Law & Politics
Property law in the capital
Pre-emption rights in Berlin 2022: the end of the old practice?
The Federal Administrative Court has put an end to Berlin boroughs' controversial pre-emption practice. For investors, the ruling brings more certainty, though transactions may still face delays.
Peter Guthmann
For years, the borough-level pre-emption right was the sharpest sword in Berlin's housing policy. Since 9 November 2021, in the form the boroughs had been wielding it, it is no longer a sword.
How the boroughs used pre-emption rights
In neighbourhoods covered by a building preservation statute, boroughs such as Friedrichshain-Kreuzberg, Pankow and Neukoelln regularly stepped into private purchase contracts. The declared aim was to prevent the conversion of rental flats into condominiums and to protect the existing tenant base.
In practice, however, an actual purchase by the borough was rare. More often, borough offices threatened to exercise the pre-emption right in order to push buyers into so-called waiver agreements. In these, buyers gave up the option of rent increases, of splitting the building into individual ownership units, or of certain modernisations, typically over many years. The terms of the original purchase contract remained in place, but in effect the borough tied the buyer to a politically desired use for the long term.
The ruling from Leipzig
With its judgment of 9 November 2021 (case 4 C 1.20), the Federal Administrative Court put a clear stop to this practice. A municipal pre-emption right may only be exercised when the public interest justifies it in the specific individual case. What matters is the actual condition of the property at the time of exercise. If the plot is already built and used in line with the goals of the preservation statute, the pre-emption right is excluded.
The reasoning previously customary in Berlin, that the new owner might use the property differently in future, has been expressly rejected by the Court. A forecast about future behaviour is not enough.
What changes for buyers and owners
For investors in the Berlin market, transaction security has improved considerably. The risk that a borough will step into a notarised purchase contract or extract costly waiver agreements is now substantially smaller. We have since seen fewer delays in the affected neighbourhoods and less pressure to renegotiate terms after signing. Splitting an apartment building into individual apartments within preservation areas is also more predictable again, provided the other requirements are met.
The three-month review period remains
The pre-emption right has not disappeared. After notarisation, notaries must still send a copy of the purchase contract to the responsible borough office. The borough has a review period of three months. Only with the negative certificate or after the deadline expires can the contract be executed. The actual exercise of the right will be the exception going forward, but the deadline itself remains a factor in any Berlin transaction timeline.
Open question: existing waiver agreements
What happens to waiver agreements that have already been signed remains unresolved. Many of these contracts were concluded under the pressure of a threatened pre-emption right that, by today's reading, would have been unlawful. Whether and to what extent they can be challenged is legally contested. If you have such an agreement on file as an owner, a legal review is worthwhile. We expect a broader clarification of this question to come from the courts only over the market developments of the next few years.
