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
How the boroughs used pre-emption rights
For years, borough-level pre-emption rights were a powerful tool in Berlin's housing policy. In social preservation areas, boroughs such as Friedrichshain-Kreuzberg, Pankow and Neukoelln stepped into private purchase contracts for residential properties. The aim was to prevent the conversion of rental flats into condominiums and to protect existing tenants.
In practice, boroughs rarely followed through with an actual purchase. More often, they threatened to exercise pre-emption rights in order to pressure buyers into signing waiver agreements. These agreements committed buyers to concessions such as forgoing rent increases or apartment conversions, often for many years.
The ruling: no speculation about a buyer's intentions
On 9 November 2021 (case 4 C 1.20), the Federal Administrative Court in Leipzig put an end to this practice. The judges stated clearly: pre-emption rights may only be exercised when the public interest justifies it in the specific individual case. What matters is the current state of the property. If the plot is already built and used in accordance with the goals of the preservation statute, pre-emption is not permissible.
The reasoning previously used by the boroughs, that the new owner might use the property differently in future, is no longer valid.
What this means for buyers and owners
For property investors in Berlin, transaction security has noticeably improved. The risk that a borough enters into a signed purchase contract after notarisation or forces costly waiver agreements has dropped considerably. The market development in affected neighbourhoods benefits from this. The conversion into individual apartments has also become easier again.
The three month review period remains
Despite the ruling, pre-emption rights have not disappeared entirely. Notaries must still send a copy to the borough office after notarisation. The borough retains a three month review period. Although exercise of the right should now be a rare exception, this period can still cause delays. The purchase contract can only be completed once the borough issues a negative certificate or the deadline expires.
Open question: existing waiver agreements
Since the ruling, the question remains whether existing waiver agreements can be challenged. Many of these contracts were signed under the pressure of a threatened pre-emption. Legal experts disagree on the consequences. Courts are expected to settle this question in the coming years.