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Pre-emption right for share deals - company must provide information to municipality

Germany: Court decides that municipality may request documents to check whether a pre-emption right exists

 

Under German law, a municipality has a pre-emption right to purchase land under certain conditions. This is intended to give the municipality the opportunity to influence the development of its territory. The municipality can thereby pursue various objectives, such as protecting its citizens from rising rents.

However, this pre-emption right basically only applies to the classic direct purchase of land. For this reason, so-called share deals frequently occur in practice. In such cases, it is not the property itself that is sold, but shares in the company that owns the property. This means that only the owner of the company changes, but not the owner of the property. The property continues to belong to the company. In this way, the pre-emption right of the municipality is not triggered. Share deals are mainly used for the acquisition of land by investors.

The Neukölln District Office in Berlin became aware of such a share deal in April 2019 and therefore requested the documents relating to this transaction. The municipality wanted to check whether the share deal was a mere circumvention, and this was done against the following background: If, after reviewing the documents, it turned out that the share deal was only a circumvention, the municipal pre-emptive right would become applicable again.

Already in 2012 the BGH decided that a purchase of land by share deal does not trigger a pre-emptive right, unless the transaction can be equated to a purchase in the sense of the pre-emptive right due to its similarity. However, this only applied to the pre-emptive right under civil law. In order to be able to check whether this was the case in the individual case, the municipality may demand the documents on the priority from the purchaser.

The construction law also allows for this request for information. There are no objections to this with regard to a "secrecy interest" of the company. It was to be assumed that the municipality would protect such interests.

Outlook: So far only a preliminary decision has been made in the first instance. However, the VG Berlin follows the case law of the BGH in its decision and extends it to the municipal right to information. It therefore seems likely that the view of the VG Berlin will be confirmed in later decisions.

Source: VG Berlin 19 L 566.19