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.
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.