Investing Successfully

Right of First Refusal to be Expanded for Berlin’s Boroughs

31.

August 2017

The Senate of Berlin – the city’s government – would like to see the boroughs’ right of first refusal in housing sales expanded. Senator for Urban Development Katrin Lompscher (of the Left) and Senator for Finance Matthias Kollatz-Ahnen (of the Social Democrats) presented a concept paper that is meant to support the boroughs in their efforts to acquire residential buildings (source: www.stadtentwicklung.berlin.de).

Boroughs wishing to act on their right of first refusal currently have two months’ time to make up their minds. For some administrations, this appears to be too tight a deadline, which is why the Senate drafted the new action plan. It is supposed to assist the borough administrations in their decision-making process and in the efficient exercise of their right of first refusal. The objective of the new concept is to expand the acquisitions of residential buildings. According to regional broadcaster RBB, Lompscher said the idea is to help the boroughs in their efforts, “to act in the best interest of Berlin as a city with a large tenant constituency by running expert checks in every single case.” (source: www.rbb-online.de).

So far, the right of first refusal in the aforesaid sense was exercised eight times to acquire a combined total of around 400 flats (in most cases for municipal housing companies). In another twelve cases, however, the right of first refusal was used to persuade buyers to sign certain restraining agreements, according to the Tagesspiegel, one of the city’s dailies (source: www.tagesspiegel.de). Agreements of this type obligate a given buyer to accept a number of self-constraints, e.g. in regard to modernisations. If a buyer refuses to sign such a restraining agreement, the borough may threaten to exercise the option to acquire the property in its own right.

Increased Incidence of Restraining Agreements to be Expected

This legal practice is problematic insofar as many investors feel blackmailed by it. This is all the more so the case because boroughs often resort to grandstanding for publicity reasons when concluding restraining agreements, casting investors in a negative light by doing so. The action plan now presented by the Senate of Berlin makes it reasonable to expect that not just municipal acquisitions of residential buildings will be expanded but also that the boroughs will freely use the potential threat of the right of first refusal to convince investors to conclude restraining agreements.

This has some stakeholders worried that the bolstered right of first refusal will be yet another deterrent discouraging investments in Berlin’s housing stock. Sibylle Meister for one, a Liberal member of Berlin’s House of Representatives, criticised that the new concept by the governing coalition of Leftists, social-Democrats and Greens seeks solely “to serve a certain tenant constituency while ignoring the concerns of the city as a whole,” according to the Tagesspiegel.

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