Introduction
Professional and business needs not always justified interest
Needs of civil law partner or relatives
Comment
According to German law, a landlord can terminate a rental agreement for residential premises if he or she has a justified interest in ending the lease. Such interest is usually given if the landlord needs the premises for housing for himself or herself, family members or members of his or her household (known as 'termination due to landlord's needs'). In two recent cases, the Federal Court of Justice addressed and clarified some aspects of the issue regarding what kind of landlord's needs justify termination:
- professional or business needs; or
- the needs of a partner in a civil law partnership under the Civil Code that rents out residential premises.
The court addressed the legal consequences of a breach of a landlord's obligation to offer alternative residential premises after giving notice due to personal needs (ie, duty to offer).
Professional and business needs not always justified interest
In a March 29 2017 decision (VII ZR 45/16) the court clarified that a landlord's interest in using a rented residential premises for professional or commercial purposes or allowing a person close to the landlord to use the premises for such purposes does not constitute a justified interest that would typically require consideration pursuant to Section 573(2)(2) of the Civil Code (or Section 573(2)(3) of the code), but constitutes grounds for regular notice of termination. On the contrary, the court found that the decision would depend on a comparison of the interests of landlord and tenant in each individual case.
Addressing the issue of when a landlord's interest in using a residential premises for professional or commercial purposes overrules the tenant's interest in continuing to rent, the court made a distinction in its judgment between two types of case. The first type is known as 'mixed use'. Mixed use is deemed given if the landlord (or a person close to the landlord) would like to use some of the residential premises partly for residential purposes but mostly for business purposes. In such a case, the court held that it is generally adequate if the landlord suffered a noteworthy disadvantage by not using the residential premises. Grounds arising from the landlord's understandable and reasonable life and career planning were said to be adequate. The second type of case involves the use of residential premises solely for professional or business purposes. The court found that in such cases, it would generally be necessary for the disadvantages to the landlord to be both noteworthy and to have a certain amount of gravity. This was said to be given, for example, if the landlord's business activities would otherwise cease to be profitable or life circumstances made the use of the rented residential premises necessary.
The present case was the second type – a case in which the commercial or business use was primarily limited to storing files in the residential premises in dispute. Due to the landlord's failure to demonstrate a grave disadvantage, the court ruled that the tenant's interest had priority.
Needs of civil law partner or relatives
In its December 14 2016 decision (VIII ZR 232/15) the court ultimately upheld its case law that a regular notice of termination due to a landlord's needs pursuant to Section 573(2)(2) of the Civil Code is generally also possible if the landlord is in a civil law partnership that has some (external) legal capacity and one of the partners requires the premises for his or her own housing or for that of a family or household member. The court found that the interest in such a situation was comparable to that of multiple-party landlords (joint ownerships or joint heirs).
According to the court, there could only be an exception to the mutatis mutandis applicability of Section 573(2)(2) to a civil law partnership that has some (external) legal capacity:
"if the object of the partnership… is prominent in such a way that the personal relationship of the partner to the partnership, and thus his personal need for use, recedes completely into the background and, if only due to this partnership object, a tenant could not in all fairness be expected to anticipate a possible landlord's need on the part of a partner or his relatives (e.g. in the case of publicly owned firms, especially investment companies)."
The judgment rejected the existence of such an exception in the partnership at issue. The object of that partnership was the renovation and expansion of the building, renting it out and, where possible, dividing it into owned units.
Breach of the duty to offer incumbent on a landlord terminating a lease due to personal needs does not trigger invalidity of the termination itself.
In its December 14 2016 decision the court addressed the issue of the 'duty to offer' on the part of a landlord that terminates a lease due to personal needs and the legal consequences of a breach of this obligation. According to case law, a landlord who terminates due to his or her needs must offer the tenant a vacant premises in the same building or housing complex if the landlord had wished to rent out such premises anyway. According to the court, a landlord who breaches this duty to offer breaches a contractual obligation to show consideration under the terms of Section 241(2) of the Civil Code and could be liable toward the tenant for pecuniary damages.
The judgment stated that previous case law, which deemed a breach of the duty to offer an abuse of the legal right that led to the invalidity of the termination due to a landlord's needs, was no longer tenable. It continued by stating that the breach of an obligation resulting from justified termination due to a landlord's needs could not make a termination due to personal needs an abuse of a legal right and therefore invalid.
The two decisions provide clarification regarding a landlord's needs as grounds for termination and its legal consequences. The change in case law regarding the legal consequences of a breach of the duty to offer is welcome. But ultimately, these judgments also show that there is no one-size-fits-all answer to the question of whether termination due to a landlord's needs can be declared valid. On the contrary, the decision must always be based on the specific circumstances of each case.
For further information on this topic please contac David Zafra Carollo at Noerr LLP by telephone (+49 211 499 860) or email ([email protected]). The Noerr LLP website can be accessed at www.noerr.com.