Commercial lease agreements and public construction law have significant intersections that harbor an often overlooked and underestimated risk potential. If the requirements of the building permit do not align with the provisions of the lease agreement, disputes with authorities, delays, costs, and even prohibition of use may follow. We highlight the key points you should review before signing a contract.
By Sinje Grefe and Carlotta Zimmermann
Landlords and tenants can save themselves a great deal of trouble, time, and costs by reviewing the public law requirements applicable to a property once more before concluding a (long-term) commercial lease agreement. This is because the applicable public law requirements – particularly those arising from the building permit – often do not match the use planned by the tenant. In such cases, for example, a change-of-use permit may be required, or the planned construction works by the landlord/tenant to adapt or fit out the rental space may need to be approved under public law.
These circumstances and their (legal) consequences should be reflected and addressed in the lease agreement in order to minimize the risks arising from them. Below, we outline legal aspects that, in our experience, are particularly relevant in practice.
1. Rental Object and Purpose of Use: Alignment with Applicable Public Law and the Building Permit
The rental object and purpose of use already have significant intersections with public construction law.
Typical lease provisions specify which spaces of what size are made available to the tenant for exclusive or shared use, and what purpose of use is intended. Parking spaces may also be included for (shared) use.
All of this must be consistent with the applicable public law requirements.
The rental object must comply with both the specific space (and, where applicable, the sales area) and the type of use or purpose of use with the applicable public law requirements – in particular those of the building permit.
For example, in the case of retail uses, the building permit may also include requirements regarding the permitted sales area. In this context, it would be necessary to determine, for instance, which specific areas qualify as sales area in the public law sense under the building permit – e.g., potentially areas in the checkout foyer or entrance lobby.
If the contractually agreed purpose of use deviates from the public law requirements, a change-of-use permit may become necessary.
In this case, the lease agreement must expressly regulate who is responsible for applying for the change-of-use permit and what legal consequences follow if the permit is not granted. For example, a condition precedent regarding the granting of the change-of-use permit can be included in the lease agreement.
When a new building permit needs to be applied for, particular attention must be paid – prior to concluding the lease agreement – to applicable planning law requirements concerning sales area and/or product range restrictions. Development plans that permit retail use often contain such requirements (particularly in shopping centers or outlet centers). For example, it may be stipulated that certain product ranges may not be sold.
In addition, building permits (particularly for retail and restaurant spaces) often contain requirements regarding operating and delivery hours, which must be taken into account in the lease agreement. Deviations from these requirements should be avoided. The lease agreement should ensure that the tenant is obligated to comply with them and what recourse the landlord has in the event of a breach.
The public law parking space requirement can also become relevant – both prior to the commencement of the lease, when the landlord still needs to carry out construction works to fit out the rental object in accordance with the contractual provisions, and during the tenancy when construction works are carried out by the tenant – as an important consideration in conjunction with public law.
First, it must be assessed whether the planned works are subject to permit requirements. If so, provisions must be included in the lease agreement that regulate the legal consequences in the event that the permit is not obtained – for example, by including a condition precedent.
The lease agreement should therefore clearly set out:
3. Risk of (Public) Law Non-Compliant Use
In the event of a use that is non-compliant with public construction law, prohibition of use orders and other enforcement measures by the competent authority may be expected. These may, under certain circumstances, also be issued against the owner/landlord. The reason: the authority has discretion in the so-called selection of the responsible party, meaning it may target the party that it considers best placed to remedy the breach. The authority’s discretion may frequently fall on the owner and landlord, as they are more easily identifiable by the authority and thus “more readily reachable.”
Therefore, the public law requirements should be passed on to the tenant in the lease agreement and legal consequences for a breach should be provided for (e.g., indemnification, termination rights).
Furthermore, in the internal relationship between landlord and tenant, responsibility as well as any indemnification and recourse obligations (e.g., loss of rent) should be regulated. These, however, do not apply against the intervening authority.
Our practical experience shows: Public construction law should be taken into account from the outset in every letting of commercial space and in the drafting of the contract – only in this way can risks be effectively avoided.
Are you planning to let or lease commercial space? We are happy to assist you in reviewing the applicable public law requirements
FAQ – Commercial Lease and Public Construction Law
Do I need to check the building permit before signing the lease?
Yes – the building permit defines the approved type of use. If the intended use does not match, a change-of-use permit may be required.
Who is responsible for obtaining permits?
This should be regulated in the contract. As a general rule, the landlord is responsible where the matter concerns the contractual purpose of use. If the tenant carries out construction works themselves, it is common practice to stipulate that the tenant is responsible for obtaining any permits in that context.
Can I agree to longer operating hours?
The approved operating and delivery hours should urgently be agreed in the lease as the applicable hours.
What happens in the event of use that is non-compliant with public construction law?
Prohibition of use orders and further enforcement measures may follow – potentially also against the landlord.
How do I protect myself as a landlord?
By means of clear provisions in the lease agreement regarding the passing on of public law requirements, as well as provisions on indemnification, recourse, and termination rights under the contract.