On 26 September 2024, the German Bundestag passed the Fourth Act to Reduce Bureaucracy for Citizens, Businesses and the Administration (Viertes Gesetz zur Entlastung der Bürgerinnen und Bürger, der Wirtschaft sowie der Verwaltung von Bürokratie - hereinafter referred to as ‘BEG IV’). The BEG IV contains a new provision of practical relevance for commercial leases, i.e. the renting and letting of premises that, according to the purpose of the contract, are used for commercial or self-employed professional activities. In future, commercial leases with a term longer than one year can be concluded and amended in text form - instead of the previously applicable written form - binding the parties to the agreed contract term. In contrast, the statutory written form requirement remains in place for fixed-term residential leases of more than one year, the breach of which leads to the option of premature termination of the lease.
A brief overview of the new provision is provided below.
I. Current legal situation
In accordance with Section 550 sentence 1 of the German Civil Code (Bürgerliches Gesetzbuch – BGB), a lease agreement for a longer period of time than one year that is not concluded in writing is valid for an indefinite period of time. In order to comply with the written form requirement within the meaning of Section 550 BGB, commercial leases currently have to fulfil the strict statutory written form requirement pursuant to Section 126 BGB. However, the written form requirement is not limited to the handwritten signature of the parties to the lease agreement, but is extended by the specific requirements of the case law of the Federal Court of Justice (Bundesgerichtshof - BGH) on the ‘uniformity of the document’, so that all essential provisions of the lease agreement must be contained in one document. The existing requirement of an original document signed by the parties to the lease agreement applies not only to the lease agreement document itself, but also to all subsequent amendments and supplementary agreements. Case law has relaxed this criterion, according to which there is no need for a fixed physical connection with the original lease agreement. Instead, the uniformity of the lease agreement must result, for example, from consecutive pagination or consecutive paragraphs. In the case of addenda, it results from a sufficient reference to the original lease.
If this form was not fully observed when the contract was concluded or in the event of subsequent amendments, the entire lease agreement was deemed to have been concluded for an indefinite period in accordance with Section 550 sentence 1 BGB. It could then be (prematurely) terminated by either party within the statutory periods, irrespective of the agreed term (Sec. 542 para. 1, Sec. 580a BGB). However, the termination was only permissible at the earliest at the end of one year after the business premises were handed over (Sec. 550 sentence 2 BGB).
The purpose of this drastic legal consequence is to protect the acquirer of the leased property who automatically enters into an existing lease as landlord in accordance with Section 566 (1) BGB (for commercial leases in conjunction with Sec. 578 para. 2 BGB - ‘purchase does not break the lease’). The new landlord should be able to clearly recognise his rights and obligations arising from the lease. In accordance with Section 566 BGB, an acquirer also enters into lease agreements that are not recorded in writing and are therefore not readily recognisable. In this case, however, the acquirer should be protected from unwanted long-term agreements by the fact that he can terminate the lease prematurely due to a breach of form. According to the case law of the BGH, however, this option also applies to the original parties to the lease agreement. In practice, this has often led to landlords or tenants being able to terminate a fixed-term lease agreement prematurely in the event of a breach of written form. According to the legislator, these cases are now to be reduced due to the new provision by downgrading the formal requirement to text form.
II. Future legal situation under BEG IV
Due to an amendment to Section 578 (1) BGB (addition of a 2nd sentence), Section 550 BGB will in future only apply to commercial leases with the proviso that a lease that is not concluded in text form (instead of the previous written form) for longer than one year is valid for an indefinite period. According to the legislator's reasoning, the need for information and documentation is also satisfied by a text form requirement, taking into account the protection of acquirers intended by Section 550 BGB.
In order to comply with the text form stipulated in Section 126b BGB, it is sufficient to make a readable declaration on a durable medium that identifies the person making the declaration. Text form includes both paper documents and electronic documents; unlike the statutory written form or electronic form, however, a signature or qualified electronic signature is not required. However, a readable declaration (submission in written characters) is required. This means that all non-verbal options for submitting and transmitting the declaration are available. Text form therefore includes paper documents without a signature, be it a document created by data processing without a signature, be it a document with a mere signature facsimile, such as a computer fax, be it documents signed in the original but received without a signature (e.g. only as a copy or fax). On the other hand, the text form includes electronic documents without a qualified electronic signature, i.e. in particular e-mails or a retrieved website, as well as the transmission of a CD.
However, the specific requirements for the conclusion of contracts or their mutually agreed amendment in text form are still not regulated. For example, it is unclear whether the entire content of the contract, including the offer and acceptance, must be contained on a data carrier (e.g. e-mail) or whether a reference is sufficient. If a reference is sufficient, it is also not clear how this must be done in a form-preserving manner. The suggestion of the German Bundesrat to amend Section 126b BGB in this regard was not included in the legislative process for the BEG IV.
However, the new regulation in Section 578 (1) BGB (in the version of BEG IV) is not expected to result in any simplification with regard to the strict requirements of BGH’s case law on the uniformity of the document, so that these must continue to be strictly observed by contract practitioners.
III. Transitional provision for existing leases
In accordance with Article 229 of the German Introductory Act to the BGB (Einführungsgesetz zum Bürgerlichen Gesetzbuche), the previous legal situation will continue to apply for a transitional period of twelve months to leases already in existence at the time the new provision comes into force (see IV. below), i.e. Section 550 BGB (written form requirement) will continue to apply for this period. Terminations based on the fact that a fixed-term contract is deemed to have been concluded for an indefinite period of time pursuant to Section 550 BGB may still be possible during this period.
After expiry of the transitional period, existing lease agreements that have been concluded for longer than one year and not in written form but in text form in accordance with Section 126b BGB are no longer deemed to have been concluded for an indefinite period. Accordingly, the statutory termination option then ceases to apply as well. If the text form was also not complied with, the previous legal consequence remains.
If existing leases are amended after the new provision in Section 578 (1) BGB comes into force, the legislator believes that the contracting parties can be expected to deal with the amended provisions, meaning that a transitional provision is not required for such constellations. Rather, the new legal situation is fully applicable to the contract as soon as an amendment to the commercial lease is agreed, i.e. it is irrelevant whether the original lease and the amendment were agreed in writing or not. The only decisive factor is whether the text form was complied with. However, during the 12-month transitional period, it could sometimes be doubtful whether a relevant ‘change’ to the lease actually exists, so that legal uncertainties remain (e.g. in the case of indexed rent and operating cost adjustments).
IV. Entry into force of the new regulation
Following the Bundesrat's approval of the BEG IV on 18 October 2024, the new regulation will enter into force on the first day of the quarter following the promulgation of the law in the Federal Gazette (i.e. probably on 1 January 2025).
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Our experienced notaries and lawyers are specialised in providing comprehensive legal advice and support to domestic and foreign clients in connection with real estate transactions, project developments, the creation of condominium property as well as the establishment, acquisition and operation of companies.
Advising on issues relating to commercial lease law is one of the core areas of our legal practice.