In June 2022, the Bundestag passed the Act Supplementing the Regulations Implementing the Digitalisation Directive and Amending Other Regulations (hereinafter abbreviated "DiRUG Supplementary Act"). The DiRUG Supplementary Act will lead to considerable extensions of the scope of application of the notarial procedures for online certifications and online notarisations already created by the Act Implementing the Digitalisation Directive (hereinafter abbreviated "DiRUG") last year, most of which will already come into force on 1 August 2022.

A brief overview of the new regulations is provided below.

I. Previous legal situation under the DiRUG

In October 2021, we had already reported in a newsletter on the far-reaching changes due to the DiRUG, which made online formation of limited liability companies (GmbH, incl. its special form of the entrepreneurial company with limited liability) and certain online commercial register applications possible from 1 August 2022.

According to DiRUG, the online notarisation procedure was only open for the formation of a GmbH and was additionally restricted by the fact that it was only to cover so-called cash incorporations (Bargründungen). Foundations in kind (Sachgründungen), on the other hand, were expressly excluded from the scope of application of the notarial online formation procedure.

The scope of application of online certifications was limited to applications for entry in the commercial register, whereby only applications by sole traders (eingetragene Kaufleute), for domestic corporations (limited to GmbH, AG and KGaA) and for branches of domestic corporations (such as before) or of foreign corporations governed by the law of another EU member state or EEA signatory state were covered. Applications for registration in the commercial register for commercial partnerships (KG and oHG) were excluded from the possibility of notarial online certification under the DiRUG.

II. Future legal situation under the DiRUG Supplementary Act 

The DiRUG Supplementary Act extends the scope of application of the notarial procedure of online notarisation (Online-Beurkundung) to the following legal transactions requiring notarial recording:

• incorporations of GmbHs in kind (i.e. incorporations in which the nominal amounts of the shares of all founding shareholders are not to be provided exclusively in money),

• granting of powers of attorney for the formation of a GmbH (so-called formation powers of attorney),

• declarations of intent made jointly with the formation of the GmbH,

• unanimous resolutions to amend GmbH articles of association including capital measures (i.e. increase and reduction of the share capital).

The restriction of the procedure of online certification (Online-Beglaubigung) of commercial register applications to certain legal entities was abolished. In future, certification of commercial register applications by means of video communication with the notary will be permissible for all legal entities to be entered in the commercial register. Limited partnerships (especially in their frequent form of the GmbH & Co KG) and general partnerships (oHG) will also be covered.

Furthermore, applications to the register of cooperatives (Genossenschaften), partnerships (Partnerschaften) and associations (Vereine) will be included in the scope of the notarial procedure for online certifications.

With regard to the details and technical process of the notarial online procedures, we refer to our earlier newsletter on DiRUG in order to avoid repetition. 

III. Entry into force of the new regulations

The new regulations on the notarial online certification of applications to the commercial, partnership and cooperative registers are to come into force at the same time as DiRUG, as early as 1 August 2022. The same applies to the new regulations on the admissibility of the notarial online certification of powers of attorney for the formation of a GmbH and declarations of intent and shareholder resolutions made jointly with the formation.

In contrast, the new regulations on the extension of online procedures to applications to the register of associations, the formation of GmbHs in kind, shareholders' resolutions on the amendment of articles of association and declarations on the subscription to new GmbH shares on the occasion of capital increases will not enter into force until 1 August 2023, as these require considerably higher organisational and technical effort. 

IV. Video of the Federal Chamber of Notaries for better understanding

A video by the Federal Chamber of Notaries, which shows you in a simple and comprehensible manner how to carry out the online formation of limited liability companies and the online application for certain registrations in the commercial register in the future, can be accessed here (please switch to the English version of the website).

 

Smart and to the point.

DSC Legal is a notary’s office and law firm located at the Brandenburg Gate in Berlin.

Our experienced notaries and lawyers are specialised in providing comprehensive legal advice and support to domestic and foreign clients and principals in connection with real estate transactions, project developments, the creation of condominium property as well as the establishment, acquisition or sale and operation of companies.

Advising on issues relating to corporate law and tenancy law is one of the core areas of our legal practice.

 

 

 

Relatively unnoticed, the German Transparency Register and Financial Information Act ("TraFinG"), a further tightening of money laundering law, which is also likely to be of considerable relevance for a large number of German companies, has come into force on 1 August 2021. This concerns the duty to notify the beneficial owners (wirtschaftlich Berechtigte) to the registrar entity for entry into the transparency register. The transparency register, which is intended to facilitate the fight against money laundering and terrorist financing, is maintained by Bundesanzeiger Verlag GmbH (registrar entity) and is subject to the supervision by the Federal Office of Administration (Bundesverwaltungsamt - "BVA").

According to the German Money Laundering Act (Geldwäschegesetz - "GwG"), legal persons governed by private law (e.g. stock corporations, limited liability companies and registered cooperatives) and commercial partnerships (limited partnerships and general partnerships) are in principle obliged to have their beneficial owners entered in the transparency register. According to section 3 (2) GwG, the beneficial owners of such companies generally include all natural persons who, directly or indirectly, hold more than 25% of the capital stock or control more of 25% of the voting rights or exercise control in a comparable manner. If no beneficial owner can be identified according to these criteria, the legal representative, managing partner or partner of the company is deemed to be the beneficial owner (so-called fictitious beneficial owner).

Initially, there were considerable simplifications for the fulfilment of the notification obligations vis-à-vis the transparency register, which ceased to apply with the entry into force of the TraFinG on 1 August 2021. With this newsletter, we would like to inform you about the resulting tightening of the respective notification obligation and the transitional provisions for formerly privileged companies, which will expire in 2022. The serious legal consequences (administrative fines!) which the companies concerned face in the event of a breach of duty should prompt their owners and managers to check any transparency obligations which have not yet been fulfilled and, if necessary, to obtain complete information on the beneficial owners as well as to notify the registrar entity of this information in due time.       

I. Previous Legal Situation

According to the previous legal situation, companies whose beneficial owners had already been identified in a comprehensible manner from other publicly accessible and electronically retrievable registers (e.g. commercial register, register of cooperatives or register of associations) could invoke a so-called notification fiction, according to which the obligation to notify the transparency register was deemed to have been fulfilled and therefore no additional notification of the beneficial owner(s) had to be made. The notification fiction was of particular benefit to German limited liability companies (GmbH or UG [haftungsbeschränkt]), since the list of shareholders available in the commercial register could usually be used to determine their beneficial owners. Such a notification fiction also existed for companies listed on the stock exchange (AG, KGaA, SE), as these companies are already subject to comparable disclosure obligations under capital market law.

II. New legal situation as of 1 August 2021

The aforementioned notification fiction has been abolished without replacement by the TraFinG. Since then, all newly established legal entities under private law (e.g. AG, GmbH and eG) and registered partnerships (KG, oHG) are obliged to obtain, retain and update the legal details of their beneficial owners (i.e. first name and surname, date of birth, place of residence, nature and extent of the beneficial interest and all nationalities) as well as to notify them without undue delay to the registrar entity for entry into the transparency register.

It is noteworthy in this context that according to the administrative practice of the BVA, the notification fiction for listed companies is also no longer considered to exist, although the legal definition of beneficial owner for legal persons (sec. 3 para. 2 sent. 1 GwG) continues to contain an explicit exception for listed companies (i.e. companies listed on an organised market under sec. 2 para. 11 of the German Securities Trading Act). This exception was originally also to be abolished, but was reinserted by the Finance Committee of the Bundestag shortly before the law was passed. According to important voices in the legal literature, the aim of this intervention by the Finance Committee was to privilege listed companies in accordance with the underlying EU Money Laundering Directive, i.e. to continue to exempt them from the notification obligation. However, a clarifying enquiry by DSC Legal with the competent BVA confirmed that the authority now assumes a general notification obligation for listed companies. In the opinion of the BVA, the general catch-all provision of section 3 para. 1 GwG should be used for the specific determination of the beneficial owner. Insofar as a listed company that is listed on an organised market does not have an actual beneficial owner, the fictitious beneficial owner (e.g. the members of the management board of a German stock corporation) can also be referred to.

III. Transitional provisions for previously privileged existing companies 

The following statutory transitional periods are provided for reporting to the transparency register, which, however, only apply to those companies whose obligation to notify the transparency register was deemed to have been fulfilled until 1 August 2021 due to the notification fictions applicable until then:

• Stock corporations (AG, SE), KGaA by 31 March 2022,
• Limited liability companies (GmbH, UG) and eG by 30 June 2022,
• European cooperatives or partnerships by 30 June 2022,
• in all other cases (above all foundations and registered partnerships such as oHG and KG) by 31 December 2022 at the latest.

 

IV. Simplification for associations

With regard to the notification obligations for registered associations (eingetragene Vereine - e.V.) pursuant to section 21 of the German Civil Code (Bügerliches Gesetzbuch - BGB), the law provides for substantial simplifications. According to this, the registrar entity is in principle obliged, on the basis of the data in the register of associations, to make the entries for the association in the transparency register without the need for separate notification by the association. The data in the register of associations shall be deemed to be information of the association. The members of the association's executive board are entered as beneficial owners. Exceptionally, however, the association has its own obligation to notify if a change in the association's executive board was not applied for entry into the register of associations without undue delay or if the information in the register of associations is incorrect. An (automatic) entry in the transparency register will be made for the first time no later than 1 January 2023. Thereafter, automatic entry will be made on an ad hoc basis.

V. Legal consequences of contraventions        

A wilful or negligent violation of the statutory obligations to obtain, retain and update the information on the beneficial owners and/or the obligation to notify the registrar entity (completely, correctly and in due time) of this information without undue delay for entry into the transpareny register constitutes an administrative offence that may be punished with a fine of up to EUR 150,000.00 (in case of intent) or EUR 100,000.00 (in case of negligence). The fine may even be up to EUR 1,000,000.00 or up to twice the economic benefit derived from the contravention if it is a serious, repeated or systematic contravention. The economic benefit comprises profits gained and losses avoided and may be estimated.

 

Smart and to the point.

DSC Legal is a notary’s office and law firm located at the Brandenburg Gate in Berlin.

Our experienced notaries and lawyers are specialised in providing comprehensive legal advice and support to domestic and foreign clients and principals in connection with real estate transactions, project developments, the creation of condominium property as well as the establishment, acquisition or sale and operation of companies.

Advising on issues relating to corporate law is one of the core areas of our legal practice.   

 

In June 2021, the German Bundestag passed the Act Implementing the Digitalisation Directive (Gesetz zur Umsetzung der Digitalisierungsrichtlinie - hereinafter abbreviated "DiRUG"). The DiRUG, which was approved by the Bundesrat and promulgated in the Federal Law Gazette in August 2021, contains provisions enabling the online formation of limited liability companies (Gesellschaften mit beschränkter Haftung - GmbH) and certain online commercial register applications, which will enter into force on 1 August 2022. An overview of these new regulations is provided below.

I.   Current legal situation

According to the current legal situation, the formation of a GmbH requires the physical appearance of the founding shareholders and the managing director(s) or their authorised representative(s) before the notary. A face-to-face procedure is currently also used for all commercial register applications.             

The effective establishment of a GmbH first requires the conclusion of the articles of association in notarial form and thus its notarisation (notarielle Beurkundung). According to current law, for an effective notarial recording the deed of incorporation (the articles of association are usually an annex to this document) must be read out to the parties involved in the presence of the notary, approved and personally signed by their own hand.          

In order for the GmbH to come into existence as a legal entity, it must also be entered in the commercial register (Handelsregister), which requires a corresponding application by all managing directors. This initial and all subsequent applications for entry in the commercial register of the GmbH (e.g. in the case of amendments to the articles of association and changes of managing directors) always require public certification (öffentliche Beglaubigung) in order to be effective, for which the execution or acknowledgement of the signature(s) in the presence of the notary is required under the current notarisation law. The same requirement currently exists for commercial register applications of registered sole traders (eingetragene Kaufleute - e.K.), commercial companies (e.g. stock corporations [Aktiengesellschaften – AG], limited partnerships [Kommanditgesellschaften - KG] and general partnerships [offene Handelsgesellschaften – oHG]) and branch offices (Zweigniederlassungen) registered in the commercial register.             

As an alternative to these traditional face-to-face procedures, DiRUG will make it possible for the first time, within the framework and under the conditions of newly created online procedures, to carry out notarizations and certifications without the physical presence of the parties involved before the notary. The mandatory participation of notaries in the new digital forms of procedure is intended to ensure that they, as "guardians of private autonomy", can continue to fulfil their special care and advisory function in the future.

II. Online formation permitted from 1 August 2022

In deviation from the current legal situation described above, with the entry into force of the DiRUG from 1 August 2022 certain GmbH formations will be completely digitally permissible and possible by way of a notarial online notarisation procedure, so that the physical presence of the parties involved before the notarising notary will no longer be necessary. 

1. Companies covered

For the time being, online notarisations will be limited to the formation of a GmbH (incl. its special form of the entrepreneurial company with limited liability (Unternehmergesellschaft (haftungsbeschränkt)). The online formation of other corporations (AG, KGaA), on the other hand, is not envisaged at the present time.

2. Restriction to the formation of GmbHs  

The notarial online notarisation procedure is only open for the formation of a GmbH (i.e. notarial recording of the articles of association as well as the shareholder resolutions passed in the course of formation). Conversely, this means that subsequent measures within the GmbH that require notarisation (e.g. amendment of the articles of association, change of legal form, merger and dissolution) must still be notarised in the traditional face-to-face procedure. The same applies to the disposal of shares in a GmbH (e.g. sale and pledging of shares).

3. Restriction to cash incorporations

The admissibility of the online notarisation procedure is additionally restricted by the fact that it only covers so-called cash foundations (Bargründungen), i.e. where the nominal amounts of the shares of all founding shareholders are to be provided exclusively in cash (i.e. without contributions in kind [Sacheinlagen]). Foundations in kind (Sachgründungen), on the other hand, are excluded from the scope of the notarial online formation procedure.

4. Online model protocol formation

For the online formation of a GmbH it is also possible to make use of two additional model protocols made available by the legislator (model protocols for the formation of a one-person or multi-person company). In contrast to the existing model protocols for the (cost-privileged) simplified formation procedure, there is no limitation to three founding shareholders and one managing director for the (none-cost-privileged) online model protocol formation. Furthermore, there is an abstract rule of representation according to which if one managing director is appointed, he alone represents the company and if several managing directors are appointed, the company is represented by two managing directors together or by one managing director together with an authorised signatory (Prokurist).

5. Online commercial register application

The entry of the company in the commercial register, which is mandatory for the effective formation of a GmbH, can in future be carried out on the basis of a commercial register application of all managing directors using a notarial online certification procedure by means of video communication (see section III.). 

6. Details of the online notarisation procedure

a) Video communication system of the Federal Chamber of Notaries

Online notarisation takes place by means of a real-time video conference between the notary and the parties involved. The Federal Chamber of Notaries (Bundesnotarkammer) will set up and operate a secure, manipulation-resistant and reliable video communication system for this purpose. Online notarisation via other video communication systems is not permitted under notarisation law.

b) Identification of the parties involved

A prerequisite for the use of the video communication system is the secure identification of the parties involved using a two-stage procedure.

In a first step, an electronic identification is carried out by means of an electronic proof of identity (eID), which can be provided by a German identity card with eID function (for German nationals), an eID card (for nationals of other EU/EEA member states) as well as an electronic residence permit with eID function (for nationals of third countries). German or foreign passports or ID cards of third countries (e.g. Switzerland, the United Kingdom or the USA) are not suitable means of identification in the sense of the first identification level.

Alternatively, parties involved may also identify themselves by means of an electronic means of identification issued by another EU member state if it has been certified and recognised for the purposes of cross-border authentication in accordance with Regulation (EU) No 910/2014 (eIDAS Regulation) within the framework of a corresponding notification procedure of the respective Member State and complies with the highest security level ("high") of the eIDAS Regulation.

In a second step, the notary has to compare the appearance of each party involved with their electronically transmitted photograph, unless the respective party is personally known to the notary. Before this, the photo is read from the chip of an NFC-enabled identity card or passport. The readout process is technically carried out by the video communication system (see lit. a), whereby the parties involved can use a standard smartphone with an app provided free of charge by the Federal Chamber of Notaries for the procedure as a readout device. The so-called video-ident procedure, in which an identification document is filmed by webcam for the transmission of a photograph affixed to it, is not an option for identification purposes.

c) Electronic record

As part of the notarisation of the negotiation carried out by means of video communication, the notary creates an electronic record of the negotiation instead of a document in paper form as in the traditional face-to-face procedure. This is a purely electronic document and not a paper document produced with EDP support.

In the online notarisation procedure, the notary is subject to the same duties as in the face-to-face procedure, in particular the duty to conduct the proceedings, including reading out the electronic record, to identify the parties involved and to establish their legal capacity. The other provisions on the notarial record also apply, including the provisions on the duty to verify and instruct.

The electronic record shall also be sent electronically to the parties involved for review prior to approval upon request.

d) Electronic signing of the deed of incorporation and the list of shareholders 

Since a personal signature is not possible in the context of the online notarisation procedure, the electronic record must be provided with the qualified electronic signatures of the notary and all other persons who are involved in the notarisation and whose signatures are required under the German Notarisation Act (Beurkundungsgesetz). The generation of the qualified electronic (remote) signature(s) and the provision of the electronic deed with this/these signature(s) shall in turn take place via the video communication system of the Federal Chamber of Notaries (see lit. a). The notary will sign the electronic record himself using his signature card.

The list of shareholders that must be submitted to the commercial register on the occasion of the formation of the GmbH can in future also be provided by the managing director(s) with a qualified electronic signature, so that the (external) managing directors do not have to physically appear before the notary either.

e) Possibility of a "mixed notarisation”

The so-called mixed notarisation will also be permitted, whereby some of the parties involved participate in the notarisation digitally via video conference, while the other parties involved are physically present at the notary's office. In this case, in addition to the electronic record with the physically present parties involved, a record with the same content must be recorded in paper form in accordance with the current regulations of the notarisation law. However, the electronic and physical records must only be read out to the parties involved once in total by the notary.

III. Online commercial register applications permitted from 1 August 2022

From 1 August 2022, the DiRUG will also open up the possibility of submitting certain commercial register applications completely online by means of video communication, so that here too the physical presence of the persons making the application (e.g. managing directors of GmbH) before the certifying notary will no longer be necessary. A notarial online certification procedure will make it possible to publicly certify declarations drawn up in electronic form.

1. Scope  

The scope of online certifications will initially be limited to applications for entry in the commercial register, so that applications for registration in other public registers (registers of associations, cooperatives and partnerships) will continue to be subject to the traditional notarial presence procedure.

This only includes applications for entry in the commercial register by (i) sole traders, (ii) for corporations (limited to GmbH, AG and KGaA) and (iii) for branches of domestic corporations (such as ii) or of foreign corporations governed by the law of another EU member state or EEA signatory state.

Applications for registration in the commercial register for commercial partnerships (limited partnerships [Kommanditgesellschaften - KG] and general partnerships [offene Handelsgesellschaften - oHG]) can thus not be made by way of notarial online certification, which means that the provisions on the commercial register application of a GmbH & Co. KG (KG) and its general partner (GmbH) will diverge in future.

After the Federal Government's draft DiRUG still provided for opening up the notarial online certification procedure to cooperatives (Genossenschaften) as well, the inclusion of cooperatives in the scope of this procedure was finally deleted on the recommendation of the Bundestag's legal committee.       

2. Details of the online certification procedure

In legal terms, online certification is the public certification of a qualified electronic signature. From a procedural point of view, the procedure largely corresponds to the notarial online notarisation procedure outlined above. The video communication system of the Federal Chamber of Notaries must also be used for the online certification procedure and the two-stage identification provided for therein must be carried out (see II. 6.).

Upon request by the notary, an electronic document containing the declaration to be certified is provided by the party/parties involved with a qualified electronic signature assigned by the system, which is then recognised by means of video communication. The online certification is therefore based on the recognition of the signature by the party or parties involved. This is again a remote signature using the system of the Federal Chamber of Notaries (access via its  free app), so that the parties involved neither need a physical signature card nor the software or hardware required to read such a card. For the online certification of a qualified electronic signature, the notary creates a simple electronic certificate.

IV.   Costs of notarisation and certification in the notarial online procedure

In addition to the notarial fees stipulated in the German Law on Court and Notarial Costs (Gerichts- und Notarkostengesetz) for the notarial recording of the incorporation deed or the certification of commercial register applications, there is a flat fee for the use of the video communication system of the Federal Chamber of Notaries. This amounts to EUR 25.00 for the notarisation procedure and EUR 8.00 for the certification procedure. However, if several qualified electronic signatures are certified in a single certification certificate, the aforementioned flat fee is incurred only once. 

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Smart and to the point.

DSC Legal is a notary’s office and law firm located at the Brandenburg Gate in Berlin.

Our experienced notaries and lawyers are specialised in providing comprehensive legal advice and support to domestic and foreign clients and principals in connection with real estate transactions, project developments, the creation of condominium property as well as the establishment, acquisition or sale and operation of companies.

Advising on issues relating to corporate law and tenancy law is one of the core areas of our legal practice.

As of 1 August 2022, our notaries will also be available for online notarizations of limited liability company formations and online certifications of commercial register applications (regarding sole traders, GmbHs, AGs, KGaAs and branch offices of corporations) within the scope of their competence.   

In its decision of 25 March 2021 (2 BvF 1/20, 2 BvL 5/20, 2 BvL 4/20), the Federal Constitutional Court (Bundesverfassungsgericht) declared the Law on Rent Limitations in the Housing Sector in Berlin (Gesetz zur Mietenbegrenzung im Wohnungswesen in Berlin - hereinafter abbreviated "MietenWoG Bln") to be incompatible with the German Constitution (Grundgesetz) and therefore void.

The MietenWoG Bln (also known as “Mietendeckel” - "rent cap") came into force on 23 February 2020. Since then, the rents of approximately 1.5 million flats built before 2014 in Berlin had been frozen at the level of 18 July 2019. However, according to the aforementioned decision of the Federal Constitutional Court, the Land of Berlin exceeded its legislative competence by enacting the MietenWoG Bln. This was because the regulations on rent levels for privately financed housing, as part of the social tenancy law, fell within the concurrent legislative competence pursuant to Article 74 (1) no. 1 of the German Constitution. Since the Federal Government had conclusively made use of its concurrent legislative competence to regulate the amount of rent for privately financed housing with Secs. 556 to 561 of the German Civil Code (BGB), the Land of Berlin had not been authorised to regulate rent law from the outset due to the blocking effect of federal law (Article 72 (1) of the German Constitution). The MietenWoG Bln was thus formally unconstitutional and to be regarded as ineffective from the beginning.

What are the legal consequences for landlords and tenants?

The decision of the Federal Constitutional Court means that landlords can now, on the one hand, again demand the agreed higher rent and, on the other hand, if necessary, also demand an additional payment of the difference from the tenants. This is particularly the case if a permissible rent was effectively agreed between the parties in the period between 18 June 2019 and 22 February 2020, which was however lowered when the second stage of the rent cap came into force on 23 November 2020.

The landlord is entitled to an additional payment in particular if he waived part of the rent under the condition of the effectiveness of the MietenWoG Bln. In principle, this should also apply to agreed "shadow rents". A "shadow rent" is a rent that was not to be paid for the time being, but for which it was agreed at the same time, in the event of the invalidity of the MietenWoG Bln, that the difference between the rent permitted under the MietenWoG Bln and the contractually agreed rent must be paid in arrears by the tenant. In legal literature, however, such agreements are occasionally regarded as rent increases, the effectiveness of which is therefore dependent on compliance with the legal requirements for rent increases (Sec. 557 para. 4 of the German Civil Code). The Federal Constitutional Court had indicated in a prior decision (BVerfG, decision of 10 March 2020 - 1 BvQ 15/20) that landlords had not been prevented "from being promised a higher rent for new leases in the event that the law or parts thereof were unconstitutional". So far, however, the civil courts have not yet (legally) ruled on this legal question, so that for the time being there remain residual doubts about the lawful agreement of "shadow rents" in the case of new or re-letting and any claims for additional payments by landlords could possibly be considered unfounded in court. The landlord is also entitled to an additional payment if the tenant has agreed to a rent increase in the event that the MietenWoG Bln is ineffective. On the other hand, the landlord should not be entitled to an additional payment if he reduced the rent solely on the basis of the "rent cap" - unconditionally - and there was no indication whatsoever for the tenant that he should have expected an additional payment of a differential rent.

Furthermore, the invalidity of the MietenWoG Bln means for the landlords that since the pronouncement of the decision of the Federal Constitutional Court, they can again increase rents up to the amount of the local comparable rent or increase an agreed index-linked or graduated rent.

What are the possible courses of action for landlords and tenants?

As a result of the retroactive invalidity of the MietenWoG Bln, landlords can demand that tenants pay the difference by setting a deadline, provided that the parties had contractually agreed on a permissible rent amount or rent increase. If the tenant is obliged to pay the difference in arrears but is unwilling/unable to do so, the landlord may terminate the lease without notice if the rent is at least two months in arrears pursuant to Sec. 543 para. 2 sent. 1 no. 3 of the German Civil Code. Irrespective of this prerequisite for termination without notice, the landlord may terminate the tenancy agreement in accordance with Sec. 573 of the German Civil Code if the rent arrears exceed one month's rent and the period of arrears exceeds one month (Federal Court of Justice (BGH), decision of 10 October 2012 - VIII ZR 107/12). In addition, he can increase the agreed rent up to the amount of the local comparable rent. When renting out new flats, the landlord should ensure that the permissible rent as a rule (exceptions apply according to Sec. § 556f of the German Civil Code, e.g. for the first-time use and letting of new buildings and the first-time letting after comprehensive modernisation) may not be more than 10% above the local comparative rent (Sec. 556d of the German Civil Code), which he can take from the (qualified) Berlin rent index (Sec. 558d of the German Civil Code). However, the 2019 Berlin rent index should only be valid until the end of May 2021 (Sec. 558c para. 3 of the German Civil Code).

Insofar as the tenant has an obligation to pay the difference in arrears and the immediate payment of the difference results from the contractual agreement or other declarations of the parties, it would be advisable for tenants to pay the difference to the landlord even without a prior request for payment by the landlord. If it can be determined that the agreed rent exceeds the limit of the comparable rent customary in the locality, the tenant may reject the landlord's demand for payment of the higher rent or for payment of the difference in arrears. In case of doubt about the validity of the contractual agreement on the rent amount or the lawfulness of the demand for payment in arrears, the tenant has the option to pay the difference amounts demanded by the landlord subject to the reservation of reclaiming them in order, on the one hand, to be able to assert a possible claim for repayment and, on the other hand, to avoid a threatened termination without notice due to default in payment (Sec. 543 para. 2 sent. 1 no. 3 of the German Civil Code).

Irrespective of the rent cap, which has now been declared void, the federal regulations on rent law (Secs. 556 to 561 of the German Civil Code), especially those on the so-called "rent price brake" (“Mietpreisbremse”) pursuant to Secs. 556d to 556g of the German Civil Code), as well as the local rent index, provided it is not out of date (Sec. 558c para. 3 of the German Civil Code), continue to apply. Whether and to what extent the tenant is obliged to pay rent in arrears or whether the difference can be claimed retroactively requires a careful examination of the individual case.

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Smart and to the point.

DSC Legal is a notary’s office and law firm located at Brandenburg Gate in Berlin.

Our experienced notaries and lawyers are specialised in providing comprehensive legal advice and support to domestic and foreign clients and principals in connection with real estate transactions, project developments, the creation of condominium property as well as the establishment, acquisition or sale and operation of companies.

Advising on issues relating to real estate law and tenancy law is one of the core areas of our legal practice.

The information in this newsletter cannot and is not intended to replace in-depth legal advice under comprehensive examination of the respective individual case. Our experts will be happy to advise you on your legal options and represent you with outstanding professional competence and extensive experience in enforcing your claims out of court and in court.