Termination of commercial lease agreement and practice lease agreement

Rights and obligations of tenants and landlords under german law

In german practice, commercial leases (office leases, practice leases, store leases) are generally concluded for a fixed term. Of course, the lease can always be terminated by mutual agreement in Germany (lease termination agreement; eviction agreement). However, commercial leases are often terminated, especially for good cause. Then entire livelihoods are quickly at stake. Against this background, german commercial tenancy law is certainly one of the most hotly contested areas of german real estate law.

Ordinary termination under german law

Ordinary termination during the fixed term is excluded according to german law. An exception is the statutory special right of termination due to a lack of written form. If, for example, the buyer of a commercial property only learns after the sale that a significantly lower rent has been agreed verbally than is apparent from the lease, he can give ordinary notice of termination with the statutory period of notice.

Termination of lease for good cause in german practice

Apart from this special right of termination due to a lack of written form, however, the landlord or the tenant in Germany may only terminate the lease for good cause. Such extraordinary termination is generally without notice, i.e. effective immediately, and terminates the lease under german law.

Good cause justifying termination of the commercial lease agreement exists if, from the perspective of a third party, the party concerned can no longer reasonably be expected to continue to be bound by the lease agreement. The entire circumstances are taken into account in german practice, including the remaining term of the lease. In principle, termination in Germany requires a prior warning; the party giving notice must be given the opportunity to remedy its misconduct or to reverse any damage that has already occurred.

In principle, economic or personal problems on the part of one party do not justify termination. Thus, the fact that the tenant generates significantly less turnover in a store or practice, the renting doctor loses his license to practice medicine or the tenant is unable to run his business due to illness does not justify termination. In these cases, risks are realized that are clearly within the sphere of risk of the tenant. In german practice, he cannot transfer these risks to the landlord by way of termination.

Cessation of the Basis of Business, Insolvency in Germany

In very exceptional situations, the parties can terminate the contract due to a so-called discontinuation of the basis of the business. According to german case law, the basis of business is the common understanding of both parties existing at the time of the conclusion of the contract or the understanding of one party of the existence or future occurrence of certain circumstances, which is recognizable to the other party and not objected to by him, provided that the contract is based on this common understanding. It is expressly not the basis of the contract if unilateral motives or calculations of one party cannot be realized in reality. However, in such cases of cessation or disturbance of the basis of business, an attempt must always be made to adjust the contract; granting a party a right of termination for this reason is always the last possible measure if milder measures cannot sufficiently mitigate the extreme disturbance of the contractual equilibrium.

According to german law, examples of the discontinuation of the basis of the contract are natural disasters, extreme inflation and sovereign intervention. In the latter case, one could also think of longer-term quarantine measures (corona) leading to the closure of a restaurant business or retail store. However, since the german courts do not lightly affirm the loss of the basis for the business, one should not act hastily.

If a tenant actually gets into financial difficulties in Germany, i.e. if insolvency occurs, the insolvency administrator can exercise a special statutory right of termination and release the insolvent tenant from an overburdening lease.

Formalities and deadlines for termination under german law

Any notice of termination should be given in writing in order to avoid problems of proof in subsequent court proceedings in Germany. Certain statutory deadlines must be observed for ordinary termination. In the case of termination for cause, it must also be taken into account that the german landlord who waits too long to give notice risks forfeiting his right to terminate the lease. Therefore, the idea is that the one who silently accepts a breach of contract by one party over a long period of time cannot base a termination on this after a long period of time when it is convenient. This period may already have elapsed after a few months.