Under the regime of German foreign investment rules (AWV") the German Federal Ministry for Economic Affairs and Energy (the Ministry") is entitled to review and – in certain cases – even prohibit certain acquisitions of domestic companies by foreign investors if the acquisition affects the security of the German Federal Republic. Over the past years, this blocking instrument has become increasingly important as a political control element, especially in connection with larger, mostly Asian, investments in German companies. Further, this topic has now arrived at the EU-level; on 21 March 2019 the European Union published a regulation (EU regulation 2019/452) establishing a framework for the screening of foreign direct investments into the EU. Against this background, the question arises as to what impact this may have on real estate transactions.

Depending on the type of business of the respective target company AWV differentiates between a cross-sector" and a sector-specific" review. The latter one has stricter rules since it is only applicable to target companies involved in certain weaponry- or encryption-related businesses per se affecting German security interests. The general AWV review is the cross-sector review which applies to a direct or indirect acquisition of at least 25% of the shares in any domestic company (10% if the target company operates in the area of critical infrastructure) by a non-EU or non-EFTA company which leads to risks for public order or security of Germany. A sector-specific review applies to a non-German investment of at least 10% of the shares in a domestic company with business in the area of weaponry or IT technology to process governmental classified information which endangers the material security interests of Germany. Therefore, the transactions directly subject to review are share deals.

It is argued that in addition to the above the transfer of the individual assets of a business by way of an asset deal shall be equally subject to AWV review because it is a legal substitute to the captured share deal. Further, certain voices in literature argue that also assignment or transfer of shares or assets for security purposes, in particular as collateral in the course of the transaction financing constitute an anticipated acquisition and shall, therefore, be subject to AWV review. Although AWV expressly only refers to the acquisition of shares and thereby voting rights in a company, it cannot be ruled out that the Ministry tries to get involved in asset deals or financing of transactions. In the latter case, it is unclear whether the investor" in terms of AWV shall be the financing institute or the purchaser who tries to finance the relevant transaction.

Immediately it seems rather remote that pure real estate transactions are subjected to an examination according to the AWV. There are, however, certain property classes that can acquire special significance. One might think of land or buildings that are of central importance for the infrastructure (e.g. land suitable for Internet nodes, water supply facilities) or the function of a state (like certain government buildings or buildings in the immediate vicinity of certain state facilities).

In a nutshell, it is advisable to keep an eye on further developments. Investors should be aware of the foreign investment rules and, in the course of a transaction, may seek legal advice to protect against an unexpected unpleasant surprise.

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