Commercial Leases: Freedom of Contract, Pitfalls, Obligations

Commercial Leases

I advise on commercial lease and tenancy matters for businesses only.

For expats: German residential tenancy law (Wohnraummietrecht) is extremely tenant-friendly and well known internationally. Commercial tenancy law (Gewerberaummietrecht) is a very different regime. The consumer protections largely fall away, freedom of contract is the norm, and what the contract does not say will often surprise you.

A lease (Miete) grants use of a property. The main difference from a tenancy with usufruct (Pacht) is that the tenant under a Pacht may also draw profits from the property. A holiday flat example: if you sublet your leased flat as a holiday rental, the profits belong to the landlord; if you sublet a gepachtete property, they belong to you. A Pacht also typically includes inventory, the tenant may be liable for obligations of the predecessor, and there is generally a duty to maintain the business.

The difference from leasing: in finance leasing the lessee bears economic risk for the asset even without ownership.

Shopping Centre – Three Traps in One Contract

A space in a shopping centre typically comes with a landlord-drafted contract that looks reasonable at first glance. Three points deserve close attention.

Index clause: Many commercial leases tie rent to the consumer price index. In times of low inflation this hardly matters. When inflation rises, rent rises automatically – no notice, no negotiation.

Operating obligation: Shopping centres often require the tenant to actually operate their business, at specified times, sometimes including Sundays. Temporarily closing – even while continuing to pay rent – breaches the contract.

Competition protection: There is no statutory right to prevent the landlord from leasing adjacent space to a direct competitor. It must be negotiated and written into the contract. If it is not there, it does not exist – and you find out when the competitor moves in.

Business Takeover and Lease Assignment

Taking over a running business under a Pacht means taking over more than premises. Inventory, customer relationships, ongoing contracts – what exactly is included should be set out in the agreement. What is not addressed can become a problem, including liabilities of the predecessor and warranty claims from old transactions.

Anyone taking over a business should know what they are taking on. Careful contract review is essential.

Termination

Commercial leases typically have long terms and narrow notice windows. Extraordinary termination requires good cause and, if contested, proof of it.

On the landlord side: a tenant who fails to pay or fails to maintain operations can be terminated extraordinarily after a formal warning and deadline – provided the grounds are met.

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