At the end of January 2021, the German Bundestag debated the Building Land Mobilization Act. The government draft was intended to amend the Building Code and caused a heated debate. The Building Land Mobilization Act came into force on 23 June 2021 and is initially valid until 31 December 2025.
But what does the entry into force of the Building Land Mobilization Act entail? What is the ban on conversion and does a right of first refusal apply in Berlin?
The Building Land Mobilization Act at a glance
For some time now, the state of Berlin has been considered an area with an extremely tight housing market. It is becoming increasingly difficult to find affordable housing. Gentrification has changed Berlin’s city center, even if the milieu protection counteracts this development to some extent.
The conversion ban under the Building Land Mobilization Act is intended to preserve rental space in Berlin. Anyone wishing to convert rented residential space into owner-occupied apartments in the future requires a permit to do so.
In the following, we summarize the contents of the Building Land Mobilization Act for you:
Significance of the Building Land Mobilization Act
The law on the mobilization of building land was the subject of much discussion even before it was passed. There was a two-year preparatory phase before it came into force. The Building Land Mobilization Act defines that municipalities are entitled to take the necessary steps if the adequate supply of rental apartments for the population in an area is at risk. The measures serve to ease the housing market and provide the population with affordable housing.
Aim and purpose of the law
The central aim of the law on the mobilization of building land is to ease the tight housing market in Berlin and other German cities. The municipalities are to have greater scope to access land and use it to create housing for the residents of the respective city.
The reason for the Building Land Mobilization Act lies in the exceptional situation on the rental housing market in Germany, after the milieu protection and other measures were found to be insufficient.
Main components and regulations
The Building Land Mobilization Act applies throughout Germany. However, its most important components can be explained very well using the example of the Berlin housing market. The central regulatory areas of the law include areas with a tight housing market, sectoral development plans and the imposition of building regulations.
For example, it is now possible to dedicate various areas in a development plan solely to social housing. The state governments have the right to declare certain areas to be in a tight housing market according to various criteria if the following conditions are met:
- The average rent burden of households is above average.
- Rents are rising much faster than the national average.
- The population is growing without any new construction activity.
Scope of application and period of validity
The Building Land Mobilization Act was passed by the Bundestag on 7 May 2021 and came into force on 23 June 2021. In its current version, it is valid until December 31, 2025.
The adoption of the law was preceded by lengthy preparations. Initial talks were held back in 2018 with the aim of supporting municipalities in mobilizing building land in their regions. The Building Land Mobilization Act has expanded the scope of application for municipalities. There is now an extended exercise period for pre-emption rights. In addition, there is a pre-emption right statute for properties that are located in a tight housing market and are lying fallow.
The conversion ordinance according to § 250 BauGB
Berlin’s inner city is characterized by milieu protection areas. The conversion ordinance under the Building Land Mobilization Act is intended to further support the preservation of rental apartments.
Explanation of the Conversion Ordinance
Section 201a BauGB defines that the state governments have the right to declare certain areas to be “tight housing markets” by statutory order. This requires a number of conditions to be met, which are generally fulfilled in the case of Berlin.
In an area with a tight housing market, rental apartments may no longer be converted into owner-occupied apartments without obtaining approval from the municipality in accordance with Section 250 of the German Building Code (BauGB). One of the central concerns of such a regulation is to protect existing rental apartments from speculators. However, the regulation is limited to existing buildings. New buildings can continue to be rented out or sold to new owners at will.
Scope and impact on the housing market
The Berlin Senate has declared the entire city to be an area with a tight housing market in accordance with Section 250 BauGB. This means that existing residential buildings with more than five apartments must now obtain permission if residential property is to be created or divided. This means that it is practically no longer possible to divide the residential units or convert the rental apartments into condominiums.
The approval requirement is intended to ensure that rental apartments remain available to the population of Berlin in the future. In recent years, it has been observed that more and more rental apartments have been sold to owners who then had them converted into luxury properties and then resold them for a much higher price. As a result, tenants were forced out of their homes and the entire cityscape of Berlin changed. The Building Land Mobilization Act therefore not only has an impact on the acquisition of new building land in Berlin, but also on existing rental apartments
Authorization requirement and exceptions
Under normal circumstances, it is not permitted to convert rented accommodation into condominiums or to sell them as such. However, there are exceptions that make such approval possible.
According to Section 250 (3) sentence 1 no. 3 BauGB, approval must be granted if at least two thirds of the rental apartments to be sold are sold to their current tenants. To this end, purchase agreements must already exist with the relevant tenants.
Another exception in which permission for conversion is granted is the division of an estate. For example, if the living space is to be used by the family itself or if a third party has a claim.
The right of first refusal
Another central part of the Building Land Mobilization Act is the right of first refusal. But what exactly is it all about, in which cases does it apply and what needs to be considered?
Definition and legal basis
The right of first refusal was already known before the new Building Land Mobilization Act. It means that in the event of a sale, the property must first be offered to the municipality. The new Building Land Mobilization Act has extended the municipality’s right of first refusal. The legal basis for the extensions can be found in Section 24 (3) sentence 2 BauGB, among others. The reasons for exercising the right of first refusal include, for example, meeting the municipality’s housing requirements. This is based on the urban development concept.
The deadline for exercising the right of first refusal provided for in Section 28 (2) sentence 1 BauGB has been extended from two to three months. This is intended to ensure that the municipality can exercise its pre-emptive right with legal certainty.
Section 24 (1) sentence 1 no. 6 BauGB states that plots of land with minor development are now also subject to the municipality’s right of first refusal. This is intended to prevent property owners from circumventing the municipality’s right of first refusal with relatively little effort.
Since the reform, areas in which there are structural or urban development deficiencies are also affected by the pre-emption right in accordance with section 24 (1) sentence 1 no. 8 BauGB. These properties or buildings are commonly referred to as “junk real estate”.
Use cases and process
In practice, the changes to the right of first refusal within the Building Land Mobilization Act mean an extension of the municipalities’ general right of first refusal. This includes, for example, the determination that a property is legally considered undeveloped even if it has been built on for temporary purposes.
Properties that are neglected or have a negative impact on their surroundings for other reasons are commonly referred to as problem properties or junk properties. The respective municipality also has a right of first refusal for these properties.
The state government determines by ordinance the regions in which the housing market is under pressure. Berlin is completely affected by this ordinance. In addition to the central districts, this also includes the surrounding regions. If the region has been identified as a tight housing market, the municipality has a right of first refusal for developed or unused properties. The right of first refusal is established by statute.
One of the central objectives of the right of first refusal is for the municipalities to build affordable housing and enable a socially mixed urban culture. The right of first refusal is based on the well-being of the general population.
Conclusion and outlook
The Building Land Mobilization Act presents both opportunities and risks for investors and municipalities. The municipalities now have the opportunity to enforce their right of first refusal even more easily and create living space that can be rented out at fair prices. Property owners feel restricted by the legal changes because they may not want to sell their properties to the municipalities. Even sales deals that have already been agreed can be thwarted by the municipalities’ right of first refusal.
The private freedom of action of homeowners is sometimes severely restricted, which will almost certainly lead to numerous legal disputes between municipalities and owners in the near future. Against this backdrop, it remains to be seen whether the Building Land Mobilization Act in Berlin and other German cities will actually result in the rapid activation of building land. It is also not yet certain whether the measures will actually lead to affordable housing for tenants or whether Berlin’s administrative courts and lawyers in particular have now found a new field of activity.
