Law & Politics
Federal Administrative Court ruling, 9 November 2021
Pre-emption rights ruling: Federal court ends Berlin's special practice in conservation areas
A ruling from Leipzig stops the controversial pre-emption practice of Berlin's boroughs. For owners and investors in conservation areas, an era of uncertainty ends.
Peter Guthmann
On 9 November 2021, Germany's Federal Administrative Court in Leipzig stopped the pre-emption practice used by Berlin's boroughs in Milieuschutz (conservation) areas. The judges ruled that a pre-emption right is inadmissible if a property is already being used in accordance with the goals of the conservation measure and shows no deficiencies. This was a clear rejection of the blanket assumption that every new buyer automatically poses a displacement risk.
What the ruling means for transactions
The pre-emption right had hung over every sale of apartment buildings in conservation areas. Buyers could not be certain whether the borough would step into the contract. Sellers had to expect delays. After the ruling, the pre-emption right can no longer be justified solely by assuming future speculative intentions. This stabilizes the market for investment properties in the affected areas.
The Senator for Urban Development criticized the ruling, calling it a catastrophe for tenants. In practice, however, tenants enjoy extensive protection even under new owners: seven years of pre-emption rights in case of condominium conversion, followed by five years of special protection against owner occupancy evictions.
Where pre-emption was used most
The boroughs of Friedrichshain-Kreuzberg, the defendant in the Leipzig case, as well as Neukoelln and Pankow used pre-emption most aggressively as a political tool. Since 2017, 637 sales were reviewed across Berlin. In many cases, boroughs pressured buyers into signing a so called Abwendungsvereinbarung (waiver agreement). These contracts often contained economically disadvantageous commitments: no condominium conversion for 20 years or no energy efficient modernization.
Approximately 300 buyers signed such agreements. Many did so reluctantly, as the alternative was the borough exercising its pre-emption right.
What happens to existing waiver agreements
Several legal experts argue that the ruling removes the legal basis for the existing waiver agreements. These agreements were signed under the threat of a pre-emption right that has now been found unlawful. Owners who yielded to the boroughs' demands may attempt to dissolve these agreements in court.
Outlook
The ruling clarifies that conservation ordinances under Section 172 BauGB are urban planning instruments, not tools for political control. The number of Milieuschutz areas in Berlin had tripled from 22 (2015) to 66 (2020).
Uncertainty remains regarding federal politics: an amendment to the Building Code could give municipalities stronger pre-emption rights in the future. Owners and investors in Berlin apartments should monitor further developments.