When does a fixed-term tenancy exist if the parties make the start of a fixed lease term contingent on a condition?
In March of last year, the Federal Court of Justice (BGH XII ZR 76/24), addressed, among other things, the question of when the exclusion of termination under a lease agreement begins to run if its commencement is linked to a specific event. According to the Federal Court of Justice, the decisive factor is what the parties envisioned at the time of concluding the lease: whether it is certain that the event will occur and the only question is when, or whether the occurrence itself is uncertain.
by Sinje Grefe
The Federal Court of Justice’s decision was based on the following abbreviated facts:
The defendant is the owner of an agriculturally used plot of land, which he had previously purchased from the prior owner. The prior owner entered into a usage agreement with the claimant for the plot, as the claimant required the land in connection with the construction of wind turbines. The agreement provided that it would end after 20 years, calculated from 31 December of the year in which the last planned wind turbine was commissioned. It was also stipulated that the right to terminate the agreement for good cause without notice would remain unaffected.
The defendant terminated the usage agreement prior to the commissioning of the last planned wind turbine.
Could the lease agreement be ordinarily terminated?
The Federal Court of Justice concluded that the ordinary termination was not invalid merely because the parties had agreed on a fixed contract term of 20 years.
General principle: A fixed-term tenancy cannot be ordinarily terminated.
The background is that, at the time of termination, no fixed-term tenancy within the meaning of § 542 para. 2 BGB yet existed. Section 542 para. 2 BGB provides that a tenancy concluded for a definite period of time – e.g. by agreeing on a fixed term in the lease agreement – cannot be ordinarily terminated.
What applies if the start of the fixed term is contingent on the occurrence of a prerequisite?
The issue in the present case was that the parties had made the fixed term of the lease agreement contingent on a prerequisite (the commissioning of the last planned wind turbine). When the parties link the agreed fixed term to the occurrence of an event, the assessment of whether a fixed-term tenancy exists prior to that occurrence depends on the legal significance the parties attributed to the contractual provisions they agreed upon.
No ordinary termination where the occurrence of the event is certain
If the parties assume at the time of concluding the lease that the event will definitely occur and that only the timing is uncertain, this will generally constitute a time limitation within the meaning of § 163 BGB, with the consequence that the possibility of ordinary termination is also excluded until the start of the fixed term.
Uncertainty as to whether the event will occur at all: ordinary termination possible before the occurrence of a suspensive condition
If, from the perspective of the parties, it is uncertain not only when the event will occur but also whether it will ever occur at all, a suspensive condition exists. In this case, the contractual obligation generally arises upon signing, but the provision regarding the fixed rental period only takes effect upon the occurrence of the suspensive condition. Until the suspensive condition is fulfilled, the lease agreement may therefore be ordinarily terminated.
The decisive factor is the parties’ understanding at the time of concluding the lease
What the parties intended at the time of concluding the lease agreement must be determined on a case-by-case basis through interpretation.
Our conclusion:
In order to provide the contracting parties with legal certainty, it is essential to ensure that the mutual understanding of the parties as to whether a time limitation or a suspensive condition is intended is recorded in writing. Otherwise, there is a risk that the respective agreement may be ordinarily terminated prior to the commencement of the fixed term.
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