May 23, 2022

Volume XII, Number 143

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May 23, 2022

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German Federal Administrative Court Overturns Berlin Pre-emptive Rights Practice

In a landmark decision rendered on 9 November 2021 (Case reference: 4 C 1.20), the German Federal Administrative Court (Bundesverwaltungsgericht – BVerwG) has outlawed the Berlin pre-emptive rights practice in milieu protection areas. According to the ruling, pre-emptive rights for properties in milieu protection areas must not be exercised on basis of the mere presumption that the future owner might use the property in a way detrimental to the objectives of the milieu protection area. Berlin districts had exercised pre-emptive rights on this basis in numerous cases in recent years. The BVerwG has now put a stop to this practice. The decision is final and cannot be appealed. So far, only the key deliberations of the decision have been published, not the complete recitals.

The case was brought by a real estate company that had acquired a property in a milieu protection area in the Berlin district of Friedrichshain-Kreuzberg. The property contains a multi-family house built in 1889 with 20 rental apartments and two commercial units. The local district authority exercised a pre-emptive right in favour of a state-owned housing company. By doing this, the district authority intended to mitigate the risk that residents might be displaced if, following the sale, apartments were refurbished or converted into condominiums or rents were increased.

The BVerwG did not follow this approach – as opposed to the previous instances of the Administrative Court of Berlin (judgment of May 17, 2018 - 13 K 724.17) and the Higher Administrative Court of Berlin-Brandenburg (judgment of October 22, 2019 - 10 B 9.18). Instead, it declared such exercising of pre-emptive rights to be unlawful since it was precluded by Sec. 26 No. 4 Alt. 2 of the German Building Code (Baugesetzbuch – BauGB). According to this provision, exercising pre-emptive rights is excluded if (i) the concerned property is used in accordance with the objectives of the respective urban development measures and (ii) the buildings on the property do not have any significant deficiencies or are derelict. According to the BVerwG, these requirements were met in the case at hand. In support of this, the judges argued that Sect. 26 No. 4 Alt. 2 BauGB according to its wording refers to the actual status of the property at the time the district authority takes its last decision on exercising of the pre-emptive right. Consequently, in the eyes of the judges the Berlin practice to consider the mere presumption that the future owner might use the property in a way potentially detrimental to the goals of the milieu protection area is not enough to justify the district’s exercising of statutory pre-emptive rights.

With this decision, the Berlin pre-emptive rights practice has been overturned. The judges have clarified that widespread exercising of pre-emptive rights in milieu protection areas on grounds of merely presumed intentions of the future owner are inadmissible. Berlin districts will therefore have to be considerably more cautious when exercising pre-emptive rights in the future. With regard to past cases where pre-emptive rights have been exercised or so-called avoidance agreements (Abwendungsvereinbarungen) have been concluded, property owners may want to review on a case-by-case basis whether the BVerwG’s ruling may have opened up new strategic options. This applies in particular to cases where the public orders exercising the pre-emptive right have not yet become legally binding (bestandskräftig). In addition, it will need to be analysed whether avoidance agreements concluded under the threat of potential exercising of pre-emptive rights may be challenged and if costs incurred due to an exercised pre-emptive right may be recovered.

©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XI, Number 360
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About this Author

Dr. Christian Schede Real Estate Attorney Greenberg Traurig Lawn Firm Germany
Partner/Shareholder

Christian Schede is Co-Chair of the firm's global Real Estate Practice of Greenberg Traurig and Founding Chairman Germany. He focuses on complex M&A transactions in real estate, infrastructure and related financings as well as project developments.

Christian's experience covers all real estate asset classes as well as projects in the energy and transportation sectors. His expertise includes advising on joint ventures, investment management platforms, and restructuring of property and infrastructure investments. Christian represents major national and international institutional...

+49 30-700-171-120
Dr. Florian Rösch Real Estate Attorney Greenberg Traurig Law Firm Germany
Partner/Shareholder/Notary

Florian Rösch is a Shareholder and chairs the firm's German Real Estate Practice Group. He focuses his practice on real estate and corporate law, with a focus on real estate transactions and real estate developments. Florian also represents clients in joint venture situations and ongoing asset management work, including leasing. Florian also works as a notary with a focus on all kind of real estate and corporate notarizations.

He works for domestic and foreign investors, asset management companies, developers, and the public sector. His experience includes office and retail...

+49 30-700-171-124
Martin Hamer Environmental Lawyer Greenberg Traurig Law Firm Germany
Partner/Shareholder

Martin Hamer is a Partner in the Environmental Group in Germany. He focuses on environmental matters including soil and groundwater contamination, environmental permits, nature protection, waste management, mining and climate protection. Martin represents clients in complex permit procedures vis-à-vis public authorities, environmental liability litigation and public law contract negotiations. In addition, he advises on environmental and other regulatory matters in corporate and real estate transactions. Amongst his clients are manufacturers, real estate companies, private equity funds,...

+49-30-700-171-195
Dr. Johann-Frederik Schuldt Environmental Attorney Greenberg Traurig Law Firm Germany
Senior Associate

Johann-Frederik Schuldt is a Senior Associate in the Environmental and Public Planning Law Group in Germany. He advises national and international clients on environmental, public planning and building law matters as well as on administrative, regulatory and constitutional law.

Johann concentrates his environmental law practice on waste management, immission control, soil and groundwater contamination, mining and climate protection matters. As a particular focus, he advises international clients on environmental and regulatory compliance in cross-border cases, including...

+49 30-700-171-289
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