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Termination of Disagreeable Leases During the Corona Pandemic by Failure to Comply with the Written Form Requirement

In the course of the ongoing Covid-19 pandemic, there is a particular need for many lessees to terminate current lease agreements. As the above contribution in this newsletter shows, it is often very difficult for lessees to legally obtain an adjustment to the amount of rent due to impediments to use caused by the Covid-19 pandemic, even if the lessee is affected by specific measures, such as closure orders in the catering or retail sectors. The legal instruments, in particular the discontinuance of the basis of the transaction, are unlikely to be of any benefit if a lessee is affected by indirect losses of turnover outside of closure orders.

Lessees of office space may also feel the need to adapt their leases, especially due to the now accelerated changes in the world of work and in view of a higher acceptance of home offices.

If no amicable solution can be found with the lessor, termination of leases may have to be considered. Here, an agreed fixed term often stands in the way. Failure to comply with the written form requirement of lease agreements with a fixed term of more than one year according to Sections 578, 550 of the German Civil Code (BGB) could be a "lever" to get out of a lease agreement prematurely.

Section 550 BGB stipulates that lease agreements with a fixed term of more than one year require the written form. If the written form requirement is not complied with, the corresponding lease agreement is not invalid, but the lease agreement can be terminated in compliance with the statutory termination regulations. This could open up the possibility for lease parties to terminate leases in which they no longer have an interest due to the effects of the corona pandemic. If necessary, a termination can also be pronounced in order to force renegotiations on this basis.

Compliance with the written form requires that the parties set out all contractually substantial provisions in a written document in an ascertainable manner. In particular, the written lease agreement must contain the essential contractual conditions such as the parties to the lease, the subject matter of the lease, the amount of the rent and the term of the lease. The written form requirement also extends to any amendments agreed between the parties to the lease. Accordingly, a subsequent agreement regarding the essential provisions of the agreement that does not comply with the written form, whether verbally or merely by means of an e-mail exchange, results in the contract being terminable prematurely, even if it was originally concluded in a form that complies with the written form.

The question of whether a party can invoke the non-compliance with the written form requirement is irrelevant if the respective party is at fault for the occurrence of the non-compliance with the written form requirement. The German Federal Court of Justice (BGH) has also already rejected a blanket invocation of the principle of good faith. It is in particular irrelevant whether the non-compliance with the written form requirement which the party invokes has an effect in favour of or to the disadvantage of the respective party. According to the case law of the Federal Court of Justice, the so-called written form defect curing clauses frequently contained in lease agreements are invalid because they unreasonably disadvantage the purchaser of the property who is protected by the written form requirement.

In which cases an appeal to the non-compliance with the written form requirement can be considered, we would like to clarify once again on the basis of the following current higher court decisions of the year 2020:

Adjustment of the advance payment of operating costs, Higher Regional Court of Brandenburg, judgment of 7 July 2020 - 2 U 82/19

The parties concluded a lease agreement with a fixed term of 25 years in 2003. In 2015, the lessee gave extraordinary, or alternatively ordinary, notice of termination of the lease due to a large number of water ingresses in the rented property. The lessee justified the ordinary termination with the fact that the parties had reduced the originally contractually agreed advance payment for operating costs from EUR 200.00 to EUR 50.00 by means of mutual letters in 2014.

Due to the lack of a formal warning, the Higher Regional Court of Brandenburg did not consider the extraordinary termination to be effective. Accordingly, the possibility of an ordinary termination, which would have been opposed by the agreed fixed term of 25 years, was relevant to the decision.

The ordinary termination was considered effective. The correspondence between the parties on the adjustment of the advance payment of ancillary costs did not comply with the written form, as each letter bore the signature of only one party. Pursuant to Section 126 (2) BGB, the written form requirement is indeed met if each party signs only the document intended for the other party. However, according to case law, this requires several instruments with the same wording.

This is not the case with an exchange of correspondence that only contains the agreements to be made. The adjustment of the advance payment of operating costs, which is legally to be considered an integral part of the rent, is an essential provision of the agreement, the new agreement of which is thus subject to the written form.

However, this case is to be distinguished from a lease agreement in which there is a unilateral right to determine the amount of the advance payment of operating costs in favour of the lessor. If the lessor makes use of his unilateral right to determine the amount, this does not constitute a new agreement and thus not an amendment to the contract that requires the written form. In cases of doubt, however, a written agreement should always be made.

Determination of the leased property (adjoining rooms). Higher Regional Court of Oldenburg, judgment of 10 September 2020 - 9 U 1/20

The parties were related through a lease agreement for a gaming arcade. The lease dating from 1996 was initially limited to ten years. It was extended by five years at a time unless one of the parties had given notice of termination beforehand.

Due to ongoing disputes between the parties, the lessor, represented by BEITEN BURKHARDT, wanted to terminate the lease before the end of the renewal period. The lessor therefore declared ordinary termination, invoking the non-compliance with the written form requirement. The lease agreement stated that the rooms located on the first floor of the building in dispute would be let according to an attached sketch by an architect. The leased area was agreed as "approx. 300 sqm plus 50 sqm adjoining rooms".

The rent was to be DM 15.00 per sqm. It was agreed that the exact area was to be determined after completion of conversion measures. This did not happen at any time.

The Oldenburg Higher Regional Court found that with the aforementioned regulations the subject matter of the leased property was not defined with sufficient precision. It is not sufficiently clear from the architect's attached sketch, which does not even contain any colour markings, which areas are covered by the lease. This applied in particular to the adjoining rooms. For the OLG, the question here was whether the definition of "adjoining rooms" was a condition substantial to the contract. In this context, the OLG dealt with a decision of the Federal Court of Justice from

2008, according to which the agreement on the location and size of one of several basement rooms did not need to be notarised, as this was generally not part of the material elements of a lease agreement due to the subordinate importance of a basement room.

In this case, however, it was not clear from the contractual agreement and the architect's sketch what kind of adjoining rooms were involved at all and where they were located in the leased property. Contrary to the case already decided by the Federal Court of Justice, here it was not even specified whether these were cellar rooms or other adjoining rooms on the first floor of the leased property. It also does not justify a different assessment if the room handed over only accounts for a fraction of the total leased area. Therefore, adjoining rooms, even if they are small in area, would at least have to be identifiable in some way.

The amount of the rent was also not set out in an ascertainable manner in the present agreement. The parties only specified an approximate area of 300 sqm. As a result, the rent of DM 15.00 per sqm could not be calculated in concrete terms. The court further pointed out that it was not clear from the agreement whether the adjoining area of 50 sqm was to be remunerated with DM 15.00/sqm or not.

Practical Note

The problems that arise in connection with compliance with the written form requirement are complex and are based on a multitude of court decisions that can hardly be ignored. It is therefore always a good idea to have the legal situation reviewed by an experienced lawyer before giving notice of termination. Please do not hesitate to contact us if you wish to have your lease agreements reviewed for compliance with the written form requirement or if you are considering suitable termination options.

When concluding new lease agreements or negotiating amendments to contracts, particular attention should be paid to compliance with the written form requirement. In cases of doubt, it should be legally examined whether an agreement with the lessee constitutes a contract amendment that is subject to the written form requirement.

Thomas Herten

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