Property Purchase Contract in Germany. Part III: The Pre-Emption Right

What is the district right of first refusal all about? The Federal Administrative Court in Leipzig put an end to Berlin's preemption practice with its verdict of 09.11.2021. The supposed wonder weapon has become a toothless tiger. 

by Peter Guthmann Published on:

The district pre-emption right

Particularly in the case of land and apartment building sales in Berlin, a specific regulation applies which has received a lot of medial attention in recent years. If there is a building preservation statute in the respective neighborhood, the Berlin boroughs often use their existing borough right of first refusal or use it as a means of exerting pressure to conclude so-called avoidance agreements with the buyers. In the avoidance agreements, the district waived its right of first refusal in return for certain concessions by the buyer regarding future use, especially rents, modernization and conversion to condominiums. 

How does the district know about your sales?

The municipalities are informed of new land sales (and apartment building sales) directly by the notary. After the notarization date, the notary is obliged to send a copy of the notarized purchase agreement to the relevant district office with a request for verification regarding the district's right of first refusal. The notary waits for the confirmation of the district office that in this case the pre-emption right does not exist or is not exercised (a so-called negative certificate). If the district office does not issue the negative certificate, but also does not react otherwise, the notary executes the purchase contract at the end of the three-month inspection period. 

What happens if district wants to assert pre-emption?

Should the district assert the right of first refusal, the district enters into the purchase agreement instead of the actual purchaser. The originally agreed conditions remain in place.

However, since the ruling of the Federal Administrative Court (ruling of 09.11.2021, ref. 4 C 1.20), this practice may no longer be applied. The Federal Administrative Court ruled that this procedure was not in accordance with the law. An existing municipal right of first refusal may only be exercised if this is justified in a specific individual case by the general welfare. It may not be exercised if the property is built on and used in accordance with the objectives and purposes of the urban development measure or in accordance with the provisions of the development plan. The Federal Administrative Court has also clarified that for this reason for exclusion, only the use at the time of exercising the right of first refusal is relevant. According to the ruling of the Federal Administrative Court, the prognosis that the property will be used in the future in contradiction to the objectives of the preservation statutes, which is usually put forward by the Berlin districts as justification, is not relevant

Often longer processing

Even if the use of the right of first refusal is now threatened in far fewer cases, the existing review period still allows the districts to extend real estate transactions by three months. Whether averting agreements that have already been concluded can be legally challenged after the ruling is legally controversial and will probably require clarification in court.