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Termination due to outstanding rent despite the lapse of a lengthy period of time

Dec 28, 16 • Real Estate LawNo Comments

The Federal Supreme Court (Bundesgerichtshof; “BGH”) has again given an important judgment for all tenants and landlords. The court ruled that an extraordinary termination of a (residential) tenancy agreement due to outstanding rent was still possible if the failure to pay rents occurred a longer period ago.

Extraordinary termination due to outstanding payments

According to the German tenancy law, a landlord is entitled to terminate a tenancy with immediate effect if the tenant has failed to pay the rent, or a substantial part thereof, on two consecutive dates. Additionally an extraordinary termination is possible if the tenant fails to pay an amount equal to two rents over a period extending over more than two payment dates.

Reasonable termination period in case of on-going contractual obligations

However: A tenancy agreement is a so-called on-going contractual obligation. According to the German Civil Code (BGB), for an extraordinary termination of an on-going contractual obligation to be effective, it must be given within a reasonable period of time after the reason for it (here: the failure to pay), has become known. In many cases, the reasonable period of time is assumed to be two weeks.

“Reasonable” period of time not required in tenancy law

In the case at hand, the landlord, terminated the tenancy agreement several months after the tenant’s failure to pay. The Federal Supreme Court has now granted the eviction case. The court held that tenancy law being a self-contained area of law was not subject to the general legal provisions on the termination of on-going contractual obligations. According to the tenancy law’s provisions on termination, however, there is no “reasonable” period for exercising the right of termination due to outstanding payments.

This decision is welcome. It provides clarity for the parties and enables the landlord to react in a fair manner in case of financial difficulties of the tenant without being obliged to terminate the tenancy immediately. Our expert attorneys will be pleased to assist you if you wish to rent out your property.

Federal Supreme Court (BGH), Judgment of July 13, 2016, VIII ZR 296/15

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Boris Piekarek

Attorney Boris Piekarek specializes in developing legal and fiscal wealth concepts and selecting legal forms for companies, real estate owners, and wealthy individuals. His key competency is optimizing wealth management in view of all aspects of real estate law, corporate law, and tax law.

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