In its ruling of September 26, 2012, the Federal Court of Justice confirmed and elaborated on the limitation and restriction of the standard transfer of centre management, administrative and caretaker costs in commercial lease agreements.

Facts

The parties had argued whether and to what extent individual incidental charges relating to the communal facilities can be apportioned effectively (on a pro rata basis) to tenants.

The costs for ‘centre management’, ‘administrative costs’, ‘caretaker costs’ and ‘insurance costs’ in particular had been in dispute.

Content and subject of the decision

Section 307 para. 1 sentence 1 German Civil Code had been the starting point for the Federal Court of Justice’s ruling. Correspondingly, the provisions in the general terms and conditions are ineffective if they put the user’s contracting party at an unfair disadvantage. In this case, an unfair disadvantage also may arise if the provisions are unclear and not easily understandable (Sections 307 para. 1 sentence 2 German Civil Code). According to the Federal Court of Justice, in the case of agreements relating to the transfer of service charges to the tenant, special significance is attached to this rule of transparency. This is due to the fact that a tenant will be able to assess the appropriateness and fair market value of service charges reliably only if, based on an expressly and sufficiently specified allocation agreement, the tenant is able to get a rough idea of the additional costs involved apart from basic rent.

As for the individual costs: Insurances

The Federal Court of Justice determined that the according to the above standards the transfer of costs for ‘insurances’ is invalid. The content of the clause is unclear because it provides no indication as to the type and amount of potential insurance costs.

Centre Management

In its ruling of August 3, 2011, the Federal Court of Justice confirmed that the agreed standard form allocation of ‘Centre Management’s’ costs to the tenant, which are not itemised in detail, are invalid because thislacks sufficient transparency. The allocation of the Centre Management costs gave no indication as to what costs were included or which services in terms of content are to be covered by the Centre Management. The term Centre Management (in contrast to the term administration, see below) was not defined and intrinsically did not allow the limitation of contentrelated individual items. For example, this may include costs for market analyses, determining customer requests, advertising and PR measures, decorations, events and other profiling measures. Since the scope of the measures to be taken by the Centre Manager is not described in detail in the lease and therefore cannot be defined – as pointed out by the Federal Court of Justice – the costs incurred for the tenant could not even be estimated, so that the clause therefore is nontransparent and invalid.

Caretaker and/or maintenance of all technical facilities

Further, the Federal Court of Justice also considers the overburdening of costs for a ‘caretaker’ and ‘maintenance/repairs of all technical facilities’ to be an inappropriate disadvantage if consequently the maintenance burden for the entire real estate (in this case: shopping centre) can be imposed upon the tenant. The apportionment of service charges – as pointed out by the Federal Court of Justice – must be limited at the point where the maintenance burden of areas and facilities used jointly by other tenants is imposed upon tenants without limitation of the amount. Consequently, costs would be imposed upon tenants, which are not caused by their use and are outside their sphere of risk.

Administration

The Federal Court of Justice reiterated its opinion that with respect to commercial rent the term ‘administration costs’ within the meaning of Sections 307 para. 1 sentence 2 German Civil Code is adequately defined in the standard form clause. For specifying the term administration costs, one can refer to the essentially concurrent definition in Section 26 para. 1 Second Calculation Ordinance and/or Section 1 para. 2 no. 1 Operating Costs Ordinance.

Impact on Day-to-Day Business

The Federal Court of Justice in its decision reiterated that it allows the contractual structure in its general terms and conditions, which deviates from the statutory guiding principle (incidental charges are borne by the landlord) only if they are in keeping with the requirements for transparency and if the tenant is able to estimate the scope and type of costs from the allocation agreement. It therefore is recommended that the landlord should specify and define the apportionment of costs in detail in the lease agreement. If the costs for communal areas and/or facilities are to be apportioned, a cost ceiling must be stipulated in the lease agreement.

Tenant – especially in the case of older lease agreements – one should examine whether the lease meets the transparency requirements of the Federal Court of Justice, and therefore the incidental charges are apportioned justifiably. It may even conceal a considerable savings potential.