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In order to increase their returns, investors have increasingly
terminated (housing) rental agreements with social institutions in
the assisted living sector in recent years. They generally do so
whether or not any rent was unpaid or there were other disturbances
from the tenants. Now, the legislator has put a stop to this
practice for future cases.
The change in the law was necessitated by a problematic
development in assisted living: where landlords were fairly glad to
rent apartments to social institutions for various reasons a few
years ago, the market has become increasingly contracted recently.
Most of the social institutions in the assisted living sector find
it very hard to find suitable housing due to rapidly increasing
rents.
At the same time, landlords are increasingly terminating leases
without failure from the tenants (such as rent arrears or
disturbances). This practice is particularly observed after real
estate sales to institutional investors which are looking for ways
to increase their returns – this is where a replacement of
low-rent tenants comes in handy.
Until the end of 2018, the option of such terminations has been
offered due to a gap in the law since there was no clear legal
protection for social institutions when renting apartments.
Protection against terminations only existed where expressly agreed
on or where the court had interpreted the contract to include such
a clause during an eviction trial. The latter were rulings on
individual cases that depended on the opinion of the respective
court. In this respect, the social institutions did not have any
legal certainty.
And what is worse: the loss of the apartment for the social
institution also meant that the affected clients were automatically
obligated to leave their apartment and their center of life without
being granted any protection!
This gap has now been closed by the legislator. Since January 1,
2019, new leases between landlords and social institutions are
mostly subject to a statutory protection against termination (new
Section 578(3) Civil Code). Therefore, the crowding out of assisted
living without legitimate interests is at least barred for all
future cases.
Practical tip:
With the new Section 578(3) Civil Code, statutory provisions on
rent increase options and on handling cases of conversion into
condominiums were also introduced for such contracts. Therefore,
both social institutions and landlords are well advised to
familiarize themselves with the contents of Section 578(3) Civil
Code for their future contracts.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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