Property in transition? Working draft on socialisation presented in Berlin

Berlin is thinking big and fundamentally rethinking – at least if the SPD parliamentary group has its way. With the draft of a socialisation framework law (VergRG draft), the capital is for the first time preparing the concrete application of Article 15 of the Basic Law, i.e. the socialisation or communitisation of private property. This is a signal for companies in the housing, energy, infrastructure and communications sectors: the ownership structure could change fundamentally. Potentially affected companies may consider taking legal action against the new legal regulations before the constitutional courts.

Political background

The current efforts to create the possibility of socialisation ultimately go back to the referendum "Expropriate Deutsche Wohnen & Co." in 2021. An expert commission appointed by the Berlin Senate following the referendum confirmed by a majority that the socialisation of large housing companies is constitutionally permissible, provided it is proportionate and oriented towards the common good and compensation is paid to the companies. In their coalition agreement for the years 2023 to 2026, the CDU and SPD had agreed to pass a socialisation framework law if the expert commission came to the conclusion that socialisation was constitutionally possible (see page 50 f.) This referendum and the subsequent work of the expert commission explicitly only concerned the socialisation of large housing companies. The current political plans go further, however, because they relate to the entire area of services of general interest (housing, energy, waste disposal, transport, communications, health services).

The working draft now presented by the SPD parliamentary group - published in full by the Table.Briefings platform - has met with clear rejection from the governing mayor of the CDU, although the governing parties had agreed in principle to draw up such a draft and present it this year. Politically, therefore, this issue harbours considerable explosive potential.

Key contents of the draft

The draft of the VergRG provides a legal framework for the socialisation of land, natural resources and means of production. The aim is to utilise central resources of general interest for the common good without the intention of making a profit (Section 1 (1) and Section 2 of the draft VergRG). Implementation is then reserved for application laws (§ 1 para. 2 VergRG draft), for which, of course, no draft has yet been submitted. Even if the proposed framework law were to be passed, there would still be a long way to go before actual socialisation.

The draft envisagestwo ways of socialisation: Firstly, public ownership, i.e. the transfer of ownership to public bodies (e.g. the state of Berlin, public law institutions). Alternatively: public use. In this case, ownership remains formally private, but is structurally subject to the common good through statutory provisions (e.g. provisions on pricing for services of general interest, investment obligations, co-determination) (Section 4 VergRG draft). According to the draft framework law, both options for action are subject to the reservation of the law; the administration can therefore not take action here without a legal basis (cf. Section 7 VergRG draft).

Socialisation is only permissible in individual cases if this also satisfies the standard of proportionality (Sections 8, 9 VergRG draft). In addition, socialisation is subject to an obligation to pay compensation (Section 11 VergRG draft).

As soon as the socialisation takes place in one of the two forms through the entry into force of the application law, no further legal transactions or actions may be undertaken that impede the implementation of the socialisation (Section 14 VergRG draft). § Section 15 of the draft VergRG clarifies that a constitutional complaint may be lodged with the Constitutional Court of the State of Berlin against the application law on socialisation and any implementation decisions by the competent authorities.

Complex and unresolved constitutional issues

The draft breaks new ground. A fundamental constitutional declaration of Article 15 of the Basic Law by the Federal Constitutional Court has never been made due to the lack of application of the provision. This presents the legislator with the particular difficulty of operating in an open field. The companies potentially affected by such regulations would therefore also find themselves in an area of great legal uncertainty, should these socialisations actually take place.

Only a few unresolved questions reveal the complexity of the matter:

Does the Basic Law even permit the form of a framework law by the state of Berlin, in particular due to the concurrent legislative competence pursuant to Art. 74 Para. 1 No. 15 GG? Does the legislative competence exist should there be a "rent cap 2.0" based on the framework law after the Federal Constitutional Court deemed the first attempt to this effect unconstitutional? Does Article 15 of the Basic Law really apply to the entire area of services of general interest? What type and scope of compensation does socialisation require and does the principle of proportionality apply here? To what extent would such socialisation be compatible with the fundamental rights of companies under the Basic Law, the European Charter of Fundamental Rights, the European Convention on Human Rights and the European fundamental freedoms?

The extent of the legal uncertainties is also shown by the results of the expert commission set up in the area of residential property: although the majority of the commission was able to agree on certain results, individual members wrote dissenting opinions on numerous points. The experts were therefore by no means unanimous in the context of this commission's work.

The draft takes this situation of uncertainty into account in an astonishing way: Because there would be a legitimate interest in the binding clarification of the open questions regarding Article 15 of the Basic Law, the draft states that the law should only enter into force 24 months after enactment (Article 2 VergRG draft) in order to enable any constitutional court clarification "by way of an abstract review procedure before the Federal Constitutional Court". This is an astonishingly defensive approach - or possibly a tactic to avoid having to implement the politically unpopular socialisation on constitutional grounds because there are legal reasons to the contrary.

Can companies defend themselves before the constitutional courts?

For affected companies, the question arises as to whether they can take legal action against the planned framework law, should it be passed, before the Federal Constitutional Court.

In any case, the abstract review of standards mentioned by the SPD parliamentary group cannot be lodged by companies. Only the federal government, the state government or a quarter of the members of the Bundestag are authorised to file an application (Section 76 (1) BVerfGG). The state government itself could therefore bring its own law (!) before the Federal Constitutional Court in this way - this would be a highly unusual procedure, but does not appear to be ruled out.

The only option for affected companies would be to lodge a constitutional complaint against the law with the Federal Constitutional Court . Such a constitutional complaint, which would be based in particular on the freedom of occupation under Article 12 of the Basic Law, directly against laws is generally possible within one year of the law coming into force (Section 93 (3) BVerfGG). However, it would have to be examined in each individual case whether the very strict admissibility requirements are met: The complainants must be themselves, currently and directly affected by the parliamentary act in order to be able to lodge a constitutional complaint in an admissible manner. The companies would therefore have to be the addressees of the regulations, which would have to be affirmed if they belong to the areas of services of general interest that are to be socialised. Whether they are already directly and currently affected would have to be examined in more detail. This is because the framework law alone does not yet create a legal basis for the socialisation - this is reserved for later application laws. On the other hand, the Framework Act already has considerable preliminary effects on this process.

Objections to the law under state constitutional law could also be asserted before the Berlin Constitutional Court, unless an appeal has been or will be lodged with the Federal Constitutional Court (see Section 49 (1) VerfGHG). Parallel federal and state constitutional court proceedings are therefore not possible.

Ambitious timetable

The envisaged timetable of 24 months for constitutional court clarification of numerous unresolved constitutional issues is very ambitious. It is to be expected that the Federal Constitutional Court would deal with Article 15 of the Basic Law in such a decision in a very fundamental and detailed manner - experience has shown that such Senate decisions take a long time. The constitutional court proceedings could therefore significantly delay the plans for socialisation, which is particularly good news for affected companies. They could consider initiating constitutional court proceedings for this reason alone.