, this date is generally before the onset of the redevelopment influence – typically at the point of the formal designation of the redevelopment area or the first public awareness of the redevelopment intent.

This separation reflects the causality requirement of § 154 (2) BauGB: only those increases in land value that were caused by the redevelopment are to be skimmed off. If the valuation date were used as the quality date, redevelopment-induced value increases would already be incorporated into the initial value – which would fundamentally contradict the underlying rationale of the skimming-off mechanism.

Realizable FAR, not actually realized FAR

The second and practically significant core statement concerns the determination of the usage relevant to value. Under § 6 (1) ImmoWertV, the usage permissible under planning law is generally decisive for land value determination. Where the surrounding development regularly deviates from the extent of permissible usage, sentence 2 provides that the usage assumed by ordinary market participants is decisive.

In the specific case: in the old town of Mainz in 1968, it was not customary to demolish buildings in order to fully exploit the planning-law-permissible FAR of 2.4 – too many buildings were classified as worthy of preservation or listed as protected monuments. Nevertheless, ordinary market participants used the higher FAR as the basis for valuation when purchasing such properties, because the development potential existed and was factored into the purchase price.

The Federal Administrative Court emphasizes that taking the existing development into account when determining the location-typical usage does not constitute a deviation from the land value principle (land value = value without development), but rather a methodologically necessary determination of the property characteristic "extent of permissible building usage". The subject of the valuation remains the undeveloped land – but the development potential relevant to the market is among its value-determining characteristics.

Case law on anticipatory effects: redevelopment-induced value changes disregarded

The court reaffirms the established case law regarding the anticipatory effect of the redevelopment designation: value changes attributable to measures that the owner had to accept solely because of the redevelopment – such as planning-law reshaping of the area – are disregarded when determining the initial value. These do not constitute a "genuine" market development of the property, but rather redevelopment-induced influences that would distort the skimming-off model.

For practical valuation, this means: the valuer must examine which value increases as of the quality date were already attributable to redevelopment expectations and must exclude these. Only the land value independent of the redevelopment forms the basis for the compensation payment.

Land value determination: sales comparison approach and standard land values

The court clarifies that, in principle, the sales comparison approach (§ 15 ImmoWertV) is to be applied for determining the initial value in redevelopment areas. Alternatively, suitable standard land values (Bodenrichtwerte) may be used (§ 16 (1) sentences 2 and 3 ImmoWertV). Both methods are in principle equivalent; the choice lies within the valuer's discretion, provided that it reliably reflects the value.

Significance for valuers

The decision confirms that, when determining the initial value in redevelopment areas, a careful distinction must be made between the actual existing condition and the market-relevant usage possibility. For appraisal practice, the following conclusions arise:

The municipality may base the determination of the initial value on the realizable (rather than the actual) FAR, provided that the market regards this as relevant to value. This may result in higher initial values and thus lower compensation payments for the owner. Valuers must document the market data basis on which they determined the location-typical usage. The considerable margin of judgment in determining what constitutes "ordinary market practice" is subject only to limited review on appeal – for arbitrariness and violations of the laws of logic. Owners contesting compensation payment assessments must examine the correct determination of the quality date and the methodologically sound determination of the initial value – both are the central points of challenge.