Undiscovered risks of long lasting rental agreements
By Dr. Angelika Baumhof & Christian Pflaeger, Jakoby Dr Baumhof
Estate operators often conclude long-term rental contracts, which easily can exceed 30 years, to build wind farms or golf courses. Risks under German law are often overlooked. How can this be avoided?
Any rental contract grants a landlord a statutory right after a 30-year period to give ordinary notice which cannot be waived. The agreed fixed term from the point of the transfer of possession, unilateral prolongation options and automatic prolongations, for all applies the 30-year period. An appendix can be drawn up to reach an agreement on starting the 30-year period afresh. However, concessions may be required to achieve this, if indeed agreement is possible at all.
Further, rental contracts lasting more than one year and any appendix to it has to fulfil the strict written form under German law. An obligation to fulfil should be included in the rental agreement, but is not binding for a new owner of the estate.
Strategies to avoid these risks include a leasehold (although the notarial deed required is very costly), usufructary rights (exclusive use of the estate for golf courses) or limited personal encumbrance (partial use of the estate e. g. for wind farms). These rights can be agreed upon for an unlimited period and are not subject to the strict written form under German law. If these rights are first ranking in the land register they are even insolvency-proof.
Dr Angelika BaumhofJakoby Dr Baumhof, Rothenburg o.d.T., Germany
T: +49 9861 9405 0
Dr Angelika Baumhof is a partner at Jakoby Dr. Baumhof. She specialises in corporate and commercial law and contractual civil law. She started her career as a judge at the District Court of Munich and as a prosecutor in Munich. Since 1996 she has been a partner at Jakoby Dr. Baumhof. Her main field of expertise is consulting, but she also practices litigation in all fields of commercial and private law. Angelika speaks German, English and French. She is member of the GGI International Corporate, Commercial & IP Practice Group, the GGI International Real Estate Practice Group and the GGI Debt Collection, Restructuring & Insolvency Practice Group.
Christian PflaegerJakoby Dr Baumhof, Rothenburg o.d.T., Germany
T: +49 9861 9405 0
Christian Pflaeger Christian Pflaeger is an attorney at law who specialises in corporate and commercial law. He also has a degree as an economic lawyer. Christian joined Jakoby Dr. Baumhof after his second state legal examination. He speaks German, English and French.
Jakoby Dr Baumhof – Auditors Tax Consultants Lawyers – is a medium-sized interdisciplinary company located in the south of Germany, with offices in Rothenburg ob der Tauber in Northern Bavaria, and Ebersberg, near Munich. We operate from and provide a full service, mainly to small and medium-sized enterprises in a wide range of sectors.
Published: October 2015 l Photo: sonjanovak - Fotolia.com