Berlin’s residential real estate market is hotly contested. Time and again, measures taken by the state government make national headlines – not only because the capital city is, after all, the capital city, but above all because the previous red-red-green coalition has proven to be quite eager to experiment and has repeatedly forged ahead with ideas that are watched with interest by other cities and states. What works in Berlin is readily imitated; what goes wrong there need not be tried again.

Berlin experiments

The Berlin government has already ventured onto legally thin ice several times. And it didn’t just end well for them: The rent cap, passed in 2020, was overturned by the Federal Constitutional Court a good year later. The right of first refusal in urban development areas has also been called into question time and again. Originally, it was and is intended to enable municipalities to implement important urban development measures for the common good. In its modern interpretation, it is supposed to protect tenants from terminations of their own use and rent increases after luxury renovations. However, it is not always clear when and on what grounds a district exercises this right – and so the relevant cases end up in court time and again. This costs time, money and nerves. And not only sellers and buyers, but also the city of Berlin.

Whether or not the state-owned housing companies, which are the ones that come into play when the right of first refusal is exercised, are the better landlords remains to be seen; the fact is that not a single new apartment is built as a result of this procedure in any case. But the measure is popular, tenant associations keep calling for its application and wish for additional milieu protection areas. And in a city with a tenant share of more than 81 percent, they are listened to – all the more loudly. Even the Berlin Tenants’ Association warns that the right of first refusal is exercised mainly when tenants protest in a high-profile manner.

Emotions instead of arguments

But volume is not the same as good arguments. Some sides are deliberately emotionalizing the debate. All of a sudden, it’s a question of good versus evil, of “greedy speculators” and radical market opponents. The first reactions to the ruling of the Federal Administrative Court are reaching into similar registers. There is talk of a “drumbeat” and a “total embarrassment for the red-red-green coalition,” of a “catastrophe” and a “pulverized right of first refusal. But what did the court actually say?

The ruling leaves the right of first refusal itself untouched. If it serves the public good, the districts can continue to exercise it. Just not on the basis of assumptions and presumptions, but only on the basis of “actual circumstances,” the court said. If the property is “built on in accordance with the goals or purposes of the urban development measures” – i.e., in the context of milieu protection areas, with rental apartments of a size and price class that is customary for the area – and the building does not exhibit any defects or deficiencies, then there is no legal basis for exercising the right of first refusal, according to the ruling.

Previous instances were of the opinion that it was also permissible to assume as a basis that the buyer intends to change the use of the property in the future in such a way that it runs counter to the protection of the milieu. “However, the certain proof of the impairment of preservation goals cannot be demanded from the municipality,” according to the Higher Administrative Court of Berlin-Brandenburg. However, it did not explain how exactly a buyer is supposed to prove that his purchase precisely does not impair the preservation goals.

Legal certainty is good for all market participants

The ruling of the Federal Administrative Court makes things easier. Intentions are difficult to prove, but actual circumstances can be verified. This provides legal certainty – which ultimately protects everyone. In the future, we can hopefully avoid long proceedings like this one (the purchase in question took place in 2017!), objectify the debate and put the energy that has been freed up into sensible measures.

And the Berliners who are willing to experiment? The coming government will probably be another red-red-green coalition. So we can probably continue to expect advances – especially since the initiative “Expropriate Deutsche Wohnen & Co.” was successful with its referendum. However, the right of first refusal in areas protected by the Milieu law is now based on a solid legal foundation that leaves no room for arbitrariness. This is good news for the real estate market.