1. The essential facts of the decision
In its recently published decision dated 27 September 2017 (case number: XII ZR 114/16), the Federal Court of Justice (BGH) denied the validity of so-called curative clauses for the written form.
Up until now, such clauses have usually been found in long-term leases. They contain a general obligation for the parties to the lease to retrospectively correct any breaches of the written form requirement of § 550 German Civil Code (BGB), and in doing so, to avoid a termination prior to the expiry of the intrinsically provided contractual term by way of ordinary termination.
The BGH held that curative clauses for the written form were “incompatible with the mandatory provision of § 550 BGB and therefore invalid“. They could not “per se prevent a party to the contract from terminating a lease in the ordinary way”. A curative clause for the written form breaches the protective function of § 550 BGB. This would lie on the one hand in the prevention of making imprudent changes to the contract, as well as on the other hand, the protection of potential purchasers of the subject of the lease. § 550 BGB is supposed to ensure that the agreement of all contractual conditions which are essential for the conclusion of the contract – including in particular the subject of the lease, the agreed rent, the term of lease, the contractual parties – are set out in a deed which has been signed by both parties to the lease or are at least clearly recognisable by way of express reference.
2. The underlying facts of the case
The case in question concerned the early termination of a lease of a store with a remaining term of at least until 2020, whereby the lease which was concluded in the correct form was then varied by an amendment in January 2011 which did not comply with the requirements of §§ 578, 550 BGB and was only concluded for the benefit of the landlord and which contained a modified stable value clause which was not in the valid form. The fact that the amendment was in an invalid form resulted in the lease being considered as having been concluded for an indefinite period and therefore pursuant to §§ 550, 542 para. 1 BGB subject to ordinary termination. The Federal Court of Justice denied however the landlord’s appeal based on his right of termination on account of a breach of the principle of good faith entrenched in § 242 BGB. The BGH made it clear that basically each party could plead that the written form intended for a contract had not been observed. The demand for good faith was to be observed however. Invoking the right of termination was by way of exception a violation of law if the early termination led to a completely unacceptable outcome. Such was the case in this leading decision because the landlord apparently used the amendment concluded in the incorrect form in order to free itself “from a lease which had become inconvenient in the meantime”, even though this amendment came about upon the initiative of the landlord and simply for its benefit.
3. Implications in practice
With one clear and short blow, the BGH has put an end to this long-standing bone of contention. Some time ago the BGH tilted the binding effect of curative clauses for written form towards purchasers of the subject of a lease (BGH, decision dated 22.01.2014, XII ZR 68/10). Now the BGH has gone one clear step further and has strengthened the protective purpose behind § 550 BGB by determining the general invalidity of the curative clause for the written form. At the same time it has highlighted that invoking the right of termination is subject to limits and that the floodgates have not been opened to allow violations of law.
Ultimately the decision of the BGH will simplify the dissolution of long-term leases – generally leases of commercial premises – which are not compliant with the written form, since neither a contractual obligation for the rectification of a missing written form exists nor is a claim to a written form defect contractually denied. Pursuant to §§ 578 para. 2, 550, 542 para. 1, 580 a para. 2 BGB, the notice period for leases of commercial premises which violate written form requirements amounts to between six and nine months, irrespective of the term given in the lease, whereby the earliest date of termination is one year from the commencement of the lease. Strict adherence to the written form requirements is more important than ever. It is recommended to examine existing leases with a view to written form and where applicable an amendment can be concluded to cure any breaches of form. In doing so, it should be borne in mind that the contractual partner should maybe first be made aware of the form defect, and, instead of concluding a corresponding amendment, the contract could also be dissolved by way of the ordinary right of termination.