The agreements for commercial and residential leases in Germany are governed by the German Civil Code (BGB), sections 535 and following. The code was amended in 2001 and since then several jurisdictions of the German Federal Court (Bundesgerichtshof) have been passed to clarify some crucial points. As a result of that, most actual standardized contract forms have been revised since then to adjust to the legal rules and regulations. On the other hand many older forms still in use include void agreements, mostly to the disadvantage of the landlord. For residential leases all crucial sections in the Civil Code end with the words: "A deviating agreement to the disadvantage of the lessee is ineffective." Furthermore the legislation took strong influence on the contracts, so that no investor nowadays can rely on the wording of a lease contract. Without a review of a specialized lawyer no landlord knows about the value of a lease contract.

Rent and Service Charges:

Rents and rent increases can be freely negotiated and agreed upon. Since the German Civil Code is pro-tenant, all lease agreements shall be done by a specialist like an experienced house manager or a lawyer. By law the rent includes the service charges for water, sewage, house keeping etc; costs that can easily reach 1,50 Euros per sqm and month. Only by a valid agreement the service charges can be forwarded to the tenant.

Rent-rises:

Under German law there are three possibilities how to rise rent. When closing the contract a graduated rent increase clauses or indexation clauses may be agreed. If no increase was agreed or the increase clause expired the landlord is entitled to rise the rent to the average rent level.

In all cases the rent must remain unchanged for at least a year. Graduated rent increase clauses can only agreed for a maximum duration of 10 years.

Indexation clauses must base on a defined standard, such as for example the German consumer index. Do not agree your home consumer index since this can be regarded void if it comes to litigation in Germany. The tenant must be informed in writing, when an index-linked increase is due.

Where no rent-rise is concluded, a landlord may require the tenant to accept an increase to the rent level customary in an area, provided that the last increase of rent took place at least 15 months prior to the date when the increase is to take place. As a general rule, this type of rent increase is limited to 20% over three years. According to section 558 German Civil Code, the landlord must state good reasons for the rate increase, such as an expert opinion, three ‘sample’ rents charged for comparable properties. Most common in all bigger German cities base the rent-rise on the actual so-called ‘qualified rent table’ (qualifizierter Mietenspiegel) or rental database – a statistical measure of rents issued by the local authorities and approved by landlord and tenant associations. The tenant has two months to accede to the demand. A tenant will not accept any rent-rise above the average rent and there is no “pay-it-or-move-out-option” for the landlord. Refusing a rent-rise is no reason to terminate the leasehold for the landlord, the landlord can sue the tenant in order to accept the rise within five months. At the civil court the landlord has to prove that the demanded rent equates the average rent referring to an extensive evaluation including the age of the house, the standard of the apartment, the quality of living the area.

Buying an apartment with a decent tenant who rented the apartment for a good rent on a good lease contract, which takes care of the interests of the landlord is always good idea. Only in this way know what you will get in return for your investment since finding a decent tenant is not that easy. The poorer the standard of the flat, the more difficult is to find the right tenant. A miss-calculation has always been the idea of high rent-rises after acquisition.

Deposits:

The security deposit must not exceed three monthly net-rents, i.e. without the advances for service charges or heating. The deposit must be paid directly into an separated savings account with interest common for such savings accounts, and with a three-month termination period.

A tenancy agreement may be concluded for a ‘limited’ or ‘unlimited’ period.

Unlimited contracts: These are the dominant, normal form of contract.

Limited contracts: Contracts can only be limited for very good reason according the provisions of the civil code e.g. that the landlord will, at the end of the contract, need his property for himself or his family or renovations will be done at expiration. There is no maximum period for ‘limited’ agreements, but they are in theory not renewable (a proviso intended to protect tenants). Any contract that lasts more than a year must be in writing.

German Civil Code provides two forms of notice: The ordinary notice and the immediate notice.

Immediate notice: must be based on a specific reason, normally the breach of an important contractual duty by the other party, e.g., non-grant of use, or default of payment of rent. In this case the contract terminates with immediate effect.

Ordinary notice: is only applicable to unlimited contracts. The landlord can only give ‘ordinary notice’ or if

The tenant is manifestly in breach of contract or;

The landlord needs the premises for himself or his family or;

The lease contract prevents the landlord from making an economically justifiable use of the premises.

The tenant can object to the notice, and demand continuation, if termination of the lease would give rise to hardship for himself or his family that would be unjustified, even in the light of the landlord’s legitimate interests.

The notice period for ‘ordinary notice’ can be between three to nine months (if the tenant has lived long in the premises).

The tenant does not need justification to give notice. He must generally give three months notice.