Municipal right of first refusal

Municipal right of first refusal is the legally established right of a municipality to step into the purchase agreement in place of a private buyer when certain properties are sold, and to acquire the property itself under the agreed terms. It is an instrument of municipal land policy that municipalities use to pursue urban development goals-such as creating housing, securing infrastructure areas, or developing redevelopment zones. The municipal right of first refusal is regulated in the Building Code (BauGB).

Legal Basis and Applicable Cases

The general municipal right of first refusal is derived from Sections 24 et seq. of the BauGB. Rights of first refusal apply in particular to the following properties:

• Section 24(1)(1) BauGB: Properties within the scope of a development plan for public areas (e.g., transportation areas, green spaces)
• § 24(1)(2) BauGB: Properties in land readjustment areas
• § 24(1)(3) BauGB: Properties in formally designated redevelopment areas and development zones
• § 24(1)(5) BauGB: Plots of land designated as residential building areas or residential zones in the land use plan
• § 24 (1) No. 6 BauGB: Plots of land designated as areas subject to preemptive rights by ordinance pursuant to § 201a BauGB (environmental protection ordinance, preservation ordinance)

In addition, the municipality may establish special preemptive rights by ordinance pursuant to § 25 BauGB.

Procedure for Exercising the Right of First Refusal

If a property is sold on which the municipality may have a right of first refusal, the notary must notify the municipality of the purchase agreement. The municipality then has two months (Section 28(2) BauGB) to exercise the right of first refusal. It enters into the contract at the agreed purchase price. If the municipality does not exercise the right of first refusal, it issues the buyer a negative certificate (certificate confirming the non-existence or non-exercise of the right of first refusal), which is required for entry in the land register.

The timeline in detail:

1. Notarization of the purchase agreement
2. Notary forwards the purchase agreement to the municipality
3. The municipality reviews within two months whether it will exercise the right of first refusal
4. If yes: The municipality enters into the contract; the original buyer is removed
5. If no: The municipality issues the negative certificate; only then can the transfer of ownership be recorded in the land registry

Compensatory Agreement: An Important Tool

Municipalities often do not exercise the right of first refusal if the buyer offers a so-called waiver agreement: The buyer commits to fulfilling certain urban planning objectives (e.g., maintaining rental housing, no conversion to condominiums, socially acceptable rent levels). In exchange for this commitment, the municipality waives its right of first refusal. Such agreements have increased significantly in recent years in cities with tight housing markets.

Impact on Buyers and Sellers

The right of first refusal creates legal uncertainty during the two-month period: Buyers cannot yet rely on a final transfer of ownership during this time. In practice, the municipality rarely exercises its right of first refusal, but this has become more common in recent years, particularly in tight housing markets. In Nuremberg, a special right of first refusal exists in designated preservation zone areas to protect the long-standing resident population.

Buyers should note: Costs incurred before the two-month period expires (e.g., planning costs, notary fees) are forfeited if the municipality exercises its right of first refusal. It is advisable to inquire with the city planning office in advance of a purchase in a designated right-of-first-refusal area to determine whether the municipality is likely to exercise this right.

Practical Tip for Property Owners in Nuremberg and Franconia

In the city of Nuremberg, there are several preservation ordinance zones (e.g., in parts of Gostenhof, the Wöhrder See district, and other locations near the city center) where a municipal right of first refusal applies. Before marketing a property, we clarify for our clients whether the property for sale is located in such an area and transparently inform both buyers and sellers about the possible two-month period.

The city’s negative certificate is routinely obtained by the notary and is a prerequisite for the transfer of ownership. In practice, the issuance of the negative certificate in Nuremberg typically takes four to eight weeks-buyers should factor this time into their financing plans. We coordinate the process for our clients and proactively provide updates on the status of the negative certificate.

Frequently Asked Questions

Can the municipality exercise the right of first refusal at a different price?

No. The municipality must acquire the property at the purchase price agreed upon in the purchase agreement (Section 28(2) of the German Building Code (BauGB)). However, it may challenge the price if it significantly exceeds the market value and, in such a case, reduce the price to the market value (Section 28(3) of the German Building Code (BauGB)). This may result in the seller receiving less than what was agreed upon with the original buyer.

What is a negative certificate, and do I always need one?

A negative certificate is the municipality’s written confirmation that it will not exercise its right of first refusal or that no such right exists. It is a prerequisite for registering the buyer as the owner in the land registry. The notary routinely requests the negative certificate; without this certificate, the land registry office may refuse the transfer of title.

Does the municipality’s right of first refusal also apply to condominiums?

The municipality’s right of first refusal generally applies to parcels of land, not to individual apartments. Therefore, when purchasing a condominium, the municipality generally has no right of first refusal-unlike when purchasing a residential unit that is separated from a rental property (in which case § 24(1)(6) of the German Building Code [BauGB] may apply in areas subject to neighborhood preservation statutes).

What happens if the municipality wrongfully exercises the right of first refusal?

If the municipality exercises a right of first refusal even though the legal requirements are not met, the original buyer may file a lawsuit in administrative court. If the exercise of the right is declared unlawful, the original purchase agreement may be reinstated. In such cases, legal advice from an attorney specializing in public building law is essential.

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