Return of the pre emption right?

Comeback for the right of first refusal?

One of the most controversial regulatory instruments of housing policy may be on the verge of a comeback. The right of first refusal, which was overturned by the Federal Administrative Court in Leipzig in 2021, is to be revived - and legally secured - according to the will of the SPD-led Federal Ministry of Building.  The right of first refusal has put Berlin property owners and buyers in particular under pressure for years. The trick of the districts was to buy rental houses themselves, bypassing the actual buyer. The regulation, which previously could only be applied in milieu protection areas, was most recently extended to regions with a tight housing market in the course of the Building Land Mobilization Act.

Last year, the Federal Administrative Court in Leipzig ended this practice with a decision which was based upon the municipality implying that the new owner intended to use targeted measures to increase rents in the property and thus displace the tenants. The administrative judges based their ruling on the fact that the current condition of a property, but not an assumption or forecast about possible intentions of the buyer, was to be taken into account. 

New attempt in Berlin

Now there is an unsurprising new attempt by the SPD-led Federal Ministry of Building. Shortly after the election, state secretaries and one state secretary in particular made a strong case for a new run on the right of first refusal. State Secretary Sören Bartol and State Secretary Cansel Kiziltepe, both SPD, already distinguished themselves in the last legislative period as clear supporters of the failed rent cap and the preemption practice. According to Bartol, the BVG has not spoken out against the Berlin rent cap in terms of content, but merely located the competence for it with the federal government. Kiziltepe demands to make the pre-emption practice legally secure and to extend it by a "neighborly pre-emption right".  

At the end of April, the Ministry of Construction under Klara Geywitz submitted a draft law to the ministries, which aims to enable the right of first refusal in milieu protection areas again. To achieve this goal, the Building Code is to be modified accordingly. If it were not for the FDP and Federal Minister of Justice Marco Buschmann, who is sceptical about the project and stopped it. Among other things, it would have to be clarified whether the legislature should act at all after the BVG landmark ruling. In addition, the legislature is working intensively on improving the housing situation with various measures. For example, the rent brake has been extended, subsidies have been increased and social housing construction has been intensified.   

Hearings as the next step

In the next step, experts are now to deal with the right of first refusal. The composition of the committees suggests that the pressure for an amendment is likely to increase rather than decrease. Participants at a hearing in Berlin included tenant representatives and other supporters, in addition to politicians from the Left Party, who have given the issue high priority.

What would a new right of first refusal mean?

Part of the calculus in favor of a new right of first refusal is that in the municipalities (districts) and in state and federal politics, the majority assumes an end to the real estate cycle and thus declining purchase prices, including for multifamily housing. Whether this is true or when this development would start is anything but set in Berlin. Part of the basic idea, however, is that if prices were to drop, the districts and the state could stock up on housing more cheaply than before without building.

What the consequences of a new edition might look like in numbers is shown in our evaluation of exercise cases and audited cases for Berlin since 2017