BGH, Decision of March 30, 2011 – VIII ZR 173/10

It frequently occurs in practice that an apartment has to be renovated after modernization work, because damage to the leased object caused by the construction work could not be avoided (e.g. wallpaper, plaster, paintwork). If the lessor does not contract a workman because the tenant carries out the renovation work himself, the previously highly disputed question arises, whether the renovation expenses reimbursed to the lessee pursuant to Section 554 paragraph 4 of the German Civil Code (BGB) are part of the modernization costs and may therefore be included and allocated in the rent increase pursuant to Section 559 paragraph 1 BGB. The German Federal Court of Justice (BGH) has affirmed this in its decision.

HEAD NOTE

The costs of modernization work also include expenses for restoring decoration damaged by the construction work. These costs can be allocated pursuant to Section 559 paragraph 1 BGB, even if the lessee has carried out the work himself and if the lessor has reimbursed him for the expenses pursuant to Section 554 paragraph 4 BGB.

FACTS

The original case dealt with the installation of new water meters. Upon the announcement of the works and the planned rent increase by the lessor, the lessee pointed out that the measure would make a new papering of the just recently renovated kitchen necessary. He offered to carry out the work himself and demanded a prepayment from the lessor for the expenses incurred by him in this regard. The lessor declared his willingness to take over the renovation costs, because damaging the wallpaper could not be avoided during the installation of the water meters. At the same time, he pointed out to the lessee that these would also constitute allocable modernization costs, which is why the rent increase would be correspondingly higher. After the installation of the water meters, the lessor allocated the total costs. The lessee did not pay the part of the amount allocable to the wallpaper cost prepayment.

CONTENT AND SUBJECT OF THE DECISION

According to the opinion of the BGH, the rent increase was fully justified and based its decision essentially on the following statements:

The BGH first found that it is generally accepted that the installation of water meters constitutes a modernization measure.

In a second step, the BGH found that the cost of modernization measures in the sense of Section 559 paragraph 1 BGB also include expenses for wall papering work, which becomes necessary because the existing decoration, which as such does not require replacement yet, was damaged by the construction work. These works did not constitute general maintenance work that arose irrespective of the modernization and could therefore not be allocated to the lessee.

According to the BGH, the lessor can allocate the costs for renovation work to the lessee via rent increase if the work was contracted to a third party as well as if he remunerated the tenant the costs incurred with the work. The BGH rejects the opinion, according to which a reimbursement of costs to the tenant must not be made undone by finally allocating the amounts thus spent to the tenant via a rent increase. Rather, the law allowed the lessor to allocate all costs expended by him for modernization measures, so that an incentive was created for lessors to carry out construction measures that are in the general interest. This would not be in the interest of the tenant, too, since the lessor would otherwise instruct a workman from the start whose in case of doubt higher costs can be allocated without any problems.

IMPACT ON DAY-TO-DAY BUSINESS

The BGH’s decision provides legal certainty for an expense reimbursement paid by the lessor to the lessee can be a part of the modernization costs which can be allocated to the tenant. Thus, the BGH does not agree with the opinion according to which renovation costs are deemed costs for remedying a defect in case of a legitimate self-remedy. Such remedying costs could not be allocated. Lessees can therefore not avoid an allocation of the renovation costs by carrying out the work themselves at the expense of the landlord. The draft statute of the planned new leasing law modification act (Mietrechtsänderungsgesetz) will not change this situation.

The decision hints a wide interpretation of the term modernization by the BGH: Modernization measures are completed only, once the apartment is in a contractually- agreed condition again. All costs required for this must then be included in the (allocatable) construction costs. Accordingly, this also applies to the renovation costs, if they were caused by the modernization. They are not caused, however, if the costs arose only on the occasion of the modernization (e.g. new curtains because the windows now have a different size) or in the case of claims for damages of the lessee pursuant to Section 536a BGB, because damage to his property was caused during the work. Apart from that, expenses for maintenance or renovation work carried out independently of modernization (but at the same time), financing and capital procurement costs as well as any lost rent of the lessor due to rent reduction during the measures being carried out continue to be ignored for the calculation of a rent increase for modernization.