Commercial Tenancy Law in Germany

Deviations from residential tenancy law must also be observed with regard to the written form. A lease agreement for commercial premises can be concluded verbally, but it must be in writing if the commercial lease agreement is to run for a period longer than one year. A lease agreement that does not comply with this formal requirement shall be deemed to have been concluded for an indefinite period and can only be terminated by either contracting party with the statutory ordinary notice period of six months.

Other provisions, such as the tenant's maintenance obligations, i.e. measures required to maintain the contractual condition during the term of the lease, should also be explicitly regulated because the landlord can generally pass on more extensive maintenance or repair obligations to the tenants under commercial tenancy law than under residential tenancy law. If the lease agreement does not contain any provisions in this regard, the tenant, however, is not obligated to make cosmetic repairs and is merely required to hand over the rental property in a clean-swept condition. Meanwhile, the landlord is liable for the full costs of any necessary renovation. It is therefore advisable to agree on the return of the premises after termination of the lease at least in the same condition at the time of the start of the lease agreement.

It is often useful to include a competition protection clause in order to prevent economic disadvantages arising from leasing neighboring areas to competitors within the industry. However, the landlord already has a due diligence obligation toward their tenant, which obliges them to protect the tenant from disadvantages caused by any competition. Therefore, it is also necessary to expressly exclude the competition protection if the landlord does not want to exclude the option of leasing to tenants from certain industries from the outset.

The product range clause presents a subcategory here that is designed to avoid competition by prohibiting individual tenants from offering a certain range of products.

Notice periods also need to be regulated. If no contractual agreement is made in this regard, the ordinary notice period is six months by law. It should be noted that notice periods for commercial real estate leases are not extended in favor of the tenant but generally remain the same for the entire lease period. A regulation concerning ordinary notice periods for properties leased for a fixed term is important not least because there is no termination due to personal use in commercial tenancy law and the landlord is referred here to the ordinary notice with the statutory notice period.

In commercial tenancy law, rent increases are not regulated and can only be enforced by means of a termination notice pending a change. This additional expense can be avoided with the inclusion of clauses in the agreement for a graduated, turnover or index rent.

Commercial leasing may also have advantages from a tax perspective. Income from leasing property is generally exempt from VAT. However, a landlord for commercial rental premises may waive this tax exemption and choose to have their rental income treated as subject to VAT. This allows landlords to deduct VAT charges for expenses and other services regarding the leased premises from their VAT liability.

Great contractual freedom can bring both advantages and disadvantages. Particular attention is therefore paid to the drafting of contractual terms and general terms and conditions (GTC) for commercial leases, which must always be drafted in due consideration of current case law in German commercial tenancy law.

All special features and legal deviation possibilities should be creatively taken into account by an expert, albeit in accordance with the regulations.