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Country - Germany
Commercial Leases
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A. SOURCES OF LEASE LAW
Applicable legislation
Leases are governed by the statutory provisions of the German civil code, namely section 535 ff.
Do any specific rules apply to commercial leases?
The legal framework is the same for residential and commercial leases. Both are governed by the provisions of the civil code. However, it is important to note that in commercial leases the parties are to a larger extent free to contract as they wish. This is because the courts may control the terms of an agreement under the provisions dealing with standard terms and may declare certain onerous contractual terms void. Typically they do in such a way as to grant high protection to the tenant in residential leases whereas in commercial agreements there is much more room for individual negotiation.
Do different regimes apply to leases of commercial premises depending on the use of the premises by the lessee (offices, warehousing, industrial, retail)?
The applicable regime is basically the same for all commercial uses. A number of different and additional rules that come into play are leases for residential premises.
B. DURATION AND TERMINATION OF LEASES
Is there a minimum or maximum obligatory term?
There is no minimum or maximum term. Leases may be entered into for more than 30 years. Although such long-term agreements may be terminated by either party after 30 years.
Longer terms are possible under hereditary building rights (which is a structure somewhat different from a lease agreement).
Does the lessee have a right to renew the lease upon expiry of the initial contractual period?
Only if such has been explicitly granted in the agreement.
Do lessees enjoy security of tenure (i.e. the right to remain in occupation after their lease expires)?
No.
Do leases involve a lengthy procedure for the effective recovery of possession?
Lessors wishing to recover possession must first terminate the lease agreement. As mentioned above, where the parties have agreed on a fixed term and that term has not expired, the lessor may only do this in the event of a material breach by the lessee. After termination, the lessor will have to file a claim to recover possession. It may take half a year or even more to obtain a judgment requiring the lessee to vacate the premises. If the lessee fails to comply with such a judgement, the lessor may be forced to evict the lessee with the help of a bailiff.
Can government/local authorities require the compulsory termination of a lease?
No, the government or any other authority may not directly interfere with the termination of a lease. The property itself may, however, be compulsively purchased and if that occurs it is necessary for the lessor to make his own arrangements with the lessee for possession.
Is there a preferential right of acquisition?
Such pre-emption rights are sometimes granted in exceptional situations. They are not common in commercial leases.
C. RENT AND COSTS
Are variable rental agreements common?
Most commercial leases with fixed terms of more than two or three years contain indexation clauses. Turnover-related rents are often found in retail leases.
Most common indexation
The most common indexation clauses are tied to the Consumer Price Index for Germany and trigger a change if the index has changed by 10 points.
Who usually pays the common expenses?
Most common expenses will be passed on to the lessees. Leases often refer to an Ordinance on Operating Costs (Betriebskosten-verordnung) in order to define which cost elements may be passed on to the lessee.
Are there any other expenses connected with the lease?
No, although in some leases lessees enter into direct agreements with utility providers.
Which indirect taxes are applicable?
VAT will be applicable at a rate of 16% where the lessor has opted to charge VAT.
D. OBLIGATIONS OF LESSOR AND LESSEE
Who is responsible for the different works on the premises?
Most leases contain an apportionment of responsibilities pursuant to which the lessor will be responsible for the structure, outer appearance and common areas (Dach und Fach) whereas the maintenance of the interior will be at the expense of the lessee.
Can the lessee alter or improve the premises?
Standard leases require the lessor's prior written consent.
What restrictions are there on the lessee's right to use the premises?
Leases generally restrict the use of the premises to a particular use. The lessee will also be restricted by planning law to a use which has been approved by the planning authority or which corresponds to past uses of the property.
Is there a right to transfer the lease?
A transfer of the lease requires an agreement by all the three parties involved in the transfer.
Is there a right to sub-let the premises?
The right to sub-let the premises depends on the lessor's consent.
What are the usual guarantees?
Most lessors ask for security equivalent to between two and three months' rent either as a deposit or in the form of a bank guarantee. Parent company guarantees are also common.
E. PARTICULAR TYPES OF LEASE
Do office leases have any particular characteristics?
They will normally correspond with the characteristics set out above with the exception that turnover rent is uncommon for office leases.
Do retail leases have any particular characteristics?
Turnover rent is a typical characteristic of retail leases (though not so widespread that one could call it a standard).
Do hotel leases have any particular characteristics?
Hotel leases also do contain turnover rent clauses. Sometimes a management contract type is chosen rather than a pure lease. Technically most hotel leases will follow a distinct scheme of leases insofar as they will be defined legally as Pacht, i.e. the use of the premises and the enterprise will be granted to the lessee.
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