Few who become involved in real estate deals realize there may be notification requirements under EU merger control laws. Yet such laws are commonplace and cumbersome. For real estate acquisitions, typically void of antitrust concerns, the notification requirement causes delay that must be factored into the planning of the transaction.
But why do real estate transactions need to be reported if there are no antitrust concerns or even, as in some cases, a European element to the deal? Oliver H. Geiss, Senior Associate with Squire Sanders’ Brussels office notes, “The answer lies in the way the merger laws of Germany and the EU are structured. Those laws rely exclusively on the company group turnover of the parties involved rather than on the size of the transaction.”
Germany’s notification thresholds are comparatively low. A transaction that may affect the German market, a broadly interpreted criterion, requires notification if the companies involved have a combined worldwide turnover exceeding €500 million and one company has turnover in Germany of €25 million. For instance, if a large international investment bank acquired a portfolio of German real estate, it is likely that the transaction would need to be reported in Germany.
What kind of delay is involved? Geiss calculates, “Factoring in the time for preparation, companies should schedule at least five to six weeks for the notification and approval process in cases without antitrust concerns in Germany and seven to eight weeks at the EU level.”
The impact on transaction timing, management time and cost is significantly increased if the EU’s merger control requirements need to be met. While turnover thresholds at the EU level are generally very high, a loophole in the rules on joint ventures leads to a remarkably broad notification requirement.
Businesses need to be mindful of these EU merger rules whenever an acquired portfolio includes assets in Germany or the transaction involves two large, globally active entities – even if the deal has no apparent European component. If a transaction should fall in the notification-required category, Geiss recommends further analysis, risk assessment and guidance on possibly avoiding the requirement altogether.