What is the problem?
The local authority’s right of first refusal under Sections 24 and 25 of the German Building Code (BauGB) generally applies when a plot of land is purchased (a so-called asset deal). In a share deal, however, it is not the land itself but the shares in the company owning the land that are sold – no contract of sale for the land is concluded, meaning that the right of first refusal is generally not triggered.
What is often overlooked here is that a share deal can circumvent the municipal right of first refusal if it gives the appearance of a circumvention transaction. For local authorities, this raises the question of the hitherto legally uncertain application of Sections 24 and 25 of the German Building Code (BauGB) to the acquisition of shares in a company holding land subject to a right of first refusal. For the contracting parties, however, it is a matter of contractual structure.
What does the Federal Court of Justice say – and where is the line drawn?
According to BGH case law, the right of first refusal may, in exceptional cases, also be applied to contract arrangements similar to a sale – namely where a circumventing transaction is involved (see BGH, judgment of 27 January 2012 – V ZR 272/10). However, the hurdles are high: the company would have to have been established immediately prior to its sale, its sole asset would have to be the property in question, and all shares would have to be transferred in one go. Multi-stage transactions or tax-motivated partial sales are generally not covered by this.
The Hamburg case
In February 2024, Hamburg made headlines: the city exercised its municipal right of first refusal in relation to the so-called Freudenberger Areal, even though the site was part of a share deal – and reached an out-of-court settlement. It sounds like a breakthrough – but it isn’t. As no judicial decision was made, the case remains a political signal, not a reliable precedent. Legal uncertainty for local authorities and parties to transactions persists.
The attempt to introduce statutory regulation failed: in November 2024, the relevant draft bill was not pursued further. Although the Federal Government had welcomed the extension of the right of first refusal to share deals in principle, it rejected the specific proposal as disproportionate due to the breadth of its scope and the administrative burden it would place on both the administration and citizens (see BT-Drs. 20/13638, p. 38).
A fresh start: the draft bill is here
On 1 April 2026, the Federal Ministry for Housing, Urban Development and Construction published the draft bill for a law on the modernisation of urban planning and regional development law (known as the ‘BauGB Upgrade’). The legislative process is therefore back at the initial stage: consultations with the federal states and associations are currently underway. The draft specifically addresses the issue of share deals: a new statutory right of acquisition for the municipality is planned (Section 28a BauGB-E), which applies where a landowner undertakes to contribute their land to a company in exchange for shares in that company and the municipality would have a right of first refusal over that land. This is accompanied by a new notification requirement for certain transactions under company law (Section 28b BauGB-E). The consultation will reveal whether the draft addresses the concerns raised in the past – disproportionate burden, administrative burden.
Once the consultation has concluded, the draft is to be submitted to the Cabinet before the parliamentary summer recess. The issue therefore remains highly relevant in terms of legal policy. Anyone who transfers land into corporate structures or acquires land from such structures should follow developments closely.
Conclusion
The local authority’s right of first refusal is currently the exception in share deals. Its scope of application is narrow, as the Federal Court of Justice’s case law on circumvention transactions applies only in a few, clearly defined scenarios. The Hamburg case illustrated this without clarifying the issue. With the draft bill on the BauGB upgrade, a concrete reform proposal is now on the table. Whether and in what form it will become law remains to be seen. It is worth parties to transactions and local authorities keeping an eye on developments.
Key points in brief
- The local authority’s right of first refusal does not currently apply to share deals as a matter of principle; the only exception is a circumvention transaction in accordance with Federal Court of Justice (BGH) case law.
- A legislative reform failed in 2024; the draft bill for the BauGB upgrade (April 2026) reintroduces the issue via Sections 28a and 28b of the draft BauGB – the consultation with the federal states is currently underway.
- The federal states are to determine the proportionate regulation.
