Living with pre-emption rights

Although the right of pre-emption can have different sources (it can be stipulated in a contract, or arise from a particular situation such as joint ownership or tenancy), in real estate matters there is a pre-emptive right of legal origin. Whether it’s a neighbor looking to buy adjacent plots to expand his land or a real estate professional wishing to carry out a project, the right of pre-emption resulting from the amended law of October 22, 2008 known as the “Pacte logement” (Housing Pact) can have a decisive influence on these real estate projects (to find out more : http://pacte-logement.lu).

The right of pre-emption enables the holder of the right to acquire a property in priority to others, and thus to interfere in a real estate project.

When planning a real estate project, it’s vital to pay close attention to this issue, because only if people who want to carry out a real estate operation are aware of what’ s at stake can they anticipate the risk, or even adapt their approach.

Article 3 of the amended “Pacte logement” law of October 22, 2008:

“The pre-empting powers and the properties subject to the right of pre-emption are :

• the municipality for plots in development zones as defined in article 42 of the amended law of July 19, 2004 on municipal planning and urban development,
• the municipality for plots located in areas to be restructured as defined in article 55 of the amended law of July 19, 2004 on municipal planning and urban development,
• the municipality and the Fonds pour le développement du logement et de l’habitat (housing and habitat development fund) for plots located in land reserve zones within the meaning of article 97 of the amended law of July 19, 2004 on municipal planning and urban development,
• the municipality and the Fonds pour le développement du logement et de l’habitat (housing and habitat development fund) for plots located in deferred development zones as defined in article 9, paragraph 1 of the amended law of July 19, 2004 concerning municipal planning and urban development,
• the commune for all unbuilt plots located in urbanized areas or areas earmarked for urbanization within the commune,
• the municipality and the Fonds pour le développement du logement et de l’habitat (housing and habitat development fund) for all plots of land located wholly or partly within a hundred-meter strip along the boundary of the urbanized zone or the zone intended for urbanization, and outside these zones. […] “.

These pre-emptive powers can be used to carry out town planning projects, and the law specifically sets out the conditions for exercising this right, which must be reserved for “the construction of housing units covered by the provisions of the law of February 25, 1979 on housing assistance, as amended”. The right of pre-emption may also be exercised for the construction of roads and public facilities, as well as for the construction of community facilities in accordance with articles 23 and 24, paragraph 2 of the amended law of July 19, 2004 concerning municipal planning and urban development.”

It is not uncommon for pre-empting authorities to misuse their right of pre-emption, leading to an abundance of litigation, both before the administrative courts (often blaming incompetence, procedural errors or simply inappropriate use of the right of pre-emption) and before the civil courts, since the decision to exercise the right of pre-emption results in the formation of a civil contract.

The interests of pre-empting authorities, sellers, buyers and intermediaries are diverse.

The pre-empting authority, anxious to make use of its right to pre-empt, must in particular ensure that it exercises its right in accordance with the law and in compliance with the specific procedure laid down by the texts. It is not uncommon for decisions to be taken by the wrong bodies, giving rise to an action for annulment before the administrative court.

Sellers, buyers and/or intermediaries have a common interest in ensuring that the transaction goes ahead as planned. This common interest does not prevent each individual player from having distinct individual interests, and there are legal mechanisms in place to individually strengthen their position and safeguard their interests.

As part of a development, the developer, architect and design office often invest a great deal of time and energy in planning and developing the project, even before acquiring the property. This investment is justified by the fact that these premises are necessary for the transaction to go ahead, and are part of the essential checks required to secure the transaction. But these due diligence efforts are in vain, if aspects such as the potential impact of pre-emptive rights have been overlooked, and this omission means not only unpleasant surprises creating frustration, but above all frustrating costs. While some sellers may want to sell as quickly as possible, they may also want to wait, or be forced to wait, for the notarial deed (due to the conditions of a preliminary contract, joint ownership, separation, difficult successions, other people involved in the project, etc.). What is often frustrating for all these people is that they are informed of the exercise of the right of pre-emption through the intermediary of the notary, shortly before the signing of the deed of sale, which should be an important step in the realization of the property project. Faced with a fait accompli, they have no choice but to consider their options ex post.

But the key to a successful operation is often the right advice at the right time. “Prevention is better than cure” is a proverb that has a lot to say on this subject.

Good advice can intervene at any time, so don’t hesitate to safeguard your rights.