Germany: Written Form And Change Of Legal Form For The Tenant

BGH (German Federal Court Of Justice), Ruling Dated December 11, 2013 – XII ZR 1
Last Updated: 2 April 2014
Article by Jörg M. Lang

Keywords: landlord, tenant, lease agreement, contractual change,

On the written form for a contractual change of tenant during the term of a lease agreement.

Facts

The defendant rented a commercial property in L. to the tenant, N. GmbH, on August 25, 1995 to operate a transport company. According to Item 2 No. 1 of the lease agreement, a fixed term of 15 years was agreed for the lease agreement, with a five-year extension option. In January 1998, N. GmbH changed its name to J. GmbH. Later, J. GmbH concluded a "purchase and transfer agreement for an equity interest" with the plaintiff's legal predecessor. In this agreement, the contractual parties agreed that the purchaser would enter in seller's stead into all of the rights and obligations from the contracts listed in the annex attached to the contract, which included a table listing the rented properties, the locations, landlords and information on the rent to be paid. This included the following information: "Location: L.; landlord: G GbR; rent 163,608... accumulated 1,963,296". The plaintiff requests that the court find that the rental relationship is for an indefinite period due to the written form not being upheld.

Content and subject of the decision

The courts upheld the claim in all instances. The German Supreme Court noted that the plaintiff did not become a party to the lease agreement on grounds of universal succession. There is neither a merger agreement nor a transfer of assets nor a transfer of contract according to Section 25 of the HGB (Commercial Code). However, the plaintiff acquired all of the individual assets via the purchase and transfer agreement. It also entered into the lease agreement. However, the German Supreme Court is of the opinion that this did not uphold the requirement for the written form for the lease agreement. The lease agreement is deemed concluded for an indefinite period. If the contractual parties subsequently reach an agreement in which material components of the contract are to be changed, according to current legislation by the German Supreme Court, this must refer to the original agreement in a sufficiently clear manner to uphold the requirement for the written form in Section 550 Sentence 1 of the BGB (Civil Code), list the changed regulations, and show that the remainder of the provisions of the original contract are to remain in force. The German Supreme Court has now also confirmed these principles for the event that an agreement is reached on the change of parties to a lease agreement, as this information is a material contractual condition which is covered by the requirement for the written form.

In the German Supreme Court's view, this was not the case here. The table attached to the purchase and transfer agreement for the contractual relationships to be taken over did not allow the property affected to be clearly determined due to the lack of a concrete place name. In addition, the German Supreme Court admonishes that the original tenant N. GmbH was not named. The fact that J. GmbH, which concluded the purchase and transfer agreement could be seen to be its legal successor in the commercial register does not rectify this defect. The date of the lease agreement also could not be derived from the annex. Finally, there was also a difference in the rent included in the list to the rent stated in the lease agreement.

Impact on day-to-day practice

The decision shows the importance of the requirement for the written form for commercial lease agreements in connection with a change of parties to the lease agreement. This is possible in various ways. The most frequent and simplest form in practice is that either the landlord or the tenant is replaced by a third party. If the parties to the lease agreement subsequently reach an agreement which changes material components of the contract, in order to uphold the requirement for the written form in Section 550 Sentence 1 of the BGB, this must sufficiently clearly refer to the original agreement, list the changed regulations and show that the other provisions of the original contract are to remain in force. This also applies to an agreement on a change to the contractual parties, as stating the parties to the lease agreement is one of the material contractual conditions that are covered by the requirement for the written form set out in Section 550 Sentence 1 of the BGB. Contractually changing a tenant in a lease agreement, which requires the written form set out in Section 550 of the BGB as a result of its term, thus also requires that the written form is upheld if the term is to remain the same. In order to uphold the written form, the change of tenant must be documented in such a way that the contractual position of the new tenant results in connection with the lease agreement concluded between the previous tenant and the landlord. This contract transfer can be concluded as a three-party contract or as a contract between two participants that is approved by a third participant. If a change of tenant is performed by way of an agreement between the previous tenant and the new tenant, this requires approval from the landlord, which can also take place via a contract implied in fact. This approval - and this is a key exception to the requirement for written form - can also be concludent, i.e. without a requirement for a specific form, for example via the receipt of rental payments, receipt of a rent guarantee, and addressing invoices for incidental costs and requests for rent increases to the new tenant. As a result, the German Supreme Court has decided that, in the case of a change of landlord between the former and new landlord, the requisite approval from the tenant does not require the written form according to Section 550 of the BGB (Ruling BGHZ 154, 171 = NZM 2003, 476,478). The German Supreme Court also held that a change of tenant agreed between the landlord and the former tenant does not require a specific form of consent from the new tenant to be effective (Ruling dated April 20, 2005 - XII ZR 29/02 - NZM 2005, 584, 585). However, these decisions only concerned the requirement for a specific form for the requisite approval by a third party to a contract transfer agreed between just two parties. We must differentiate this from the issue of whether the subsequent agreement on the change of landlord or tenant requires the written form. Even if approval by a third party is possible without requiring a specific form, the subsequent agreement on a change of landlord or tenant must sufficiently clearly refer to the original lease agreement in order to uphold the written form.

A change of tenant can also result in the event that a company is purchased. This is possible via an acquisition of all of the individual assets of a company or part of a company (so-called asset deal; see Palandt/Putzo BGB, 73rd Edition 2014, Section 453, margin number 7). The acquiring party does not then become the universal successor for the selling party. Rather, managing the purchase of a company requires a separate act of transfer for each individual asset that is to be transferred to the acquiring party. This act must be geared to the relevant material provisions. This is why, in an asset deal, the acquiring party does not enter by way of universal succession into contractual relationships in which the selling party is authorised and obliged, and which are covered by the purchase of the company. Instead, these agreements must first be transferred to the acquiring party in the requisite form in order for said party to become a contracting party. Then the above principles apply.

In the case of the purchase of a company by acquiring an equity interest (so-called share deal; see Palandt/ Putzo, loc. cit.), in contrast the acquiring party enters into the existing contractual relationships including lease agreements. In this case no separate transfer of the lease agreements is required. Restructurings under the Restructuring Act constitute an important case in practice. This allows a far-reaching transfer of assets via universal succession without approval by the affected creditors.

Originally published March 27, 2014

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© Copyright 2013. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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