Development charges; collection

The development of building sites through the provision of on-site infrastructure is a responsibility of local authorities. Development facilities for which residents are regularly required to pay a proportionate share due to specific benefits typically include, on the one hand, utility networks (water supply, drainage, district heating) and, on the other hand, access roads (and, where applicable, additional car parks, green spaces and noise barriers). Local authorities have considerable discretion when it comes to the specific design of road or utility routes.

A payment obligation may arise from contracts. For example, where a building contractor undertakes the development at its own expense under a development contract with the local authority and then passes on these costs to the adjacent landowner (purchaser) via the purchase price in the property purchase agreement. Often, local authorities also acquire the building land themselves, plan and develop it, and then recoup their costs via the purchase price in the property purchase agreement with the adjacent landowner (purchaser).

Insofar as no contractual refinancing takes place, local authorities are generally obliged to cover their development costs via so-called development contributions. It is essential here that ‘the infrastructure as a whole’ cannot be invoiced, but rather that contributions are levied separately for each facility; for example, separate contribution notices for each individual road, for the water supply and for the sewerage system.

In any case, the levying of such contributions requires an effective local contribution by-law, which may vary from municipality to municipality, meaning that general statements can only be made to a limited extent. An assessment of contribution notices always requires knowledge of the relevant local law, which can be inspected at the municipality.

Contributions for the initial construction of roads, car parks, green spaces and noise barriers are, in the strict sense, referred to as ‘development contributions’. They are levied pursuant to Section 5a of the Bavarian Local Tax Act (KAG) in conjunction with a corresponding development contribution by-law. The obligation to pay contributions arises automatically for the developed plots of land under the by-law once the legal requirements – primarily the technical completion of the facility, the availability of all invoices and the effect of development – are met.
Municipalities are legally obliged to levy such contributions and need not bear more than 10% of the development costs. Since 1 April 2014, development contributions may, in principle, only be levied within a maximum period of 20 years after the point at which the benefit arises. The benefit arises when the development infrastructure is ‘fully operational’, i.e. technically completed. Furthermore, since 1 April 2021, Article 5a(7), second sentence, of the Bavarian Local Tax Act (KAG) has applied, according to which development contributions may no longer be levied 25 years after the start of the initial technical construction of a development facility.

For other development facilities, in particular piped infrastructure (water supply, drainage), contributions may also be demanded under the Bavarian Local Tax Act. To this end, the municipality must enact two sets of regulations: a framework regulation governing the use of the facility (e.g. a water supply regulation for the water supply or a drainage regulation for the sewerage system), as well as an associated levy regulation (usually referred to as the ‘Contribution and Fee Regulation’). Unlike with development contributions, the municipality has a choice here: it can finance its investment costs through contributions or incorporate them into the calculation of the fees to be levied on an ongoing basis, thereby refinancing them in many small instalments over a longer period. It is also possible to combine both options and pass on the investment costs to citizens partly through contributions and partly through fees. The local authority decides on one of these options in the local contributions and fees regulations by stipulating appropriately calculated contribution or fee rates.