A right of first refusal (Vorkaufsrecht) can change an already concluded property purchase at the last minute: if the entitled party steps in, it is not the original buyer who acquires the property, but the entitled party itself. For sellers and buyers it is therefore important to know which types of rights of first refusal exist, how they are exercised and what consequences this has for the real-estate transfer tax (Grunderwerbsteuer). We explain the key connections factually and clearly – so that you know what matters when buying or selling in Düsseldorf and throughout North Rhine-Westphalia.
What a right of first refusal means
A right of first refusal (Vorkaufsrecht) gives the entitled party the option to step into an already negotiated purchase contract and acquire the property on the same terms that the seller has agreed with a third party. The right therefore does not arise out of nothing: it only becomes triggerable when the seller concludes an effective purchase contract with a buyer – the so-called event of pre-emption.
The distinction between the creation of the right and its exercise is important. A right of first refusal is created by contract, by entry in the land register or directly by law. It is exercised only in the specific sale situation through a declaration by the entitled party. If the party exercises it, a separate purchase contract comes into being between that party and the seller – in this case the original buyer is left empty-handed.
For owners who wish to sell, it is therefore worth taking an early look at the land register and at possible statutory rights. As part of the valuation and preparation of a sale, Richter Immobilien-Transaktionen reviews encumbrances and any rights of first refusal, so that there are no surprises during the sales process.
The four most important types of right of first refusal
In practice, four forms of right of first refusal mainly arise. They differ in their legal basis, in the question of who is entitled to them, and in how far-reaching their effect is:
- Municipal (public) right of first refusal under sections 24 et seq. of the Building Code (§§ 24 ff. BauGB): it belongs to the municipality, for example in development plan areas, redevelopment or land consolidation areas and in areas with a preservation statute. It may only be exercised where the public good justifies it.
- Right of first refusal in rem under sections 1094 et seq. of the Civil Code (§§ 1094 ff. BGB): it is entered in the land register and thereby takes effect against every later owner.
- Contractual (obligatory) right of first refusal under sections 463 et seq. of the Civil Code (§§ 463 ff. BGB): it is based solely on an agreement and, in principle, takes effect only between the contracting parties, not automatically against third parties.
- Tenant's right of first refusal under section 577 of the Civil Code (§ 577 BGB): it applies where rented residential premises, after being handed over to the tenant, are converted into condominium ownership and sold to a third party.
Which of these rights exists in an individual case follows from the land register, from contracts, from the location of the property and from the tenancy. Several rights can in theory exist alongside one another.
Municipal right of first refusal and tenant's right of first refusal
The municipal right of first refusal is the best-known public right in everyday sales practice. The municipality can exercise it under section 28 of the Building Code (§ 28 BauGB) within three months of being notified of the purchase contract, by an administrative act addressed to the seller. Before the buyer can be entered in the land register as owner, it must be proven to the land registry that the right of first refusal does not exist or is not being exercised – in practice by a so-called negative certificate from the municipality. An important exclusion: in the sale of condominium ownership and heritable building rights, the municipal right of first refusal does not, in principle, exist under section 24 of the Building Code (§ 24 BauGB).
The tenant's right of first refusal under section 577 of the Civil Code (§ 577 BGB) protects tenants on the conversion of their dwelling into ownership. If the rented and converted dwelling is sold to a third party, the tenant is entitled to pre-emption. If, however, the landlord sells to a family member or to a member of their household, the right does not apply. The seller must inform the tenant of the content of the purchase contract and of their right of first refusal; the tenant exercises it by written declaration addressed to the seller.
How a right of first refusal is exercised
The trigger is always the effective purchase contract with a third party. Only then does the procedure begin – and it is bound to deadlines and forms:
- Notification: in the case of a private-law right of first refusal, the obligated party (usually the seller) must notify the entitled party of the content of the concluded purchase contract (section 469 of the Civil Code, § 469 BGB). In the case of the municipal right of first refusal, the seller notifies the municipality of the purchase contract; the notification can be replaced by the buyer.
- Deadline: for the obligatory and the in rem right of first refusal, the period – unless otherwise agreed – is two months from receipt of the notification (section 469 of the Civil Code, § 469 BGB). The municipality has three months under section 28 of the Building Code (§ 28 BauGB).
- Form and addressee: the private-law right of first refusal is exercised by declaration addressed to the seller (section 464 of the Civil Code, § 464 BGB); for the tenant's right of first refusal the law prescribes the written form. The municipality exercises it by written administrative act.
If the entitled party exercises it in time, the purchase contract between that party and the seller comes into being on the same terms that were agreed in the contract with the third party – in particular at the same purchase price. For the transfer of ownership of a property, the notarial conveyance (Auflassung) and entry in the land register are subsequently required, as with any property purchase.
The tax consequence: why transfer tax arises on exercise
The central tax insight is: if the party entitled to first refusal exercises it, a separate, new purchase contract arises between that party and the seller. This acquisition is a taxable transaction under section 1 of the Real-Estate Transfer Tax Act (§ 1 GrEStG). Real-estate transfer tax (Grunderwerbsteuer) therefore arises for the entitled party – in North Rhine-Westphalia the tax rate is 6.5 percent of the consideration, as a rule therefore of the purchase price.
The party exercising the right thus does not step into the place of the original buyer tax-neutrally, but realises a separate acquisition transaction. This applies equally to the right of first refusal in rem, the obligatory right and the tenant's right. The acquisition by a municipality by way of the municipal right of first refusal is also, in principle, subject to real-estate transfer tax; there is no general tax exemption solely because of being a municipality, but individual exemption provisions of the Real-Estate Transfer Tax Act (GrEStG) may apply in an individual case.
Decisive is always the transaction that actually leads to the transfer of ownership. This is precisely why the frequently asked question arises whether, in an event of pre-emption, real-estate transfer tax is ultimately payable once or twice.
Transfer tax twice? First buyer, refund and tax clearance certificate
In the event of pre-emption there are initially two taxable contracts: the original purchase contract with the first buyer and the contract arising from the exercise with the entitled party. Both transactions are taxable under the Real-Estate Transfer Tax Act. Economically, however, tax is not meant to remain definitively doubled for the same property transfer.
Decisive is section 16 of the Real-Estate Transfer Tax Act (§ 16 GrEStG): if the first acquisition transaction is reversed, the tax for the first buyer can, on application, be left unassessed or an assessment already made can be cancelled. This relief is, however, tied to conditions – among other things to deadlines and to the requirement that the acquisition transaction was reported to the tax office completely and on time. Whether and how section 16 applies in the respective pre-emption constellation is, in detail, a question of the individual case and was in part disputed in case law; a blanket guarantee of a full refund therefore cannot be given.
Also of practical importance is the tax clearance certificate (Unbedenklichkeitsbescheinigung) of the tax office under section 22 of the Real-Estate Transfer Tax Act (§ 22 GrEStG). The land registry generally enters the new owner only once this certificate is available – it is issued for the person who actually acquires the property, that is, for the party exercising the right of first refusal. Those who are guided reliably through the process avoid delays in the entry.
What this means for sellers and buyers in NRW
For sellers this means above all: clarify early whether a right of first refusal exists. A registered right in rem, a municipal right of first refusal or a tenant's right of first refusal can delay the sales process or lead to someone other than the chosen interested party buying in the end. Those who factor this in from the outset can plan the sale realistically and inform interested parties openly.
For buyers, an existing right of first refusal means a certain residual risk: even after the contract is concluded, the acquisition can still fall through if the entitled party exercises the right in time. That is why notarial purchase contracts regularly provide that the purchase price only becomes due once the non-existence or non-exercise of municipal rights of first refusal has been established. In tax terms: anyone who exercises a right as an entitled party firmly factors the real-estate transfer tax of 6.5 percent into their incidental acquisition costs.
Over decades, a network of more than 20,000 contacts has grown at Richter. In the valuation and preparation of a sale we review encumbrances and possible rights of first refusal and guide you and your interested parties clearly through the process up to the entry. Tax details are best clarified additionally with your tax adviser – this article provides general information and does not replace legal or tax advice in an individual case.
