The tenant's right of first refusal

When the right of first refusal arises

A right of first refusal means that the tenant may buy the flat themselves on exactly the same terms as the buyer you found. This right under § 577 BGB (German Civil Code) only exists in one case: the let flat was converted into an owner-occupied flat only after the tenant moved in, or this is planned, and it is then sold to a third party.

Two points are decisive. First, the timing: the conversion must have happened after the tenant moved in. If the flat was already an owner-occupied flat when the tenant moved in, they have no right of first refusal. Second, only the first sale after the conversion counts. If the flat is sold again later, the rule no longer applies.

There is no right of first refusal if you sell to your own family or to a member of your household. This exception is written into the law. Some interpret it more broadly than it was intended.

The duty to notify and the two-month period

Once the purchase contract with the buyer is in place, you must tell the tenant in writing what it says, and in enough detail that they can judge what they would be committing to. The simplest way is to send them a copy of the contract.

From the day your letter reaches them, the tenant has two months. If they want to buy, they must tell you so in writing (§ 577 para. 3 BGB).

The two months only start with a complete letter. If something is missing or incorrect, the period does not even begin. A seller who is sloppy or leaves out the letter entirely risks the tenant asserting the right of first refusal years later and claiming damages.

If the tenant exercises the right, a purchase contract comes into effect between you and them, on exactly the same terms. So they pay the same price. Your original buyer comes away empty-handed. That is why purchase contracts for converted flats almost always state what happens in this case.

What this means for sellers

• Clarify early whether a right of first refusal exists at all. It depends on whether the conversion took place after the current tenant moved in. You can find this in the declaration of division (Teilungserklärung) and the tenancy agreement.
• Plan for the two months. For this long after the notary appointment, it is not yet certain who will get the flat. Tell your buyer before they commit to their loan.
• Get the letter right. An incomplete letter is worse than a late one. It does not start the period, which keeps the risk open for longer.
• Talk to the tenant early. Some want to buy and have simply never thought of it. A conversation before marketing starts spares both sides unnecessary detours.

The municipal right of first refusal in social preservation areas

Besides the tenant, the city also has a right of first refusal, governed by the Federal Building Code (Baugesetzbuch). The two have nothing to do with each other. In Berlin this was a big issue for a long time, because the districts regularly exercised it in the social preservation areas (Milieuschutz). Milieuschutz refers to areas where the city wants to prevent long-standing residents from being displaced.

Since November 2021, that has largely come to an end. The Federal Administrative Court ruled that a district may not exercise its right merely because it fears that a buyer will later use the building in a way the social preservation rules are meant to prevent, for example through expensive renovations or division into owner-occupied flats. What counts is the situation at the time of the purchase contract.

In practice, this means such cases have become much rarer. But the city's right of first refusal has not gone. And in these areas you still need a permit if you want to carry out alterations or divide the building into owner-occupied flats. Have this checked before the notary appointment.

The responsible district office (Bezirksamt) can tell you whether a property is in a social preservation area. In any case, the notary asks during completion whether the city is exercising its right of first refusal.

Termination protection period: the second safeguard

The right of first refusal is often confused with the termination protection period (Kündigungssperrfrist) under § 577a BGB. After a conversion, it protects the tenant from being given notice by the new owner because the owner wants to move in or to sell at a better price.

Normally, it is three years from the sale. Where housing is scarce, the federal states may extend this to up to ten years. Berlin has done this. If you buy a let flat (Eigentumswohnung) to move into yourself, you should work out exactly when that would be possible.

Sources

• § 577 BGB (German Civil Code), tenant's right of first refusal
• § 577a BGB, restriction on termination after conversion into owner-occupied flats
• §§ 24 et seq. Baugesetzbuch (Federal Building Code), municipal right of first refusal
• § 172 BauGB, preservation statute and permit requirements
• Federal Administrative Court (Bundesverwaltungsgericht), judgment of 9 November 2021, case no. 4 C 1.20