30.07.2020 | KPMG Law Insights

Municipal right of first refusal according to the draft of the building land mobilization law

The Federal Ministry of the Interior, for Construction and Home Affairs has presented a draft bill for the Act on the Mobilization of Building Land (Building Land Mobilization Act). This law aims to support municipalities in activating building land. This is intended to promote the creation of affordable housing. To achieve this goal, for example, a new type of development plan for social housing will be created. Furthermore, the possibilities for exemption from the provisions of the development plan for the creation of living space are to be expanded and the upper limits for provisions on the extent of building use that have applied to date are in future to be designed only as orientation values.

In addition, however, the draft bill also contains changes in the area of municipal rights of first refusal that may affect the conclusion and implementation of real estate transactions. In fact, the bill clarifies that meeting housing needs and internal community development are community benefit reasons. This will make it easier in future for municipalities to exercise their right of first refusal on the grounds of the general interest. The draft bill also contains additional preemptive rights for municipalities, e.g. in the case of undeveloped and fallow land in municipalities with a tight housing market and in the case of urban blight. According to the draft bill, this fact would be fulfilled, for example, if a property is not used appropriately or if the property located on the property does not meet urban development or housing policy objectives. In addition, all pre-emptive rights are to be exercisable within an exercise period of three months instead of the previous two months.

The draft bill expands the scope for action by municipalities to procure affordable housing. These new opportunities for action, meanwhile, will also affect the way transactions are processed. It is to be expected that municipalities will examine the exercise of the right of first refusal in greater detail and exhaust the extended exercise period. As a result, for example, the negative certificate to be issued by the municipality on the non-exercise of pre-emptive rights, which is regularly agreed as a prerequisite for the due date of the purchase price in land purchase agreements, could only be issued at the end of the exercise period. This may lead to a postponement of the purchase price due date and thus to delays in the closing of the transaction. Moreover, it may be a reason to think about carrying out a real estate transaction by way of acquiring shares in a property company (share deal).

We will, of course, keep you informed about the development of the draft bill. In the meantime, we will be happy to answer any questions you may have.

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