The termination of a lease agreement by the acquirer for the reason of non-compliance with written form requirement is permissible despite existence of a remedial written form clause. BGH [Federal Supreme Court], judgment of January 22, 2014 – XII ZR 68/10 and BGH, judgment of April 30, 2014 – XII ZR [civil law] 146 /12 Guiding principle 1. BGH XII ZR 68/10 of January 22, 2014 A so-called remedial written form clause in the lease agreement does not in itself prevent the acquirer from terminating a lease agreement which he entered into pursuant to Section 566 Para 1 BGB by citing lack of the requirement of the written form, without first requiring the tenant to remedy the deficiency. 2. BGH XII ZR 146/12 of January 30, 2014 The beneficial owner (“Nießbrauchsberechtigter”) is not acting in bad faith if, despite a clause to remedy the contractually required written form, he terminates a lease agreement which he entered into pursuant to Sections 566 Para 1, 567 sentence 1 BGB citing lack of the written form. Facts Both decisions concern termination of commercial leases by an acquirer or beneficial owner due to violation of the written form requirement, stemming respectively from the time before the change of ownership. In both cases, the leases contained so-called remedial clauses under which the parties undertook to, in the event of non-compliance of the written form, induce this subsequently and not to
terminate before that date on the grounds of lack of form. contEnt And subJEct oF tHE dEcision
There has thus far not been a ruling by the Supreme Court as to whether a standard remedial written form clause would also have a binding effect upon the acquirer of the property. Lower court case law and the legal literature have had differing views on the matter (see our Newsletter Summer 2013). The Supreme Court has now in these two decisions ruled on this controversial issue and finally resolved it. According to these rulings, the acquirer of a property who has assumed the rights and obligations arising from the lease agreement pursuant to Section 566 BGB is not acting in bad faith if he terminates the lease citing lack of the written form, despite the lease containing a remedial written form clause. This applies regardless of whether the remedial clause has been agreed in individual contracts or is part of a standard contract. The Supreme Court justifies its view with the protective purpose of Section 550 BGB. This provision is intended to ensure that a subsequent acquirer of a property, who by law on the part of the landlord enters a lease agreement concluded for more than one year, can ascertain its terms from the written lease agreement. The acquirer shall be pro- tected against entering a lease agreement of which the economic conditions are different than expected, for instance as a result of an agreed reduction of rent. If this is nevertheless the case due to irregular agree- ments, for example only verbal agreements, then he can withdraw from the contract. The acquirer should also be entitled to this right. The Supreme Court does not consider the argument thus far commonly used – that a potential acquirer could become aware of the remedial clause by inspecting the lease agreement and should therefore be aware that he must take part in restitution of the required form in the event of a lack of the written form – to be convincing. The point is that the acquirer obtains knowledge of the essen- tial rights and obligations which he enters into upon acquisition only through insight into the document of the lease agreement. This protection purpose has not been observed if the acquirer would have had to investigate any possible further agreements with the original parties. In the view of the BGH, the fact that concealment of such information would entitle him to compensation claims can also not be accepted.
This is because the provision of Section 550 BGB does not intend to point the acquirer towards claims for damages, but give him a right of termi- nation. Since in general opinion the provisions of Section 550 BGB represent binding law, it also does not matter whether the remedial clause in question constitutes an individual agreement or a standard clause. iMpAct on dAy-to-dAy businEss
These two Supreme Court decisions are of con- siderable importance because they decided the thus far unresolved legal question of the effects of remedial clauses on the acquirer of a property. According to these decisions, in the event of the sale of a property there is for the tenant of the property a risk of termination due to lack of the written form by the acquirer. However, there are two other issues that play a large role in the context of remedial written clauses that the Supreme Court did not address:
a) Can remedial written clauses be concluded effectively at all by individual contracts or standard contracts?
b) How important is the sale of the rental pro- perty with regard to possible termination rights of the tenant if there is a remedial written form clause?
Despite the above two decisions, the Supreme Court has not yet addressed the question of whether remedial written form clauses can be effectively agreed between the original contracting parties. The majority opinion in literature and documentation is that this is possible. To avoid any risk, it seems advisable to conclude an addendum to the lease agreement if the respective party has an interest in the continued existence of the rental agreement, in order to remedy the lack of the written form.
Another issue that remains unresolved is the ques- tion of whether the tenant can terminate the lease agreement with the acquirer despite remedial writ- ten form clause, citing the lack of the written form. If one takes the argument of the Supreme Court as a basis – that the provision of Section 550 BGB is intended to protect the acquirer against unfamiliar agreements between the parties to the lease agreement – this implies that the tenant must be held to the obligation ensuing from the remedial written form clause that states he may not invoke any lack of written form against the new owner. Otherwise the acquirer would be confronted by the tenant with various cases of absence of the written form that he would not be able to see from the lease agreement he has in his possession. It is exactly this situation that the Supreme Court wanted to avoid with the two judgments. It is unfortunate that the Supreme Court did not make use of the opportunity to take a definitive position on these issues. The topic of the written form thus continues to be one of the most important problems in commercial leases.