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March 17 2017
In accordance with Section 546a(1) of the Civil Code, a residential landlord's right to compensation for use against a tenant who has been given due notice of termination but not vacated the property in time is often of concern if the landlord demands compensation for the value of the rent that is "customarily paid for comparable properties in the area". Until now, how to calculate this compensation precisely has been unclear. One widespread approach among scholars uses as a benchmark the residential tenancy law provision for rent increases in Section 558(2) of the Civil Code, while other scholars apply the rent customary to new contracts in the area.
The Federal Court of Justice (VIII ZR 17/16, January 18 2017) agreed with this latter view, which has created legal certainty for those applying the law and strengthened the interests of landlords of residential and commercial rental space.
General scheme and wording of provisions
The court emphasised the considerations relating to the general scheme of the law – Section 558 of the Civil Code is anchored in special (residential) tenancy law, while Section 546(1) is embedded in general tenancy law. Hence, the regulatory content of the special provision (residential tenancy law) does not apply to the general provision. In addition, neither its wording nor statutory material could justify a different conclusion. Reference was also made to the modernisation of the tenancy law in 2001. According to the court, the legislature deliberately decided against the assumption of the residential tenancy law term 'comparable rent' in Section 546(1), despite appropriate considerations in legal literature at the time.
Different protective functions
The decision also highlights the different legal purposes of both provisions. The court clarified that the residential tenancy law provision contained in Section 558(1)(1) aims to protect residential tenants from inappropriate rent increases during the term of a lease, while certain consideration must be given to the interests of the landlord when applying the general provision contained in Section 546a. It must be possible for the landlord to profit from favourable market price developments after the lease has been terminated. The court clearly stated that these considerations are not contradicted by tenant protection concepts, because the tenant no longer merits protection after the lease has been duly terminated.
Permissible means of putting pressure on tenants
Another central statement of the decision that is rarely seen in court rulings is that a landlord must be able to assert his or her rights effectively after the lease has been terminated. The right to compensation for use serves such purpose only if the landlord can claim from the defaulting tenant not just the value of rent for a comparable property, but also the value of customary rent for a new lease in the same area.
Irrelevance of other circumstances, particularly grounds for termination
Finally, the decision highlights that neither a temporary lack of rentability due to imminent renovations nor a termination on the basis of the landlord's intention to personally use the property makes any difference to the assessment of the compensation for use based on the rent under a new lease. The landlord's intention to re-let the property or any other consideration with respect to the actual rent lost has no impact on the determination of the amount of the compensation for use.
General strengthening of landlords' interests
The Federal Court of Justice's clarification on the fact that landlords' interests merit protection is significant for landlords of both residential and commercial properties. Such positioning is unfortunately rare, but therefore all the more valuable. The landlord's interests, which clearly outweigh the interests of the tenant who has failed to vacate the property, are obvious. Although the defaulting tenant can no longer claim any right to use the rental property, the landlord's right as owner, embedded in Article 14 of the Basic Law – according to which he or she can use the property as he or she chooses, particularly for financial use – is unjustifiably impaired by the tenant's unauthorised failure to vacate the property. The granting of compensation for the value of the rent under a new lease that is customary in the area takes the economic interests of the landlord into appropriate and justified consideration and increases the landlord's prospects of regaining direct possession of his or her property within a reasonable time by means of an effective method of pressure on the defaulting tenant.
At least contractually agreed rent is owed
In some rural areas market rent can remain the same for years or even go down, resulting in a rent under a new lease which is lower than the rent agreed before the termination of the lease, of which the landlord is often unaware. In light of this, the claim for compensation for the value of the rent customary in the area can be interpreted as a rent of at least the amount agreed in the earlier lease agreement. Therefore, in accordance with Section 546a(1)(2) of the Civil Code, the contractually agreed rent is to be viewed as a minimum rent.
Other means of exerting pressure on tenants
The decision confirms that landlords can now assert a claim for compensation for use against a defaulting tenant by way of legal action for a payment order. The previous uncertainty with respect to the fundamental legal question of how the amount of compensation for use is to be determined has now been clarified as a result of the Federal Court of Justice decision. Hence, pursuing these claims will involve fewer uncertainties in the future. Accordingly, it can certainly make sense to take legal action for a payment order, evaluated on a case-by-case basis.
Moreover, such an approach exerts additional pressure on a defaulting tenant, which – in accordance with the Federal Court of Justice – is permissible to a certain extent. The decision's clarity is to be welcomed and it is without doubt another positive signal to landlords in general.
For further information on this topic please contact Romy Nicole Fleischer or Markus Zeibig at Noerr LLP by telephone (+49 351 816 6061) or email (email@example.com or firstname.lastname@example.org). The Noerr LLP website can be accessed at www.noerr.com.
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