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Fields of activity // Tenancy and lease law

Tenancy law in Germany is especially regulated by

the relevant provisions of the German Civil Code (Articles 535 ff. of the German Civil Code).

Special regulations apply to tenancy agreements on living accommodation (see Articles 549 ff. of the German Civil Code), especially to publicly subsidised housing, such as the

Controlled Tenancies Act (WoBindG)
the Second Computation Ordinance (II. BVO)
the Newly Built Housing Subsidised Tenancy Ordinance (NMV)
the Second Housing Act (II. WoBauG).

Since 1 January 2002, the Housing Assistance Act (Federal Law Gazette I 2001, 2376) applies to price-controlled housing. The aforementioned provisions of price-controlled housing may, however, apply on account of transitional provisions.

The Rent Control Act with detailed provisions in the case of a rent increase, which applies to so-called non-subsidised, privately financed housing, has been integrated into the German Civil Code (Articles 557 ff.) by the Tenancy Law Reform Act (came into force on 1 September 2001).

Fundamental principles of housing tenancy law in Germany

Tenancy agreement
The landlord and tenant may freely negotiate their tenancy agreement. If there are no regulations to the contrary in a tenancy agreement, then Articles 535 to 577 a of the German Civil Code apply to housing tenancy agreements. However, it is not permissible to deviate from compelling statutory provisions to the detriment of a tenant. Since the tenancy law reform (came into force on 1 September 2001), this is in each instance noted at the end in the individual provisions for housing tenancy agreements (cf. for example Article 551, Paragraph 4 of the German Civil Code on the limitation and investment of a security deposit). Special regulations apply in the case of deviation from statutory provisions by a standard form tenancy agreement. In this case, the regulations on the General Terms of Business (Articles 305 ff. of the German Civil Code) must additionally be taken into account; (example: incidental repairs clauses – see in this respect the rulings of the Federal High Court of Justice in: Housing and Tenancy Law 1991, p. 381 and 1989, p. 324).

Defects
In accordance with Article 535 of the German Civil Code, the landlord is obliged to hand over and maintain the property in a condition in accordance with the tenancy agreement. If the landlord does not comply with this primary obligation, then the tenant according to the law is entitled to various rights. The tenant may, for example, reduce the rent to a reasonable degree (rent reduction, Article 536 of the German Civil Code) and exercise a right of retention with regard to a portion of the rent. It is furthermore possible to take legal action against the landlord for the rectification of the defect and to demand damages if the defect already existed at the time of the conclusion of the agreement (unless the tenant knew of the defect); additionally, compensation claims are possible if the landlord culpably caused the defect or is in default with the rectification of the defect (Article 536 a of the German Civil Code). This does not, of course, apply to such defects which tenants have culpably caused themselves.

Rent increase
In the case of every rent increase, it must firstly be clarified whether the formalities have been observed (especially requirement of the written form and justification, Article 558 a, Paragraph 1 of the German Civil Code) and whether a rent increase is excluded in the concrete case. Article 557, Paragraph 3 stipulates that a rent increase can be demanded in accordance with Articles 558 to 560, provided the increase is not excluded by agreement or the exclusion arises from the circumstances. If a graduated rent (Article 557 a of the German Civil Code) or an index-linked rent (Article 557 b of the German Civil Code) was agreed in the tenancy agreement, then a different form of rent increase is in principle not possible (exception: see Article 557 b), Paragraph 2 of the German Civil Code). In accordance with the statutory provisions, the landlord can demand the agreement to a rent increase up to the amount of the customary local comparable rent. This is the rent which has been agreed for housing of a comparable nature, size, condition and location with similar facilities in the last 4 years in this vicinity. In the rent increase notice the landlord must on account of the justification means prescribed by law give reasons in writing why the landlord regards the demanded rent to be customary in the locality. In addition, the so-called global rent increase limit must be heeded. This form of rent increase is regulated in Articles 558 to 558 e of the German Civil Code. This must be differentiated from a rent increase after modernisation of the rented housing (see Article 559 of the German Civil Code).

Utilities
According to the law, utilities are in principle included in the rent. It may, however, be stipulated in the tenancy agreement that the tenant shall separately bear all or a portion of the apportionable utilities. The landlord may only demand the utilities in addition to the basic rent if such a stipulation is contained in the tenancy agreement. In this respect, only the costs expressly stated in the tenancy agreement must in principle be borne by the tenant (in which respect, in the opinion of the courts, however, also a blanket reference to Annex 3 of Article 27, Paragraph 1 of the Second Computation Ordinance is sufficient, cf. Hamm Higher Regional Court, Housing and Tenancy Law 1997, p. 542). The listing of the apportionable utilities in Annex 3 of Article 27, Paragraph 1 of the Second Computation Ordinance has been replaced since 1 January 2004 by the Utilities Ordinance which now contains the list of apportionable costs in Article 2 of the Utilities Ordinance (BetrKV). The tenant must under no circumstances pay more than the utilities stated herein, even if further costs are stated in the tenancy agreement. The apportionable costs include for example: land tax, costs for water, drainage, heating, hot water, lift, refuse disposal, sweeping the chimney, street cleaning, cleaning the building, tending the garden, lighting, property and third-party liability insurance, caretaker, communal aerial or the distribution network for broadband cable. “Other utilities” are, however, also stated to be apportionable in the Utilities Ordinance. This wording may not simply be included in the tenancy agreement. It must rather be individually stated which other costs are to be apportioned. It is up to court rulings to decide what accordingly is apportionable and what is not. It is permissible to stipulate a reasonable payment on account in the tenancy agreement for utilities which must be accounted for by the landlord each year. However, a flat-rate charge may also be agreed for which no accounting is necessary. If a flat-rate charge no longer covers costs, then the landlord may increase the flat-rate charge if this is stipulated in the tenancy agreement (Article 560, Paragraph 1 of the German Civil Code). Special provisions apply to the settlement of payments on account for heating costs. The provisions of the Heating Costs Ordinance (HeizkVO) are applicable. They state that in principle (exception: Article 2 of the Heating Costs Ordinance) a consumption-related heating costs settlement must be issued in accordance with the provisions of the Heating Costs Ordinance.

Termination
Differentiation is made between
termination with due period of notice of a tenancy agreement
extraordinary termination of a tenancy agreement, e.g. after a rent increase
termination without period of notice of a tenancy agreement.

The following is in principle applicable: only tenancy agreements which were concluded for an indefinite period may be ended by one contracting party by termination with due period of notice. The law prescribes specific forms and notice periods for the termination with due period of notice of an agreement concluded for an indefinite period: the termination must especially be made in writing (Article 568, Paragraph 1 of the German Civil Code) and the termination notice must be signed. If several people are parties to the tenancy on one side of the agreement, then a termination must be issued by all of them or to all of them. In addition, the landlord must draw attention to the tenant’s right to raise objection. Landlords and tenants may furthermore only terminate the tenancy with the observance of specific statutory notice periods. In accordance with Article 573 c, Paragraph 1 of the German Civil Code, the tenant, irrespective of the length of the tenancy, must observe a 3-month period of notice. If on the other hand the landlord issues the termination, then the period of notice is determined by the duration of the tenancy. Up to a tenancy of 5 years, the landlord’s period of notice is 3 months, after a tenancy of more than 5 years, 6 months and after a duration of 8 years, 9 months (different periods of notice may arise in the case of “old tenancy agreements” which were concluded before 1 September 2001). According to Article 573, Paragraph 3 of the German Civil Code, the landlord must give a reason for the termination. The landlord may in principle only terminate a tenant whose has abided by the tenancy if the landlord has a legitimate interest in the termination of the tenancy (Article 573, Paragraph 1 of the German Civil Code). The termination notice must clearly state the reasons asserted by the landlord. Article 573, Paragraph 2 of the German Civil Code states reasons by way of example for a legitimate interest of the landlord in the termination, e.g. significant contractual infringements or “personal use” (i.e. the landlord requires the accommodation for himself or herself or for family members). In accordance with Article 573 a, the landlord may also terminate the tenancy if the landlord has no legitimate interest (see previous sentence). In order to do so, however, the landlord must live in the same building as the tenant and there may only be two flats in the building. In this case, the period of notice is extended by 3 months. It is thus at least 6 months. Even if the landlord has a legitimate interest in ending the tenancy, the tenant is not always forced to move out (immediately). It must furthermore be examined in the case of termination with due period of notice whether the tenant can raise objection to the termination and can demand the continuation of the tenancy. This is the case according to the law “if the contractual ending of the tenancy would constitute hardship for the tenant, his or her family or another member of the household which is not justifiable, even taking account of the landlord’s legitimate interests”; hardship is also applicable according to the law “if appropriate replacement housing cannot be obtained on reasonable terms” (so-called social hardship clause of Article 574 of the German Civil Code). According to court rulings, the following are, for example, also possible reasons for objection: serious illness, advanced age and frailty. The objection must be raised in writing (Article 574 b, Paragraph 1 of the German Civil Code).

Lease
Lease is the surrender for use of an article (or of rights) and of the income therefrom as stipulated in the contract of lease against payment of a lease, the rent. A contract of lease is very similar to a tenancy agreement. In contrast to a rent under a tenancy, the contract of lease guarantees the lessee not just the use of the leased article, but rather also the income therefrom, provided the leased article is used in a due and orderly manner (so-called possession and enjoyment). The lessee in return pays a rent to the lessor.

Overview
The contract of lease is regulated in Germany in the provisions of Articles 581 - 597 of the German Civil Code (lease: Articles 581 ff. of the German Civil Code, farm lease: Articles 585 ff. of the German Civil Code). In contrast to the tenancy agreement, the contract of lease may be concluded as a reciprocal contract not just in respect of articles, but rather also additionally in respect of rights. Furthermore, not just the use of the articles or rights is permitted; with the contract of lease, the enjoyment of the fruits of the article is also possible. Just like a tenancy, a lease is a contract for the performance of a continuing obligation which is ended by the expiry of the agreed term or by notice of termination. In the case of most contracts of lease, in addition to the civil law provisions of the German Civil Code, laws under public or private law or a mixture of the two are furthermore applicable, such as the Federal Allotment Act (Germany) for the lease of allotments or the Federal Hunting Act for the lease of a hunting ground. Contracts of lease are today principally used in the catering industry and in agriculture (farm lease). Similar to the contract of lease is the associated business transaction of franchising and the franchising agreement.

Obligations of the lessor and lessee:
As with a landlord, the lessor must surrender the article or the right of use (in farm lease law enjoyment of the crops in the fields) to the lessee. The lessee must in return pay the agreed lease (“rent”). The provisions on tenancy rent are largely applicable regarding the use of the article. The lessee is furthermore entitled to use the inventory and is also obliged to return the inventory after the termination of the contract. In earlier times, the lease was also often paid in the form of an agreed portion of the produced yield: e.g. "sharecropping", "sharecropper" (handover of half of the yield).

Right of lien
The lessee has a right of lien from the lease in accordance with Article 583 of the German Civil Code in respect of the claims against the lessor. The lessor in turn has a right of lien arising from Article 592 of the German Civil Code for the lessor’s own claims against the lessee.

Termination
Termination is structured in a similar manner to a tenancy agreement. It must be issued to the lessor or the lessee. If the lessee dies, then there exists a special right of termination on the part of the heirs and the lessor to effect termination within one month with a six-month period of notice to the end of a quarter. Otherwise, the provisions of tenancy law largely apply mutatis mutandis.

Examples
Contracts of lease often refer to properties with and without buildings. A farm lease is the term for the leasing for agricultural use; a hereditary lease enables the lessee to build on the leased property.

Contacts:

André Löhr

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