BGH, Decision of April 13, 2011 – VIII ZR 223/10

The German Federal Court of Justice (BGH) decided in 2005 that the gross rent, i.e. the rent and prepayments or lump-sum amount for operating costs, is to be used as the assessment basis for a rent reduction. Since then, it was unclear, how the rent reduction is to be calculated in detail. The BGH has now addressed this question and provided valuable advice for dealing with rent reductions in practice.

HEAD NOTE

On taking a rent reduction into account in the annual operating costs settlement

FACTS

The defendant was tenant of an apartment for which she owed a monthly rent of EUR 304. Of this amount, EUR 250.53 was attributable to the net cold rent and EUR 53.47 to the operating costs prepayment. Due to defects of the apartment, the defendant reduced the rent during the months from August 2005 to February 2006 by EUR 64 per month and from March to June 2006 by EUR 104 per month. The plaintiff and landlord credited the reduction amount on a pro-rata basis to the net rent and the operating costs prepayment. In the operating costs settlements of account, the plaintiff took only the prepayment amounts that were reduced corresponding to the rent reduction into account and credited these towards the annual amount of the operating costs allocable to the defendant when calculating the balance.

CONTENT AND SUBJECT OF THE DECISION

It has been decided since 2005 that the gross rent is to be used as the basis of assessment for a rent reduction (cf. BGH decision of 20 July 2005, VIII ZR 374/04). It was unclear since then, how the rent reduction is to be calculated in detail and particularly whether and how the reduction amount has to be credited towards a prepayment and how the balance is to be determined in a settlement of account of the operating costs. In its decision of 13 April 2011 (case no.: VIII ZR 223/10), the BGH now makes it clear that it could not be derived from the above decision from 2005 that – as many believe – a rent reduction amount was to be credited on a pro-rata basis both to the net rent and to the operating costs prepayment. Accordingly, it is up to the landlord (subject to an explicit repayment determination by the tenant), whether he books a reduction amount exclusively against the net rent or whether he also credits it against the operating costs. Before this background, the BGH declared the aforementioned calculation method to be incorrect. Because in the case of a pro-rata credit of the rent reduction against the operating costs prepayments, the annual amount of the operating costs owed also had to be reduced correspondingly. In the underlying case, however, the landlord credited the proportionately reduced prepayment amounts against the unreduced operating costs settlement of account. To be correct, the landlord would also have had to reduce the annual amount of the operating costs owed accordingly.

The BGH furthermore makes it clear that this method was not necessary in the first place. Because any claim for subsequent payment could be calculated most easily, if the total payments made by the tenant in a settlement year were credited against the total annual rent owed by him. The latter amount resulted from the annual amount of the net rent plus the settled operating costs minus the justified reduction amount.

EXAMPLE

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According to the BGH’s opinion, this calculation method leads to the correct result in any case. This is sometimes countered with the argument that it was unclear how to proceed, if a reduction quota is asserted in the form of a percentage. Some believe that if it was taken into account for purposes of the operating costs on a pro-rata basis, the problem would regularly arise that the final reduction amount could be determined only after the settlement of account of the operating costs had been prepared. The BGH did not comment in this regard, since this question did not have to be answered. However, there are good arguments supporting the opinion that the calculation of the reduction amount occurs only based on the part of the gross rent, which has to be paid in the form of net rent and the prepayments or lump sum for incidental costs for the period in question.

IMPACT ON DAY-TO-DAY BUSINESS

Even though the decision was made in the area of residential leasing law, a lot suggests that it can also be applied to commercial leasing law. The BGH does not see any compelling reasons to credit the reduction amount proportionately to the net rent and the operating costs prepayments. If this method is used, the reduced operating costs prepayment must be credited against the reduced settlement amount.

Eventually, the tenant is placed in a position on a calculatory basis as if he had paid the full amount of the agreed prepayments. For reasons of practicability, however, it is advisable to book the reduction amount only under the net rent. The operating costs can then be settled without taking the reduction into account. This applies only, however, if the tenant did not stipulate an explicit repayment determination and if the reduction amount does not exceed the net rent. In this case the reduction necessarily also includes payments for incidental costs.