German law differentiates between leases of commercial and/or residential premises (Mietvertrag) and leasehold agreements (Pachtvertrag). Leases of commercial or residential premises are more common than leasehold agreements. While a lease of commercial and/or residential premises entitles the tenant to use the leased property, the beneficiary of a leasehold agreement is entitled both to use the leased property and to benefit from it, for example, in the case of a lease of a farm that includes all farm machinery and the right to harvest crops etc.
German law also recognises hereditary building rights (Erbbaurechten) entitling the holder to use the property for up to 99 years and to erect buildings on the land. However, hereditary building rights are closer in nature to freehold ownership than to leasehold.
Last modified 3 Apr 2023
There is no minimum or maximum period for general leases of commercial and/or residential premises and they may be entered into for periods of more than 30 years. However, long-term arrangements like this may be terminated by either party after 30 years.
Hereditary building rights (Erbbaurechten) that entitle the holder to use the leased property for up to 99 years and to erect buildings on the land can be created for longer periods of time, typically 99 years.
Last modified 3 Apr 2023
The legal framework is the same for all leases. They are governed by the provisions of the civil code. However, it is important to note that in the case of commercial leases (including leases of industrial property, retail property, office buildings and hotels) the parties are free to contract as they wish to a much greater extent than in the case of leases of residential premises.
The courts may control the terms of a lease under the general provisions of the law dealing with standard terms and may declare certain onerous contractual terms void. Typically, they do this in order to grant greater protection to tenants in residential leases. This is not as common in relation to commercial agreements. The principle behind this is that commercial negotiation has or should have taken place.
Last modified 3 Apr 2023
No, the tenant is not entitled to continue to occupy the leased property. However, if the tenant continues to use the leased property in the manner provided for by the lease agreement after the expiry of the term of the lease, the lease continues as an unlimited lease agreement unless one of the parties contests this within two weeks. In the case of the landlord, this time limit dates from when the landlord first becomes aware that the tenant has not vacated the leased property. If the tenant does not leave the property and therefore the lease is extended for an indefinite period in the absence of an objection, the tenant shall of course continue to owe the rent. If an objection is raised in good time after the tenant has continued to occupy the property, the tenant shall owe the landlord reasonable compensation for use for the period of unlawful occupation.
Last modified 3 Apr 2023
The landlord is entitled to file a claim to recover possession. It may take six months or more to obtain a judgment requiring the tenant to vacate. If the tenant fails to comply with such a judgment, the landlord may be forced to evict the tenant with the help of a bailiff. However, if the landlord files the claim prior to the expiry of the term of the lease, when there is no indication of any risk that the tenant will not move out, he may be obliged to bear the costs of the lawsuit, including the costs of the tenant's lawyer in cases where the tenant immediately accepts the landlord's claim. As a consequence, landlords do not usually file claims for repossession before the expiry of the lease unless there is reason to believe that the tenant will not vacate the property on the due date.
Last modified 3 Apr 2023
Where the parties have agreed a lease with a fixed term, the landlord can only bring the lease to an end before its expiry if the tenant commits a material breach of the agreement (termination for cause). Grounds for termination include significant rent arrears, neglect of the property, surrender of the leased property to an unauthorized third party or similarly serious breaches of contract. In the case of neglect, surrender of the leased property or other serious breaches, a warning must be issued prior to termination. After termination, the landlord must file a claim to recover possession if the tenant does not vacate the premises. It may take six months or more to obtain a judgment requiring the tenant to vacate. If the tenant fails to comply with such a judgment, the landlord may be forced to evict the tenant with the help of a bailiff.
Last modified 3 Apr 2023
No, neither the government nor any other authority may directly terminate a lease. The property itself may, however, be subject to compulsory purchase. In this case the authority must state whether the lease is to continue or is to be terminated. If the latter, the tenant will be entitled to compensation in accordance with statutory law. However, compulsory purchase does not happen frequently and is governed by strict conditions (a relevant power under statutory law is required and the process can be carried out only in the public interest).
Last modified 3 Apr 2023
Most landlords 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.
Last modified 3 Apr 2023
Leases generally specify that the leased property can only be put to a particular use. The use can only be changed with the consent of both parties. The tenant will also be restricted by planning/zoning law to a use approved by the planning/zoning authority or that is in line with past uses of the property. The building authority can provide information concerning permitted usage.
Last modified 3 Apr 2023
Standard leases require the landlord's prior written consent for alterations. It is often a condition of consent that the tenant restores the property to its original condition at the end of the term of the lease. Alternatively, the parties may agree that the tenant is entitled to leave the alterations in place. Sometimes, the parties agree that the landlord will compensate the tenant for the cost, but such provisions are subject to negotiation.
Last modified 3 Apr 2023
The transfer of the tenant’s interest in a lease requires the landlord’s consent. A tenant is permitted to sublet with the landlord’s consent. Whether the transfer/subletting of part of the leased property is allowed depends on the specific contractual provisions agreed by the parties. As a basic principle if the landlord denies its consent to subletting, the tenant is allowed to terminate the lease provided the choice of subtenant does not constitute good grounds for the landlord to refuse permission for the subletting.
Last modified 3 Apr 2023
Most commercial leases lasting 10 years or more contain indexation clauses. The term can either be fixed for at least 10 years, or the tenant may be entitled to the automatic extension of a shorter fixed-term lease up to a total term of 10 years or more. Indexation clauses in commercial leases with a term of less than 10 years are invalid under statutory law, but remain valid until a court declares the indexation clause to be void.
Turnover related rents are sometimes agreed in leases of retail property and hotels.
Rent review usually takes place if the consumer price index reaches a certain threshold. Annual rent adjustment is another possibility.
The so-called rent cap in Berlin, which has been in force since 23 February 2020 and under which a five-year rent freeze came into effect, has been declared invalid and incompatible with the German Basic Law (Grundgesetz) by the Federal Constitutional Court (Bundesverfassungsgericht) in its decision dated 25 March 2021. It should be noted, however, that the invalidity was due to formal constitutional violations with regard to legislative competence. Whether the idea of a rent cap is substantively constitutional remained unanswered by the Federal Constitutional Court.
In its decision dated 12 January 2022, the Federal Supreme Court has allowed a rent adjustment taking into account the effects of the Covid 19- pandemic, considering the individual circumstances of each case.
Last modified 3 Apr 2023
Indexation is the method normally applied to rent review, usually with reference to the German Consumer Price Index. A change in rent is normally triggered if the index changes by 10 points or by 10% or more in either direction. Where this is the case, the frequency of rent reviews depends on the rate of change to the Consumer Price Index. Annual rent adjustment is also possible, but in this case there is no 10 points/10% threshold.
Last modified 3 Apr 2023
Generally, rental payments are exempt from VAT. The landlord can waive this exemption if the real estate is leased to an entrepreneur who uses the land for business purposes. This will entitle it to reclaim input VAT. In this case, VAT will be payable at the rate of 19%.
Last modified 3 Apr 2023
Often the tenant is obliged to pay a deposit, often equal to the sum of three net monthly rental payments.
Last modified 3 Apr 2023
In most cases this depends on the contractual agreement between the parties. According to recent case law, the tenant is only obliged to contribute towards the cost of maintenance and repair of common facilities if the relevant provision in the lease agreement contains a cap of not more than approximately 8-10% of the annual net rent per annum. In such cases, the landlord usually carries out any maintenance or repairs then reclaims the costs from the tenants.
Last modified 3 Apr 2023
According to statutory law, the landlord is responsible for the maintenance and repair of the leased property. However, most leases contain an apportionment of responsibility by which the landlord will be responsible for the structure, external appearance and common areas (Dach und Fach) and the tenant will be responsible for maintaining the interior. According to recent case law, however, the tenant may not be charged all the costs of maintenance and repair of the rented premises, as long as it cannot be ruled out that the defects may have been caused by the previous use of the rented premises. In this case the contractual chargeable amount must be caped to 6-10% of the annual net rent. Recent case law indicates that many German lease agreements contain potentially invalid provisions regarding decorative repairs. Such provisions are usually considered to be general terms and conditions and German case law imposes strict rules on the validity of these. In particular, a provision obliging the tenant to carry out decorative repairs at contractually fixed intervals irrespective of the actual state of the premises is invalid since it places the tenant at an unreasonable disadvantage.
Last modified 3 Apr 2023
Contracts for telecommunication services are usually concluded with each tenant individually. In consequence, several telecommunication agreements may apply to one property. In the case of utilities serving multiple occupiers, contracts are usually concluded by the landlord and the costs are then passed on to the tenants by agreement.
Last modified 3 Apr 2023
In most cases the landlord insures the leased property and the tenant reimburses him for the cost or, in the case of a multi-let building, an appropriate proportion of the cost via the service charge.
Building insurance usually covers, as a minimum, damage caused by fire, water supplies (eg overflowing of taps, burst pipes) and hail or storm. Both terrorism insurance and loss of rent insurance are also available in Germany. In the case of terrorism insurance, the costs can be passed on to the tenant (according to recent case law) if the tenant is – as is usually the case – obliged to bear the cost of building insurance and if there are indications for a risk of terrorist attacks on the insured building. However, a decision by the German Federal Court of Justice is still outstanding. The costs for loss of rent insurance are not normally passed on to the tenants.
Last modified 3 Apr 2023
In what ways, if at all, can a tenant transfer its rights to a third party and what restrictions can be imposed on such transfers?
The transfer of the tenant’s interest in a lease requires the landlord’s consent. A tenant is permitted to sublet with the landlord’s consent. Whether the transfer/subletting of part of the leased property is allowed depends on the specific contractual provisions agreed by the parties. As a basic principle if the landlord denies its consent to subletting, the tenant is allowed to terminate the lease provided the choice of subtenant does not constitute good grounds for the landlord to refuse permission for the subletting.
Last modified 3 Apr 2023