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Codes and Guidelines

Please see also the original version of the code translated in Englisch at http://www.corporate-governance-code.de/index-e.html

Foreword The Government Commission on Corporate Governance appointed by the Federal Minister of Justice under the chairmanship of Dr. Gerhard Cromme submitted the German Corporate Governance Code* on 26 February 2002. This Code has in the meantime been accepted by most of the enterprises at which it is directed. The particular characteristics of the German real estate economy, that are in part different from other sectors of the economy, have not been encompassed in the Code to date. In order to address these special topics and ensure an improvement in the international competitiveness of the German real estate economy, an initiative has been formed that will endeavour to promote good corporate governance in German real estate enterprises in accordance with the purpose of the Cromme Code. Increased professionalism and transparency, in particular through

  • current real estate valuations
  • the regulation of conflicts of interest
  • and growing specialist qualification

are at the forefront of the amendments specific to real estate. The aim is to establish standards for corporate governance for real estate companies. They are to be summarised in the form of general principles. In addition, special sets of regulations will be created because of the diversity of the sector. The set of regulations for real estate public limited companies listed, or intended for future listing, on the stock exchange is the first to now have been prepared as a supplement to the Corporate Governance Code. The Initiative is preparing specific sets of regulations that amongst other things take into consideration the respective legal form for the capital investment companies regulated by statute as well as privately owned real estate companies. The Initiative views the supplement to the Code (the relevant provisions are written in bold type and marked with an "i") as a first step. In addition to this, it will pursue further activities that serve to improve its international competitiveness. *The alterations and additions to the German Corporate Governance Code that were submitted in June 2005 have no influence on this Real Estate Code, because the alterations and additions made do not affect the additions (marked with an "i"), nor do they in turn make a specific real estate economy supplement necessary. Oestrich-Winkel, 19 September 2003 Initiative Corporate Governance der deutschen Immobilienwirtschaft e. V. 1.i Preamble for the Real Estate Economy The German Corporate Governance Code is hereby appropriately supplemented for public limited companies operating real estate business, that are currently listed, or intended for future listing, on the stock exchange ("real estate enterprises"). The supplements also apply to other public limited companies of any sector that

  • hold a significant amount of real estate themselves or through affiliated enterprises, or conclude and implement real estate transactions either directly or through participations ("real estate transactions")
  • or provide services for such transactions (generally "real estate enterprises").

Application by analogy is also recommended for other forms of enterprise in the real estate business, as far as possible. The supplements to the principles of corporate management and supervision that are important for enterprises in the real estate business are marked with an "i" and emphasised in bold type. The Initiative Corporate Governance der deutschen Immobilienwirtschaft has stressed the necessary supplements at particular points in a clearly emphasised, exemplary fashion, in keeping with the outstanding importance of the real estate sector in the German economy. 3.1.i The executive board and the supervisory board in the principal companies in groups of companies must carefully monitor the management of the transactions of dependent companies, in particular with regard to real estate activities. 3.3.i As far as real estate enterprises are concerned, this in particular applies to

  • fundamental alterations of valuation methods
  • the purchase and sale of real estate and project development of the enterprise's own sites above a threshold to be fixed depending on the size of the enterprise.

3.9.i Real estate transactions between the enterprise and members of the executive board or the supervisory board should be avoided. To the extent to which they are nevertheless concluded, they must be subject to the consent of the supervisory board. 4.2.i Members of the executive board of companies that operate in the real estate business must have relevant training or sufficient experience. In executive boards of companies whose group companies operate in the real estate business to an extent that can have a considerable influence on the assets situation, the financial situation and the income situation of the controlling enterprise, at least one member of the executive board should have special knowledge or sufficient experience in the real estate business. 4.3.6.i In case of real estate transactions by the enterprise, even the appearance of a conflict of interest should be avoided. In every such transaction, the interests of the enterprise alone must be safeguarded. Members of the executive board may under no circumstances derive personal advantages from transactions of the enterprise. Privately conducted real estate transactions and private commissions regarding such transactions by members of the executive board should be disclosed to the chairman of the supervisory board. The members of the executive board should ensure compliance with the principles for the avoidance of conflicts of interest, in particular in case of

  • transactions between associated enterprises
  • the purchase and sale of real estate
  • the award of commissions in the real estate sphere.

The supervisory board should establish rules of procedure for individual cases. 5.1.1.i In case of real estate transactions of considerable importance, the supervisory board should

  • ensure that its members are informed sufficiently well and in good time
  • appropriately regulate the frequency and time budget for meetings in accordance with the transaction volume and the business requirements
  • assist the members in fulfilling their supervisory function more easily.

Banking institutions can establish special rules for rescue bids that may diverge from this. 5.3.2.i In real estate enterprises, the supervisory board or the audit committee should deal with the valuation of the existing real estate assets. This task can also be transferred to a separate valuation committee. 5.4.1.i In supervisory boards of companies whose group companies operate in the real estate business to an extent that can have a considerable influence on the assets situation, the financial situation and the income situation of the controlling enterprise, at least one member of the supervisory board should have special knowledge or sufficient experience in the real estate business. In supervisory boards of real estate companies, a sufficient number of supervisory board members should have such special knowledge or experience. 5.5.1.i Fig. 4.3.6.i applies by analogy to the members of the supervisory board. 6.1.i Real estate companies should also publicise real estate transactions without delay if their respective total volume exceeds 5 % of the balance sheet value of the sites and buildings that are shown as fixed assets, floating assets and participation assets. This does not apply to rescue bids by banking institutions. 7.1.1.i Legally recognised valuation methods must be used for the valuation of real estate. These valuation methods, and changes to them, must be explained in the annex to the annual accounts, together with the reasons for them. The business report or the annex should also state the market value (excluding real estate investment assets used by the company itself) and the valuation methods used for its determination, together with any changes made to them. If no market value is stated in relation to the individual real estate asset, the greatest possible transparency should be achieved by stating generally applicable (e.g. DIX) regional and/or use-specific clusters that were assessed on the basis of the individual market values. 7.2.2.i Contracts with auditors concerning additional consultancy services for real estate companies should be submitted to the supervisory board for consent if the cumulative fees due for these services exceed 50 % of the remuneration for the annual audit. Section 114 of the Stock Corporation Act applies by analogy to this extent.