NRW judgement overturns higher property tax for businesses - what this means for owners now
A recent judgement from North Rhine-Westphalia has overturned a local authority bylaw that requires commercially used properties to have a increased property tax rate burdened. This is an important signal for owners of commercial properties: this decision means that a higher assessment rate across the board simply because the property is used for „commercial“ purposes is not permitted. But what does this mean in concrete terms for current assessments, ancillary costs and the strategic orientation of your property portfolio?
What exactly did the court decide?
The judges overturned a regulation with which a municipality within the property tax B had a Special lifting rate for trade only had set. Reasoning (simplified): Property tax B does not recognise any splitting of use according to „residential“ vs. „commercial“ in the law. Without a clear authorisation basis, a selectively higher assessment rate violates the principle of equal treatment. Local authorities may adjust the general assessment rate for property tax B - but not individual types of use are more burdensome on their own.
Important: The judgement relates to a specific statute. Nevertheless, it has a signalling effect for similar models in NRW. Owners should therefore check notices and local bylaws. (Note: This is not tax advice; please speak to your tax advisor for individual cases).
Immediate consequences for commercial property owners
Where local authorities have previously demanded „commercial rates“ above the general property tax level, a new calculation must be made. If the bylaws do not apply, the General collection rate of the municipality. This can reduce the current property tax burden and Operating costs stabilise the market - a plus point in tight markets where the focus is on returns and cash flow.
Summary in figures
If your tax assessment amount is €1,200 and the general 550% rate applies instead of an (unauthorised) 700% special assessment rate, the annual basic tax will fall from €8,400 to €6,600. Savings: € 1,800 p.a.
Sample calculation: How to check your decision
The formula remains: Property tax = tax assessment amount × assessment rate (in %). The tax assessment amount can be found in your assessment notice; the assessment rate is stated in the municipal statutes.
Example (simplified): Tax assessment amount €900. Municipality had recognised 650% for trade and 520% in general. Following the judgement, the 650% surcharge no longer applies, meaning that 520% must be used. Your annual property tax is reduced from €5,850 (900 × 650%) to €4,680 (900 × 520%).
Tip: Also check advance payments. Many cities adjust them on a quarterly basis. An advance payment that is too high can often be corrected promptly with reference to the judgement and the statutes.
Service charges and tenancy agreements: What landlords should consider
In commercial leases, property tax is often fully apportionable. If the property tax falls, the tenants actually benefit - depending on the accounting period. Owners should nevertheless take action: A Updated cost forecast facilitates marketing, especially for new lettings or re-lettings. In addition, transparent communication with existing tenants strengthens the relationship and can create a counterweight in negotiations with index-linked or graduated rents.
- Check the decision: Is a special lifting rate shown? If so, check the legal situation.
- Observe deadlines: Note and adhere to the objection deadline (usually one month).
- Adjust advance payments: Apply for a reduction at the cash office or tax office.
- Review tenancy agreements: Apportionment clauses, billing period, information obligations.
- Update service charge forecast: Adjust exposés and cash flow planning.
- Check reclaims: In the case of provisional or contested notices, refund if applicable.
Typical errors & solutions
- Error: Wait until the annual statement. Solution: Check and adjust advance payments immediately.
- Error: No documentation. Solution: File judgement/statute, file number and correspondence neatly.
- Error: Do not inform tenants. Solution: Short information letter with new forecast creates confidence.
What municipalities are still allowed to do - and what not
Municipalities can use the general collection rate increase or decrease property tax B. The separate Property tax C for undeveloped plots ready for construction (to mobilise building land). According to the decision, the isolated additional burden on „trade“ within property tax B is not permitted without a legal basis. Property owners should keep an eye on their city's budgetary policy - changes to the assessment rate have a direct impact on management costs and the capitalised earnings value.
Market outlook: Pricing, yield and location
A more stable property tax burden increases the ability to plan the operation of the property. For Core and Core Plus-objects, the judgement effect can increase the pressure on the Operating cost ratio reduce. In value-add strategies, a lower property tax improves the DSCR and - in conjunction with market-driven rent levels - can expand the marketing radius. When comparing locations, two cities with identical net cold rents can deliver significantly different net yields due to different rates of assessment. Anyone actively making purchase decisions should include the development of the assessment rate over the last 5 years in their sensitivity analyses.
Practical check: Create a cash flow sensitivity for each potential transaction (+/- 100 percentage points for the collection rate; +/- 10 % for non-recoverable costs). This will show you how robust the return is against fiscal changes. Conservative planning pays off, especially over longer holding periods.
Would you like a brief assessment? We check your notices, service charge structure and the local situation - transparently and practically. Get in touch now
Conclusion: act in a structured manner now
The NRW judgement strengthens the position of property owners: An across-the-board higher property tax for commercial properties is not permitted. If you check assessments and advance payments, you can secure liquidity, improve tenant relationships and position your property professionally. Use the moment for a quick cost and location check - and gain room for manoeuvre for investments, marketing and active portfolio development.
Would you like to know how the judgement will affect your property, your ancillary costs and your marketing opportunities? We will be happy to provide you with a well-founded initial assessment.
