28.02.2023 | KPMG Law Insights

New funding for climate-friendly new buildings starts in March 2023

Beginning March 1, 2023, applications may be submitted for federal funding for efficient buildings under the new Climate Friendly New Construction (KFN) funding guidelines. Grant funding is now only provided for local authorities. All other funding recipients are relegated to credit-only funding. The requirements have also increased.

On January 25, 2023, the Federal Ministry of Housing, Urban Development and Construction (BMWSB) unveiled the Guidelines for Federal Funding for Efficient Buildings – Climate-Friendly New Construction (KFN). The revised KfW program was actually already announced for January 2023. This is primarily a loan subsidy in the form of share financing as a loan with an interest rate reduction. Only local authorities can continue to apply for funding in the form of a non-repayable grant. Grantees will be able to submit applications beginning in March 2023. However, the hurdles are considerable. The energy standards were tightened. In addition, only 750 million euros per year are to be made available for the new construction and initial acquisition of climate-friendly residential and non-residential buildings. So once again, haste is likely to be required when submitting applications. KfW’s old subsidy programs for new construction had been halted in January and February 2022 because demand was too great for the available funds.

What is promoted?

Funding is available for the construction of new buildings and the initial purchase of newly constructed residential and non-residential buildings with the “Efficiency House 40” energy standard, whereby the initial purchase must take place within twelve months of acceptance of construction. However, only buildings that also meet the requirements for greenhouse gas emissions in the building life cycle of the “Sustainable Building Quality Seal” can benefit from the full subsidy. The “Quality Seal Sustainable Building” (QNG) is a state seal of approval of the BMWSB, which is awarded by accredited certification bodies. For the first time, the entire life cycle of a building, from construction and operation to potential deconstruction, is relevant. Compliance with the relevant requirements must be verified by an independent inspection after completion of construction.

Two levels are eligible: KFWG or KFNWG (climate-friendly residential or non-residential building) and KFWG – Q or KFNWG – Q (climate-friendly residential or non-residential building with QNG). The “Q level” is achieved when a sustainability certificate is issued for a residential or non-residential building with efficiency standard EH/EG 40, confirming the measure’s compliance with the requirements of the “Quality Seal Sustainable Building Plus” (QNG-PLUS) or “Quality Seal Sustainable Building Premium” (QNG-PREMIUM).

In principle, all investors (clients of the measure) and first-time buyers of newly constructed, eligible residential buildings and residential units or non-residential buildings are eligible to apply. The funding is provided as project funding in the form of share financing as a loan with an interest subsidy from federal funds. Local authorities receive a non-repayable investment grant.

How much is the subsidy for non-residential buildings?

Maximum loan amounts of up to 100% of eligible costs are financed. For the first stage KFNWG, the eligible loan amount is up to 2,000 euros per square meter of net floor area, with a maximum of 10 million euros per project. At the second KFNWG – Q level, on the other hand, the eligible loan amount is up to EUR 3,000 per square meter of net floor area, up to a maximum of EUR 15 million per project. The interest subsidy from federal funds amounts to up to 4% p.a. of the loan amount for a term of 30 years and a ten-year interest subsidy.

The funding conditions for grant funding for local authorities are also up to 100% of the eligible costs of the project. For the first stage KFNWG, the maximum eligible amount corresponds to a subsidy of 5% on up to 2,000 euros per square meter of net floor area, with a maximum of 10 million euros per project. At the second level KFNWG – Q, the maximum eligible amount even corresponds to a 12.5% subsidy on up to 3,000 euros per square meter of net floor area, up to a maximum of 15 million euros per project.

For non-residential buildings, the assessment basis for the maximum limit of eligible costs is the newly constructed net floor area. Eligible costs include the entire construction costs, including the costs of the technical systems required for the building’s operation independent of its use. Also eligible are costs for specialist planning and construction support, including services in the course of sustainability certification.

Funding requirements and proof of use

In addition to compliance with the minimum technical requirements, the involvement of an energy efficiency expert from the “Federal List of Experts” is a prerequisite for funding.

In credit support, the period within which the requested amounts must be allocated to the specified purpose is twelve months from the date of disbursement of the respective amount. In case of exceeding this deadline, the applicant shall pay an interest surcharge.

Upon completion of the construction project, evidence of the proper use of the grant funds, the amount of eligible costs, and compliance with the minimum technical requirements must be submitted. In the case of loan subsidies, the proof of use must be submitted to the financing partner no later than 36 months after full disbursement of the loan. In the case of grant funding, the local authority must submit proof of use to KfW no later than 72 months after approval.

Application before project start

Applications for loan subsidies must be submitted before the start of the project via a financing partner of KfW as the credit-imposing financing institution. The start of a project is generally considered to be the conclusion of a supply or service contract attributable to the execution of the project. Planning and consulting services may, however, be provided before an application is submitted and do not in themselves lead to the start of the project.

However, supply and service agreements with construction or craft companies can also be concluded before the loan application is completed if a documented consultation meeting has taken place with a KfW financing partner. The documentary evidence of this consultation must include information on funding conditions and eligibility requirements, as well as the funding amount and how this KfW funding is planned into the potential loan transaction. In this case, only the start of construction work on site is then considered the start of the project.

Applications for funding under the grant program must also be submitted by the local authority directly to KfW before the start of the project. The start of the project before the application is approved is permitted here, but is done at the corporation’s own risk and does not establish a legal claim to funding.
If the application is submitted for funding of the initial purchase of a building, the conclusion of the purchase contract is considered the start of the project.

Recommendation for action

With regard to the funding allocation of the support program, it can be assumed that the available funds for the current year will be exhausted quickly. Since funds are awarded on a first-come, first-served basis, applications should be submitted as soon as possible. On the other hand, great care must be taken when concluding supply or service contracts early so that the project does not start earlier than intended and this can have a detrimental effect on the subsidy.

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