The German Federal Ministry of Justice has presented a draft change of the leasing law on May 11, 2011. Purpose of the legislation is, on the one side, to facilitate energetic modernizations as a contribution to climate protection and, on the other side, an improved protection of the landlord in disputes with tenants who do not want to pay their rent. These goals are to be achieved primarily through changes to the leasing law of the German Civil Code (BGB) and by introducing new procedural law rules, primarily in the area of compulsory execution, in the German Civil Procedure Act (ZPO). Contrary to the indication in the title of the draft statute, some of the innovations also apply to commercial leases. In respect to the leasing law rules, noticeable are primarily (i) the extended definition of modernization measures, (ii) the restriction of the rent reduction right, (iii) the restructuring of rules concerning cases of hardship, as well as (iv) the introduction of a special termination right if the rent deposit is not paid in time. In the area of procedural law, (i) a new deposit order is introduced, (ii) the so-called “Berlin eviction” is codified as law, and (iii) it is made possible to obtain eviction writs simpler via preliminary injunction for residential spaces. These rules will be described briefly hereinafter.

ENERGETIC MODERNIZATION

So far, tenants have to tolerate certain maintenance and modernization measures both under residential as well as under commercial leasing law. Modernization measures are, inter alia, characterized by an energy- or water-savings effect. Irrespective of the obligation to tolerate them, it remains possible to reduce the rent. In exceptional cases, a tenant does not have to tolerate that they are carried out, if they constitute an unjustifiable hardship for the tenant (or members of the “household”), even if the justified interests of the landlord and of other tenants in the building (so-called hardship test) are taken into account. Under residential leasing law, the landlord can increase the rent permanently, after a certain announcement period, by 11 percent of the costs of the modernization allocable to the apartment per year.

The current legal situation is considered unsatisfactory for landlords. For example, mandatory refurbishments to improve the energy balance (e.g. under the Energy Savings Directive [Energieeinsparverordnung]) do not always have to lead to energy or water savings. Other measures that also serve climate protection (e.g. reduction of CO2 output) do not fall under the current definition of modernization measures and do not have to be tolerated as a consequence. And even if a toleration obligation exists, rents can be reduced during the implementation.

Broad Definition of Modernization Measures

According to the draft statute, the regime of maintenance and modernization measures is put in order and revised overall for the areas residential and commercial space. First of all, the definiton of modernization measures is broadened. The term now also includes “energetic modernization”. This means changes or construction measures, through which water consumption is reduced, primary or end energy is saved or energy is used more efficiently, or the climate is protected otherwise in a sustained manner. It is no longer mandatory for this to result in a savings effect and – this is what tenant associations criticise – the modernization accordingly does not have a direct benefit for the tenant by reducing incidental costs. Furthermore, the definition of modernization meas-ures now also already includes those that “are carried out because of circumstances for which the landlord is not responsible”. So far, the landlord could only demand a rent increase depending on the costs for such measures.

In respect to the advance information about the expected savings potential, which will still be necessary, the landlord will be allowed to refer to accepted general values (e.g. “Publication of the Rules on Data Collection and Use of Date in Existing Residential Buildings” of the German Ministry for Traffic, Construction and Urban Development of 26 July 2007). Extensive expert opinions showing the specific savings potential are no longer required.

Hardship Test

Modernization measures according to this extended definition have to be tolerated by tenants of residential and commercial spaces. Under the hardship test, which is still possible, the implementation of measures can now no longer be blocked merely because the expected rent increase is unreasonable. The economic hardship, that an increased rent can no longer be paid, is taken into account only on the level of the rent increase (and thus only in the area of the residential space). The residential tenant will nevertheless have to state the reasons for hardship, which he also wants to assert against the rent increase, within the onemonth period after the announcement of the measures, since these reasons do not have to be taken into account otherwise. Furthermore, the weighting of interests no longer includes only the interests of the parties but also energy efficiency and climate protection interests. Tenant associations criticize this as a factual erosion of the hardship rule, since the interest of the affected individual tenant could most likely never prevail against climate protection and energy efficiency.

Restriction of Rent Reduction

In addition to the toleration obligation, the draft also provides for an exclusion of the rent reduction for (the first) three months. This applies only, however, to the extent that the negative effects are due to the implementation of modernization measures, but not to the extent they are caused e.g. by maintenance measures being carried out at the same time. This exclusion affects both the commercial sector and the residential sector. Tenant associations criticise this exclusion as one-sided to the detriment of the tenant, since he not only had to tolerate the negative effects, but also had to pay the full rent during that time and in addition an increased rent later on.

MEASURES AGAINST TENANTS THAT ARE UNWILLING TO PAY RENT

New Special Termination Right

For clarification purposes, the draft statute inserts a new independent special termination right for residential spaces for the case that a tenant is in default with the rent deposit for an amount of two monthly cold rents. As in the case of rent payment arrears, such an extraordinary termination is to be come ineffective, if payment is made subsequently no later than two months after the claim for eviction becomes pending before court.

In addition, innovations are planned for procedural law.

New Deposit Order

So far, a landlord bears the risk that a tenant in default with the rent payment is insolvent at the end of legal proceedings. Particularly if the court decision requires extensive collection of evidence about the existence of alleged defects, the proceedings may last for many months. The draft statute attempts to reduce the landlord's risk by introducing a deposit order. According to it, the court can upon the landlord’s request order that the tenant deposit the rents becoming due after the action becomes pending. For this purpose, the extension of the lawsuit to these claims must first of all have a great chance of success and secondly, the order must be justified after weighing the reciprocal interests to avert special disadvantages for the plaintiff. The deposit must then be made within two weeks after the order with the court’s deposit office. In the case of a material change of the underlying situation, the order must be lifted or modified upon request. The draft does not contain any obligation of the plaintiff to pay damages if he obtains a deposit order without justification.

As a result, the preconditions for the deposit order are very high. It therefore appears questionable, whether this measures constitutes a real aid for the landlord. Because obtaining an order prior to the response of the defendant should regularly be out of the question due to the necessary weighting of interests. In addition, the great chance of success is missing particularly where the court believes that it is necessary to hear evidence during the trial. An already issued order would therefore have to be lifted – upon the defendant’s request – at the latest after the announcement of the decision to hear evidence.

It also appears questionable that the defendant can make the deposit only without interest while there is no clear obligation of the plaintiff to pay damages. Finally, the deposit order is no help in respect to the arrears that led to the filing of the action, either.

“Berlin Eviction”

The draft statute codifies the so-called “Berlin eviction” for residential and commercial spaces, which has already been generally accepted by courts. Pursuant to this model, the bailiff merely ends the former tenant’s possession of the premises and leaves objects brought in by the tenant within the premises. The advantage for the landlord is that he saves the significant prepayments and costs for the removal and storage of these objects. A specific precondition for this form of eviction is so far that the landlord has asserted his landlord’s lien in respect to the objects in the apartment. The draft statute waives this additional precondition. The bailiff only prepares a rough list of the objects found for evidence purposes. The landlord stores the objects. According to the draft, a realization will now (only) be possible pursuant to the provisions about the auctioning of pledged objects.

Eviction Writ via Preliminary Injunction

Finally, the draft statute provides – however, only for residential space –for an eviction writ via preliminary injunction against the possessor of an apartment in two cases. In both cases, the user or, as the case may be, tenant is to be heard first. In the first case, it shall be possible to order an eviction against persons, who have taken possession of the premises without the landlord's knowledge. This is meant to counteract the prevention of the eviction of the premises through (unauthorized) sub-leasing or provision of use.

In the second case, it shall be possible to order an eviction in eviction proceedings because of payment default, if the tenant has not complied with a deposit order. This is explained by claiming that such a tenant was making himself subject to the “increased suspicion of an intention to delay”. Finally, the deposit order as such already indicated that the objections of the tenant against the action for payment were not well-founded. It appears uncertain, whether this line of argument is legally tenable.

However, obtaining an eviction writ via preliminary injunction also entails risks for the landlord. Because if the demand for eviction turns out to be unjustified – e.g. through payment of the arrears in time within two months after the eviction proceedings have become pending – he may be liable for damages to the tenant.

OUTLOOK

It appears uncertain, whether the draft statute will be transformed into law without changes. Further strong objections against the current draft can still be expected from tenant associations. Thus, some rules concerning the energetic modernization, such as e.g. the exclusion of the rent reduction, could be abandoned at least for the residential sector. The planned changes would significantly increase the planning safety for landlords. In the area of procedural rules, the clear and simplifying rule concerning the “Berlin eviction” would also constitute an improvement. The rules regarding rewriting or, as the case may be, obtaining an eviction writ against users of an apartment that are so far unknown are generally desirable. Some concerns exist in respect to the deposit order as well as the eviction writ via preliminary injunction based on the non-compliance with it, as to whether this is legally possible in this way. Irrespective of the legal concerns, the deposit order in this form appears hardly suitable to provide the landlord with effective protection against economic risks due to lengthy proceedings.