Background: No statutory assumption of a right of purchase

Pursuant to § 566 para. 1 BGB (for commercial lease agreements in conjunction with § 578 BGB), an acquirer enters into the rights and obligations arising from the tenancy in place of the previous landlord.
However, according to the BGH’s case law, § 566 para. 1 BGB only covers those rights and obligations that are to be classified as tenancy law in nature or that are in direct connection with the lease agreement. The acquirer therefore does not assume rights and obligations that lie outside the tenancy, even if they are regulated as an additional agreement in the lease agreement.

Decision of the BGH: Narrow interpretation of § 566 BGB

With this decision, the BGH continues its case law that § 566 BGB, as an exception to the law of obligations principle according to which rights and obligations only arise between the persons involved in the obligatory relationship, is to be interpreted narrowly.

Reasoning of the court

With the transfer of ownership, a new tenancy arises between the acquirer and the tenant with the same content as existed with the transferor; however, not necessarily all provisions are to be covered by this.
Whether a provision is covered by § 566 BGB is determined – contrary to some views in legal literature – solely by the objectively determinable substantive content of the agreement.

Significance for practice

From the tenant’s perspective, care should therefore be taken within the framework of the lease agreement provisions to impose an obligation on the landlord to pass on such provisions in the property purchase agreement to the respective acquirer.
The landlord must then ensure when selling that such provisions are passed on.
Reference: BGH, Judgment of 12.10.2016 – XII ZR 9/15, published in: NZM 2017, 35

The breach of the obligation to offer an alternative apartment that became available during the notice period in the case of a termination for personal use pursuant to § 573 para. 2 no. 2 BGB does not result in the termination being an abuse of rights and becoming subsequently invalid.

Decision of the BGH: No subsequent invalidity of the termination

In its judgment, the BGH confirms that a partially legally capable (external) partnership under civil law (GbR) can, by analogous application of § 573 para. 2 no. 2 BGB, base a termination on the personal use requirement of a relative of one of its partners. Furthermore, the BGH confirms that the landlord is obliged, within the framework of their duty of consideration, to offer the terminated tenant an alternative apartment in the same building or residential complex that became available during the notice period.

However, a breach of this obligation shall no longer lead to subsequent abuse of rights and invalidity of the termination, but shall only give rise to a monetary damages claim by the tenant.

New legal consequence: Damages instead of invalidity

Prior to the recognition of the partial legal capacity of the (external) GbR, it was recognized that the partners as landlords can invoke the personal use requirement of their relatives pursuant to § 573 para. 2 no. 2 BGB.

The BGH had also continued to proceed on this basis; however, the BGH treated the partially legally capable (external) GbR, co-ownership communities and communities of heirs equally primarily because it often depended on chance whether a partially legally capable (external) GbR or merely a co-ownership community was established.

Company law context: Partial legal capacity of the GbR

This reasoning was frequently criticized. The BGH continues to uphold the right to terminate for personal use of the partially legally capable (external) GbR, now however with different reasoning: According to the BGH, the recognition – for company law reasons – of the partial legal capacity of the (external) GbR was not intended to be accompanied by a curtailment of the termination options of a plurality of landlords; moreover, the differences and size of the different pluralities of landlords are irrelevant for the applicability of § 573 para. 2 no. 2 BGB according to its normative purpose.

Of greater relevance, however, is the fact that the BGH no longer adheres with this decision to its previous case law, according to which

• the breach of the obligation to offer residential space that had become available in the same residential complex led to the invalidity of the termination for personal use.
• The BGH correctly proceeds on the basis that this now only leads to a monetary damages obligation.
• A prerequisite for the obligation to offer is ultimately that a justified termination for personal use was first declared, as only this triggers the ancillary obligation to offer the terminated tenant alternative accommodation.
• The breach of the ancillary obligation cannot, however, result in the initially justified termination for personal use becoming invalid. The legally objectionable conduct ultimately lies in the breach of the ancillary obligation, but not already in the declaration of the termination itself, which proceeds from a legitimate interest.

Reference: BGH, Judgment of 14.12.2016 – VIII ZR 232/15 (published in: NZM 2017, 111)

Background: What are written form healing clauses?

The BGH ruled in its judgment of 27.09.2017 that so-called written form healing clauses are incompatible with the non-derogable provision of § 550 BGB and are therefore invalid.

They cannot therefore in themselves prevent a contracting party from ordinarily terminating a lease agreement by invoking a written form defect (continuation of the Senate judgments BGHZ 200, 98 = IMR 2014, 155 = NJW 2014, 1087, and of 30.04.2014 – XII ZR 146/12, IMR 2014, 330 = NJW 2014, 2102).

The consequence of the judgment is that lease agreement parties can no longer rely on the impossibility of ordinary termination of the lease agreement during the agreed fixed term.

Rather, lease agreements that have a written form defect can in principle be terminated at any time by either contracting party in compliance with the ordinary notice period.

Decision of the BGH: Written form healing clauses violate mandatory law

The BGH had until now always left open the general compatibility of written form healing clauses with § 550 BGB. Previously, the BGH had only decided that it is incompatible with § 550 BGB if written form healing clauses also deprive an acquirer who enters into the lease agreement as the new landlord of the possibility of ordinary termination on grounds of a written form violation.

Reasoning of the court

With its current judgment, the BGH has now aligned itself with the voices within legal literature that consider written form healing clauses to be generally invalid (regardless of whether the clause constitutes standard terms and conditions or an individually negotiated agreement).

The BGH justifies its view on the grounds that the provision of § 550 BGB serves not only

• to protect the acquirer, but also
• to ensure the provability of long-term agreements between the contracting parties and to protect the contracting parties from entering into long-term obligations without due consideration.

According to the BGH, the legislature deliberately restricted contractual freedom through § 550 BGB to the effect that long-term lease contractual obligations (whether relating to residential or commercial premises) require the written form. If the written form prescribed in § 550 BGB is not observed in lease agreements, the non-derogable statutory consequence is that there is also no long-term tenancy to be preserved.

Consequences for landlords and tenants

A written form healing clause would circumvent this legal consequence deliberately intended by the legislature in an impermissible manner, since a lease agreement, even if the written form is not observed, should not – as provided by the legislature – be subject to ordinary termination. The BGH considers this to constitute an impermissible violation of mandatory law with the consequence of the invalidity of the written form healing clause.

Although the BGH identified a written form defect in the case now decided (the parties had agreed on an adjustment of the contractually agreed indexation clause without adequate reference to the lease agreement), the landlord was unable to validly terminate in the present case. Rather, the judges found that the landlord’s conduct was contrary to good faith (§ 242 BGB), since they had benefited solely from the subsequently concluded agreement and now merely wished to use the lack of written form to “extricate themselves from a long-term lease agreement that had become burdensome.”

Risk of ordinary terminability

As a result of the BGH’s judgment, there is now a risk of ordinary terminability at any time in relation to every tenancy in which the statutory written form is not observed. Only the objection of § 242 BGB (good faith) stands in the way of a termination on grounds of non-compliance with the written form. However, this provision is likely to be invoked only where the strict application of existing law would lead to unjust results.

Our recommended course of action for practice

It is therefore strongly advisable to ensure both when concluding a lease agreement and during the term of the tenancy that all (material) agreements of the tenancy are recorded in compliance with the written form.

Reference: BGH, Judgment of 27.09.2017 – XII ZR 114/16

More on the topic:

• Written form goodbye – or maybe not?
• Abolition of the written form, introduction of the text form for long-term commercial lease agreements
• Written form also satisfied with unilaterally signed lease agreements

Do you have questions on the written form in tenancy law?

Commercial tenancy law: The statutory written form requirement can also be satisfied by executing several identical copies of a lease agreement, with each party signing the copy intended for the other party. Receipt of these copies by the respective contractual partner is not required in this regard. This even permits an exchange of the respectively unilaterally signed lease agreement copies by fax.

Background: Further development of the “theory of external form”

In a widely noted decision, the BGH recently further developed its “theory of external form.” The BGH had already ruled in 2010 that a lease agreement complies with the statutory written form requirement if both parties have signed the lease agreement document, but the contract had not been validly concluded due to an excessively long period between the two signatures.
Although the conclusion of the contract had thus only occurred at a later point in time through conclusive conduct (in this case through the taking over of the rented premises) and therefore after the signing of the lease agreement document, the BGH nonetheless considers there to be a lease agreement complying with the written form, as the arrangements between the parties can be derived from a document that “externally” corresponds to the statutory written form.

New clarification by the BGH

The BGH now consistently continues this decision. It is also sufficient for compliance with the statutory written form that the content of the contract has been put in writing.
If not all contracting parties sign on a single document, this is the case where identical lease agreement copies exist, each signed by only one party. It is only required that all parties have signed an identical copy.
Receipt of the unilaterally signed copies by the respective other contracting party or parties is not required. In this way – according to the BGH – the acquirer protected by the written form requirement should be able to obtain knowledge of the contractual content.

Significance for practice

What does this mean for practice? On the one hand, the case law certainly facilitates matters when a lease agreement needs to be concluded quickly and the parties are not in the same location. In our view, it is highly advisable to clarify in the document

• that the signing of the document is to be carried out by means of unilaterally signed copies.
• Care should also be taken to ensure that these copies are fully exchanged.
• Even if not required for the written form, the contract only comes into existence once this exchange has taken place.

Furthermore, despite this “facilitation”, the conclusion of a contract in compliance with the written form can in future also only be proven court-proof if two (in the case of more than two contracting parties, all) unilaterally signed contract copies can be produced.
To make the result somewhat more tangible, the following rule of thumb suggests itself: The written form is satisfied if an acquirer is able to obtain information about the contractual content. For this purpose, it is sufficient if written declarations of the parties exist. The validity of the contract is irrelevant for the written form.
More on the topic:

• Written form goodbye – or maybe not?

Reference: BGH, Judgment of 7 March 2018 – VIII ZR 129/16 (NJW 2018, 1540)

Tenancy law update: If a residential tenancy is terminated without notice due to rent arrears and simultaneously terminated with notice as a precautionary measure, the Berlin Regional Court had decided that the ordinary termination has no effect if the extraordinary termination becomes invalid due to a grace period payment pursuant to § 569 para. 3 no. 2 BGB, since at the time of its receipt a tenancy would no longer exist due to the extraordinary termination.
The BGH has now overturned this decision. The ordinary termination takes effect. KFR – Kanzlei für Real Estate explains the decision and its significance for landlords.

Background: Decision of the Berlin Regional Court

The LG Berlin had decided that a notice of termination, as a right of formation, takes immediate effect upon receipt and that a kind of suspended state is impermissible.
Subsequently occurring, modifying facts such as a grace period payment pursuant to § 569 para. 3 no. 2 BGB could therefore not – as sometimes argued in legal literature – lead to the termination becoming invalid ex tunc.
However, if the extraordinary termination initially stands and only becomes invalid ex nunc from the point in time of the new fact (e.g. grace period payment), a simultaneously declared subsidiary ordinary termination cannot take effect, since the effect of the subsidiary ordinary termination must also be assessed at the time of its receipt and, due to the initially valid extraordinary termination, no tenancy existed that could have been terminated. The ordinary termination is ineffective in this case.

BGH overturns decision

The ordinary termination takes effect. A landlord who, in addition to an extraordinary termination, also declares a subsidiary ordinary termination on account of the accrued rent arrears, does not make this declaration only for the case that the extraordinary termination is already invalid at the time of its receipt, but precisely and especially also for the case that the extraordinary termination subsequently becomes invalid due to a legally provided circumstance (e.g. the so-called grace period payment). By focusing solely on the fact that an extraordinary termination initially dissolves the tenancy and the ordinary termination therefore has no effect, the Berlin Regional Court artificially split a unified, naturally occurring set of facts into individual components.

Significance for landlords

Through this decision, the BGH spares landlords from having to seek alternative solutions in the future due to the formalism applied by the Berlin Regional Court, which would under certain circumstances also have been associated with a loss of several months. The decision is therefore very much to be welcomed from a landlord’s perspective.
Sources: LG Berlin, Judgment of 13.10.2017 – 66 S 90/17 (BeckRS 2017, 127840)
BGH, Judgments of 19.09.2018 – VIII ZR 231/17 and VIII ZR 261/17

The Federal Court of Justice ruled in its judgment of 12 January 2022 – Az. XII ZR 8/21 (“Decision”) on whether tenants of commercial premises have a claim for rent adjustment in the event of pandemic-related business closures.

KFR – Kanzlei für Real Estate explains the decision and its practical consequences for landlords and tenants.

Background of the decision

The background to the decision was that the tenant KiK Textilien und Non-Food GmbH (“KiK”), which had rented premises in the Chemnitz area, did not want to pay rent for the period of a state-ordered business closure from 19 March to 19 April 2020 due to the COVID-19 pandemic. The landlord, however, insisted on payment of the full amount. The legal dispute ultimately reached the Federal Court of Justice, as both KiK and the landlord maintained their positions.

The BGH’s decision

The highest judges decided as follows:

• Commercial tenants may in principle have a claim for rent adjustment (§ 313 para. 1 BGB) in the event of a pandemic-related business closure.
• However, it always depends on the individual case, i.e. there is no universally applicable rule for the rent payment obligation in the event of a closure of commercial premises.
• State closure orders do not give rise to a right of the tenant to rent reduction (§ 536 BGB). The closure of a retail business due to the COVID-19 pandemic does not constitute a defect of the leased property. This does not make it wholly or partially impossible for the landlord to provide the contractually owed service of making the leased property available and maintaining it in a condition suitable for contractual use.
• The claim for rent adjustment requires, in addition to the frustration of the contractual basis, that adherence to the unchanged contract cannot reasonably be expected of the tenant. A blanket approach is not permissible here.
• The circumstances of the individual case are always decisive. The type of commercial tenant is irrelevant; what is decisive is solely the subject matter of the lease. When weighing up the circumstances, not only the disadvantages (loss of revenue) are to be taken into account, but also the financial benefits that the tenant has obtained through state payments to compensate for pandemic-related disadvantages.
• An actual threat to the tenant’s economic existence is not required for the claim for contract adjustment.

Our conclusion

While the decision is understandable, it will give rise to a series of further questions and variables when it comes to determining the amount or percentage by which the rent should be adjusted in individual cases.

Larger tenants with multiple branches throughout Germany and a functioning online retail operation (e.g. H&M) will be problematic, as they at least partially compensate for their losses through online retail, which cannot be attributed to the individual leased properties and therefore these advantages – according to the above decision – are not taken into account in the balancing exercise, since only the specific leased property is to be considered.

This does not appear correct, but was also not addressed in the decision. A further question is how the state aid granted is to be allocated to the individual leased properties.

Implications for smaller tenants

For smaller tenants (e.g. individual bookshops), the decision does not answer what measures – in addition to applying for state aid – must be taken to reduce impending losses or can be expected of tenants (e.g. setting up online shops, doorstep sales for pre-ordered items, as observed at some smaller businesses here in Germany) and what success they would have.

We therefore assume that in most cases the parties will need to reach an amicable settlement on the basis of losses and profits, which in many cases can only be estimated.

OLG Frankfurt a.M., Judgment of 18.02.2022 – 2 U 138/21

The Higher Regional Court Frankfurt am Main ruled on 18 February 2022 that not only direct state measures to contain and combat the COVID-19 pandemic can constitute a frustration of the contractual basis giving rise to a claim for rent adjustment.

KFR – Kanzlei für Real Estate explains the decision and its significance for landlords and tenants.

Facts of the case

The defendant rented commercial premises from the plaintiff for the purpose of operating a dry cleaning collection point. Due to the COVID-19 pandemic, a large number of retail businesses as well as schools and childcare facilities were closed nationwide on 13 March 2020 by order of the authorities. Companies and public administrations reduced their attendance requirements. During this period, fewer customers also had their clothing cleaned by the defendant, a circumstance that led to a significant drop in the defendant’s revenue.

During the period from April to July 2020, the defendant therefore paid no rent, but only the advance payments for operating costs. The plaintiff now sought payment of the outstanding rents.

The Regional Court Frankfurt am Main had upheld the plaintiff’s action and ordered the defendant to make payment.

The defendant filed an appeal against this, which however proved unsuccessful.

Decision of the OLG Frankfurt

The admissible appeal ultimately remained unsuccessful. The plaintiff continues to have a claim for payment of the rents.

The OLG initially affirms that the contractual basis of the lease agreement has been severely disrupted by the consequences of the natural disaster of the COVID-19 pandemic.

The absence of the pandemic had become a shared assumption of the parties at the time of conclusion of the contract, which had not become part of the contract but upon which the contractual intent of both parties had been built. The OLG further assumed that the official orders had also affected the defendant’s business operations even though they were not directly subject to state closure measures. The court proceeds on the basis that the parties would have concluded a contract with different content (reduction of rent or temporary deferral).

Nevertheless, the defendant could not demand adjustment of the contract, as based on their submissions it could not be established that adherence to the unchanged contract was unreasonable.

The OLG emphasizes that a contract adjustment may also be considered when only indirect consequences of the COVID-19 pandemic and the state measures based thereon come into play. The effects of the pandemic would not be limited solely to state measures. Rather, the pandemic would also manifest in a significant change in the behavior of the population, which was warranted for the protection of their own health but was merely prompted by official or scientific behavioral recommendations. A distinction between voluntary and compelled behavior of the population was not, however, required.

No rent adjustment in the specific case

Rather, all circumstances of the individual case are decisive for the assessment of a disruption of the contractual basis. However, the defendant’s submissions were not sufficient for this purpose. Submissions were lacking regarding relevant circumstances, in particular:

• the cost structure of the business operations and its development,
• the general financial and economic circumstances of the defendant, as well as
• whether and if so to what amount state aid was received or a claim to it existed.

Significance of the decision

Even in the case of only indirect impairment of the tenant’s business operations, a claim for adjustment of the lease agreement due to frustration or disruption of the contractual basis is possible. However, it must be ensured that sufficiently detailed submissions are also made here regarding the criteria established by the Federal Court of Justice for assessing the unreasonableness of adherence to the unchanged lease agreement.

KFR – Kanzlei für Real Estate advises landlords and tenants on the legal consequences of the COVID-19 pandemic and on contract drafting in commercial tenancy law.