Pre-emptive right of the tenant | sale of a condominium

Whenever a rented flat is converted into a condominium and sold to a third party for the first time, tenants of the flat often worry about losing it. However, tenancy law protects the tenant in the event of termination of own use by stipulating a notice lock-up period for at least 3 years in Section 577a of the German Civil Code (BGB), and even for up to 10 years in large cities and areas with a tight housing market.

In addition, Section 577 of the German Civil Code grants tenants a statutory right of first refusal.

PREREQUISITES OF THE RIGHT OF FIRST REFUSAL

The prerequisites of a statutory pre-emptive right under section 577 (1) sentence 1 BGB are met if the flat is occupied by a tenant, a tenancy agreement exists and condominium ownership is created after the flat has been transferred to the tenant. If the prerequisites of a right of first refusal exist, the tenant can buy the flat first, before anyone else. The conversion takes place in accordance with the Condominium Act (Wohnungseigentumsgesetz, WEG).

The right of first refusal always applies only to a first-time sale.

Pursuant to § 577 (1) sentence 3 BGB, the provisions on pre-emption pursuant to §§ 463 ff. BGB apply to the right of first refusal, unless otherwise stipulated in § 577 BGB. The provisions include the right to enter into an existing contract in place of the purchaser on the same contractual terms.

Pursuant to § 577 (2) BGB, the landlord must inform the tenant of his right of first refusal by sending him a notice of the entire contents of the concluded purchase agreement, informing him of his right of first refusal and advising him of the time limit for exercising it.

The right of first refusal exists as soon as the landlord or the seller of the condominium enters into an effective, notarised purchase agreement for the rented condominium.

The right of first refusal is not transferable. The tenant can only exercise the right of first refusal himself and demand the transfer of ownership to himself. The right of first refusal is not inheritable. If the tenant dies, the right of first refusal passes to those who enter into the tenancy under section 563 (1) or (2) of the Civil Code, in accordance with section 577 (4) of the Civil Code.

HOW DOES ONE EXERCISE THE RIGHT OF FIRST REFUSAL AS A TENANT?

Pursuant to Section 577 (3) BGB, the right of first refusal is exercised by written declaration of the tenant to the landlord. According to the general regulations on the right of first refusal under Section 469 (2) BGB, the tenant has two months to exercise the right of first refusal from the date of receipt of the notification of the right of first refusal. An extension of the time limit is conceivable, but a shortening is not.

NON-EXISTENCE OR EXCLUSION OF THE RIGHT OF FIRST REFUSAL

The right of first refusal does not exist if the rented flat was already a condominium converted according to the WEG when the tenant moved in or if the landlord intends to sell the flat to a family member or a member of his household according to § 577 par. 1 sentence 2. It also does not exist if a property built on with an apartment building is sold (BGH, judgement of 22.11.2013, ref.: V ZR 96/12). However, it exists if a terraced housing estate is divided into individual plots and these are sold individually with the terraced houses (BGH, judgement of 28.5.2008, ref.: VIII ZR 126/07).

Pursuant to Section 577 (5) of the German Civil Code (BGB), an agreement in the tenancy agreement to the detriment of the tenant, for example a waiver of the right of first refusal, is always invalid.

LEGAL CONSEQUENCES OF EXERCISING THE RIGHT OF FIRST REFUSAL

If the tenant exercises his right of first refusal, a new independent purchase agreement is concluded between the seller and the tenant, which, however, contains all the contractual clauses that were agreed between the seller and the third party. The purchase contract is therefore not renegotiated or amended.

FAILURE OF THE LANDLORD TO PROVIDE INFORMATION: CLAIM FOR DAMAGES

If the landlord fails to comply with the duty to inform, the period for exercising the right of first refusal does not start to run. Pursuant to Section 280 of the German Civil Code (BGB), the tenant is also entitled to damages if the landlord fails to comply with his duty to inform and the tenant is denied his right of first refusal.

Damages may be the difference between the market value of the flat and the purchase price agreed with the third party. The tenant must actually have suffered damage because he was not informed about his right of first refusal. He has to prove that he would have exercised the right of first refusal, i.e. that he had a loan or certain equity. 

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