The commercial lease in german practice
Formal and substantive requirements for the commercial lease agreement under german law
The commercial lease agreement is the central legal instrument for leasing offices, warehouses, industrial properties and other commercially used real estate in Germany. Compared to residential tenancy law, commercial tenancy law offers greater leeway in the drafting of contracts in german practice. Landlords and tenants in Germany who want to minimize legal risks must take advantage of this leeway. A good commercial lease always reflects the specifics of the industry. There is no such thing as "the" lease. Practice leases are subject to different rules and customs in german practice than leases for retail stores or offices.
Legal services for commercial leases in Germany
- Drafting or reviewing and negotiating commercial leases
- Enforcement or defense of claims arising from commercial leases
- Expert opinions on special questions of german commercial tenancy law
- Due diligence in the field of german tenancy law
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Overview of the most important clauses in commercial leases under german law
In german practice, the term commercial lease covers all business uses of an area, regardless of whether a "trade" in the legal sense or a freelance activity (medical practices) is involved.
The following points provide an overview of the central provisions of a commercial lease agreement in Germany.
- Exact designation of the contracting parties
- Exact designation of the rental object and agreed use
- Protection against competition
- Operating obligations (retail and gastronomy)
- Rent, turnover rent, rent adjustment (graduated rent; index clauses)
- Rental security (deposit)
- Notarial submission to execution to secure eviction
- Change-of-control clauses
- Term and option rights
- Operating costs
- Maintenance and repair
- Traffic safety obligations
- Modernization, construction measures by the landlord and the tenant
Industry-specific peculiarities in german practice
Over the years, certain contractual clauses have developed in german practice, depending on the rental object and the tenant's industry. Thus, there is no one standard lease agreement under german law, but rather the particularities of the intended economic use must be taken into account for each lease. For example, the contract for the lease of an event space sometimes contains completely different clauses than a practice lease or a contract for retail space. Advice on german tenancy law therefore requires knowledge not only of tenancy law, but also of the customs typical of the sector and also of neighboring areas of law. For example, commercial leases in Germany almost always involve questions of insurance law or corporate law. In terms of german corporate law, this often involves questions of power of representation or the permissibility of restructuring measures (change of legal form; spin-off; merger) on the part of the tenant. Here, the landlord or tenant is at an advantage who is well advised in german transformation law.
Control of general terms and conditions in german commercial tenancy law
In principle, freedom of contract prevails in german commercial tenancy law. However, it is of paramount importance for both the landlord and the tenant in Germany to know the current case law on the effectiveness of general terms and conditions (AGB) in commercial tenancy law. In german practice, large landlords typically operate with standard lease agreements that are considered general terms and conditions. The german courts apply the same strict standards when reviewing them as they do when reviewing consumer contracts. In individual cases, this can result in a clause that at first glance appears favorable to the landlord not "holding up" in court. German case law is always in flux here, so it may happen that clauses that were predominantly considered to be effective are more or less surprisingly declared invalid by the German Federal Court of Justice.
Formal requirements for commercial leases under german law
In german practice, commercial leases with a term longer than 1 year must be concluded in writing (Section 550 BGB). In simple terms, written form according to german law means that a rental agreement contains all essential contractual contents (person of the landlord, person of the tenant, rental object, rental period, rental amount) and that the rental agreement is signed by both parties. A rental agreement concluded by email does not comply with the written form in Germany. Of course, this applies even more to oral agreements.
All subsequent amendments to a german rental agreement (addenda) must be recorded in writing without exception. If the legal written form is not complied with in Germany, the lease agreement is deemed to be concluded for an indefinite period of time. As a result, either party may terminate the contract under german law with the statutory notice period of 2 calendar quarters.
A tenant in Germany could therefore get out of a lease that has become unwelcome long before the fixed lease period expires. A landlord whose calculation is based on long-term leases may be hard hit by such a termination. On the other hand, it is not said that a landlord will not terminate a tenant ahead of time, citing formal defects, thereby making room for a more lucrative tenant.
In the context of commercial real estate purchases in Germany, buyers should take a close look in the course of real estate due diligence and purchase agreement negotiations, otherwise there is a risk of yield losses due to a lower rent than calculated.
However, it should be noted that there is currently (spring 2020) a draft law in circulation according to which in the future only the purchaser of a property will be allowed to terminate the lease contract prematurely due to a lack of form.
Term of contract - fixed terms, tenant options, termination under german law
Commercial leases in Germany are generally concluded for a fixed period. Both parties want this planning security.
Often in german practice the tenant receives so-called option rights, this is a contractual right to unilaterally bring about an extension of the lease. Occasionally, the option rights are linked to the fact that the rent is automatically increased upon renewal or must be renegotiated. The latter option is very prone to dispute.
Termination is not possible (unless there is a case of termination due to a lack of written form under german law, see above) unless there is good cause for termination. Examples in german practice include late payment by the tenant or serious interference by the tenant with the fabric of the building.
Enforcement of rights in german court
Landlords and tenants in Germany have all the instruments of civil proceedings at their disposal to enforce their rights, including measures of interim legal protection. Classic conflicts in german practice are the action for eviction, the action for loss of rent as well as the application for interim injunctions (either by the tenant, for example to refrain from highly disruptive renovation work, or by the landlord, for example to force the operation of a retail store in a shopping center - enforcement of an operating obligation). Further, it is also worth mentioning the possibility for the landlord to enforce outstanding tenants in an accelerated procedure, the deed process. Furthermore, the landlord in Germany can protect himself against a protracted eviction process already at the time of the conclusion of the contract. He can do this by requiring the tenant to submit to execution by a notary public in Germany. In this way, the landlord already has an enforcement title in hand (which he may of course only use if the lease has been terminated or has expired).
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