Right of first refusal for real estate: the most important facts

Banknotes and a ballpoint pen were placed around the word "right of first refusal".

The right of first refusal can delay or prevent the sale of your property or land if it is not taken into account in good time. It only comes into effect after the purchase agreement has been concluded and obliges you to inform the person entitled to pre-emption immediately. The latter may decide whether to assert their claim. An early examination by estate agents, such as the team at Isar Estate, not only clarifies the question: What does the right of first refusal mean? It also protects owners from liability risks and facilitates the sales process.

Table of contents

What is a right of first refusal? Significance for real estate owners
Right of first refusal in rem
Right of first refusal under the law of obligations
Statutory and public law right of first refusal
The granting of a right of first refusal for real estate
When does the right of first refusal expire for a house, apartment or land?
We are your partner for questions about the right of first refusal
FAQ on the right of first refusal for real estate and land

What is a right of first refusal? Significance for real estate owners

Basically, a right of first refusal for real estate and land is very easy to explain. It regulates the right that an entitled party may purchase a house, apartment or land before another buyer when selling. The person with a right of first refusal must accept the notarized purchase agreement as it was concluded between the seller and the original buyer. This means that they must also pay the same purchase price as the first buyer.

There are various legal bases and structuring options, which we present to you below. Depending on the situation, the right of first refusal can:

be entered in the land register for the property including the real estate (right of first refusal in rem)
be regulated contractually between the parties (right of first refusal under the law of obligations)
be prescribed by law (statutory and public law pre-emption right)

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Right of first refusal in rem

A right of first refusal in rem is characterized by the fact that it is always entered in the land register as a priority notice. It can only be created for immovable property, i.e. developed or undeveloped land and rights equivalent to real property. The entry in the land register creates an automatically effective block on disposal in the event of a sale. The first purchaser cannot be entered in the land register as the new owner until the entitled party announces the waiver of their pre-emptive right to the property.

Right of first refusal under the law of obligations

In contrast to the in rem variant, the right of first refusal under the law of obligations is not recorded in the land register. It can apply to the sale of a house or apartment in Munich as well as to a plot of land. In addition to real estate, a right of first refusal under the law of obligations can also be agreed for movable goods such as works of art or vehicles. The regulation takes place by contract between the two parties. If the party with the right of first refusal is not informed of the sale of the property or land in question, they cannot reverse any entry of the first buyer as the new owner in the land register. In this case, however, he has a claim for damages against the seller.

Procedure for sale with a right of first refusal in rem or under the law of obligations

The sale of real estate or land encumbered with a right of first refusal in rem or under the law of obligations usually proceeds as follows:

Purchase agreement: The owner concludes a notarized purchase agreement with the first buyer. The conditions contained therein are agreed between the owner and the first buyer and do not have to take into account the interests of the person entitled to pre-emption.
Notification obligation: After the contract has been concluded, the buyer must inform the person entitled to pre-emption of the real estate purchase contract without delay. If there is a right of first refusal in rem, this is automatically taken over by the executing notary.
Declaration: The pre-emptive beneficiary must declare within a certain period of time whether he will exercise his right or waive it. If this declaration period has not been contractually agreed, the statutory period of two months often applies.
Contract adjustment: If the entitled person makes use of their right of first refusal for a property or plot of land, a new purchase contract is drawn up with the same conditions that applied to the original purchaser.

Statutory and public law right of first refusal

Both the statutory right of first refusal and the right of first refusal under public law for real estate and land are based on a state regulation for clearly defined groups of people. As these are individual rights, the right of first refusal for the respective property does not have to be entered in the land register or contractually agreed. The requirements are regulated in the German Civil Code (BGB) and the German Building Code (BauGB).

Rental properties (§ 577 BGB)

If a rented apartment is converted into a condominium after being transferred to a tenant and sold by the owner to a third party, tenants have a right of first refusal. However, this does not apply if the landlord sells the apartment to a family member or a member of their household.

Community of heirs (§2034 BGB)

Each member of a community of heirs has the right of first refusal for the other shares of the property or land. If a co-heir wishes to sell their share, they must observe the right of first refusal of family members or co-heirs. Our experienced estate agents will explain what else you need to know when selling an inherited house.

Monument protection (§ 22 DSchG)

According to the German Monument Protection Act, the federal states have the legal right of first refusal for properties with listed cultural assets. To this end, it must be ensured that the public interest in the preservation of the monument is safeguarded. The owner must immediately inform the relevant monument protection authority of the sale and the terms of the contract.

Urban land-use planning (§ 24 BauGB)

In certain cases, the German Building Code grants municipalities and local authorities a right of first refusal to secure public urban land-use planning. This is particularly relevant for properties and land in redevelopment areas and development areas. It is also used for areas for public purposes or in the case of structural defects.

The granting of a right of first refusal for real estate

You can assign the right of first refusal to an apartment building, apartment or plot of land to any person. How exactly the right is granted depends on the respective type. In the case of a pre-emptive right under the law of obligations, it is necessary to draw up a corresponding contract.

Important contractual components are

Name and address of the contractual partners
Description of the land or property
Time limit on the right of first refusal, if applicable
Determination of deadlines for the acceptance or non-exercise of the right
Regulations on possible contractual penalties
Provision for inheritability
Date and place of the contract
Name and signature of the contracting parties

Please also note: The contract for the right of first refusal of a property should always be notarized. Notarization serves to protect the person with the right of first refusal. If they are not informed in the event of a property sale, they can take appropriate legal action and claim damages.

When does the right of first refusal expire for a house, apartment or land?

The right of first refusal is a personal right that lasts for life and is not inherited - unless special contractual provisions have been agreed. As a rule, it only lapses if the person entitled to pre-emption withdraws from their right. There are other reasons why a property with a right of first refusal may be transferred as part of a regular sale, such as a house sale in Munich. These special cases include a gift, a forced sale due to insolvency or a sale to members of a community of heirs.

Front view of a white villa with trees and a well-kept hedge.

Our conclusion on the right of first refusal for real estate

Whether in the event of inheritance, for the protection of tenants or for the implementation of municipal planning: If a property encumbered with a right of first refusal is to be sold, the first buyer and the seller must follow clear rules. The party with the right of first refusal has the right to receive the purchase contract promptly and to enter into it on equal terms. If these regulations are ignored, this can result in severe claims for damages. To avoid any pitfalls and to sell a property - in Munich and the surrounding area - we are happy to assist you with our many years of expertise.

Black and white portrait of Christian Dürr, founder of Isar Estate.

We are your partner for questions about the right of first refusal

The right of first refusal for real estate often raises legal and organizational questions. As experienced real estate agents in Munich, we can advise you on all matters relating to the sale of real estate. If you are unsure about what applies to your house, apartment or plot of land, please contact us. We will take time for your concerns.

Dipl.-Kfm. Christian Dürr
Founder Isar Estate

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FAQ on the right of first refusal for real estate and land

What does the right of first refusal actually mean for sellers and buyers?

The right of first refusal means that a third party is given the opportunity to purchase a property or plot of land on the same terms as the original buyer. Sellers must therefore notify pre-emptive purchasers immediately after concluding the purchase agreement. In special cases, the right can also be exercised by tenants. There is also a right of first refusal for family members in the case of a community of heirs.

How does the right of first refusal work for land and condominiums?

In the case of land, a right of first refusal in rem is usually entered in the land register. In the case of condominiums, on the other hand, a right of first refusal under the law of obligations is more likely to be used, which is contractually agreed between the parties. Both variants require timely notification to the pre-emptor in the event of a sale. Otherwise there is a risk of claims for damages. Buyers and sellers should consult an estate agent in good time to avoid pitfalls.

When does a right of first refusal under public law become relevant?

A right of first refusal under public law for a property or plot of land is of particular interest to municipalities and local authorities. For example, if they want to secure land for urban development purposes, they may be allowed to buy first. Sellers should check in advance whether their property is located in an area in which such a right of first refusal could apply to the respective house or plot of land.

What is the significance of the right of first refusal for a house in the event of inheritance?

The right of first refusal plays an important role in the event of inheritance of houses and other real estate. This applies in particular when a community of heirs is created. If a co-heir wishes to sell his or her share, co-heirs have priority to purchase in accordance with Section 2034 BGB. This prevents third parties from acquiring shares in the property. The property thus remains in the family environment.

What is the procedure for using the right of first refusal?

The actual pre-emption right process only begins after the notarized conclusion of the purchase contract with a buyer. The seller must then notify the person entitled to pre-emption of the contract. The person entitled to pre-emption then has a period of time to exercise their right, which is usually two months for properties. If he does so, he enters into the contract under the existing conditions, thus ensuring a smooth transition.

Disclaimer

Despite careful research and checking of the sources, the author assumes no liability for the accuracy and completeness of the information presented. In case of unclear legal and tax questions, it is advisable to consult a lawyer and/or tax advisor for clarification.

Author: Dipl.-Kfm. Christian Dürr