Federal High Court of Justice, judgment of July 18, 2012 – XII ZR 97/09

The German Federal High Court of Justice (BGH; “Court”) has recently aruled about the conditions and application of a rent reduction in case of a short fall of space in commercial leasings. This throws a light on the differences in residential and commercial leasings.

HEAD NOTE

Any difference in the agreed use of commercial space has to be taken into account when considering the appropriate reduction of rent if a space shortfall is exclusively concerning ancillary space.

FACTS

In the lease agreement in question some retail space (Kiosk) comprising sales and lounge space together with certain basement space was let out. The leased area was described in the lease agreement: Retail (ca. 87m2) and “below a cellar/storage (two rooms, ca. 110 m2)”. Further, the lease agreement read: “…; The leased space shall be agreed at ca. 197 m2.” However, the correct space of the retail area was 85.86 m2, and the cellar only had 53.93 m2. The proceeding instance, Kammergericht, who had considered a rent reduction because of the short fall in the cellar only based on a unitary rent per square meter was overruled by the Court and the trial remanded. Now Kammergericht has to access the reduction again and thereby consider a reduced value of use of the cellar space. The Court who can review appeal cases only under legal, not factual circumstances, cannot do that on his own.

CONTENT AND SUBJECT OF THE DECISION

The Court has emphasized the jurisdiction that a shortfall of space could constitute a defect of the leased object within the meaning of Section 536 of the German Civil Code (“BGB”). This jurisdiction has emerged from residential lease law in a series of decisions by the Court. In particular, a tenant does not have to introduce in a Court trial that there are obstacles to enjoy the agreed use of the leased object in case of a space shortfall compared to the agreed size. If the size is agreed only approximately, then this is true once the space deviance is more than 10 percent of the circa space.

The Court has ruled that this jurisdiction which is applicable to residential space may also apply in case of shortfalls of commercial ancillary space although ancillary space in residential leases does not count in accordance to the ordinance on the determination residential space (Wohnflächenverordnung). At least in case of a substantial deviance this is the same thing according to the Court. The fact that the value of the use is lower shall be reflected in the assessment of the rent reduction; however, this does not prevent that there is a deficiency at all.

When calculating the rent reduction the appropriate reduced rent shall be assessed in order to come to an equivalent of use and rent value (Section 536 para. 1 2nd sentence BGB; so called “principal of equal benefit”). Kammergericht was wrong in its calculation when in considered only the shortfall of cellar space as opposed to the overall space because the rent for the overall space was agreed unitarily. This calculation does not reflect the reduced value of use of the ancillary space as opposed to the retail space so that it does not lead to an appropriate rent reduction. The parties have agreed the cellar to be used as storage. Treating this equal to retail and other ancillary space would only be appropriate if also the cellar would provide for a comparable use. Thus, the rent reduction by the Kammergericht was too high.

IMPACT ON DAY-TO-DAY BUSINESS

In any case there has to be an agreement on the precise size of the leased space. If there is no such agreement it is even more difficult to identify a defect based on a size shortfall. The recent judgment is very helpful to calculate the rent reduction in cases where the shortfall refers precisely to an area of separate use. This happens very frequently in commercial leasing (e.g. archive, storage, court space etc.) but it is not definitely standard. If such differences do not matter so much at first glance, for example in case of a single tenant object or property, such separate size indications are neglected frequently. On the other hand, in well drafted up to date agreements, there is a large amount of transparency concerning the different values of separate space which even indicate different rent amounts per square meter for each type of use to come to the overall rent amount. Such agreements are an easy tool for the calculation of a rent reduction if there is a shortfall in one separate area. It should be noted that contrary to the 10 percent threshold indicated by the Court, such agreements provide for a rent adjustment mechanism already in case of a circa 3 – 5 percent space deviance. Thus, a space deviance may also lead to a rent increase if the space is larger.

There is one type of use indicated in a large number of lease agreements that may not be relevant in case of space deviances, namely “rental area with collective right of use” under the standard for calculating the rental area of commercial premises (“Richtlinie zur Berechnung der Mietfläche für gewerblichen Raum”). This type of area frequently also provides for a certain reduced rent amount whereby the tenant does not have an exclusive right to use as opposed to the exclusively leased area. It may be doubtful if there is any value of the use for the tenant at all, however, it cannot be neglected because of the rent payment obligation and the principal of equivalent benefit. The Court did not completely deny the requirement of an obstacle of use but has kept this in mind and only released the tenant of its procedural duty to introduce the facts if there is a substantial deviance. The Court did not rule whether this is also justified in case of a deviance of the common space.