The most important lease regulations explained
If a property is contractually transferred to another party for the purpose of economic use, this is referred to as leasing a property. The beneficiary is regarded as the lessee, the consideration paid for the use of the property is referred to as the rent and the owner who lets the property is the lessor. A lease agreement for a property is particularly common for commercially used properties, for example for catering or retail. As with all real estate matters, it is important that the agreement between tenant and landlord is recorded in writing, even if verbal lease agreements are permissible in principle.
Differentiation between lease and rent
The differences between a lease and a rental primarily result from the possibility of use. If a property is given to a person for use, the contracting parties usually conclude a tenancy agreement. A lease, on the other hand, usually exists if not only the use, but also the so-called fruitful use is agreed. This means that profits are made from the use of the property. This is common for agricultural leases, for example, when livestock is raised, fields are cultivated and harvested crops are sold. In the case of commercial leases, the decision as to whether a tenancy or lease is agreed is usually based on the inventory. In the case of empty business premises, for example, the focus is on the transfer for use, whereas a lease is possible if furnishings such as tables and chairs as well as kitchen utensils in a restaurant are also transferred.
Legal regulation of the lease
Anyone wishing to lease a plot of land can also conclude verbal lease agreements. However, in order to eliminate any ambiguities and avoid disputes, the written form is strongly recommended. The statutory provisions on leasehold law can be found in tenancy law, but the lessor has more leeway with regard to the drafting of the lease. The clarifications at the end of the lease are particularly important, as they are more complex than in the case of a tenancy. A tenant must not only return real estate, but also any leased inventory. In addition, a tenant may have made changes to the property that increase its value. In such a case, the landlord may be obliged to pay compensation for added value, provided he has previously agreed to the alterations.
Obligations of a tenant
A lease agreement pursuant to Sections 581-597 of the German Civil Code (BGB) includes the obligation of the tenant to properly manage the property specified in the agreement. What this means in detail, however, is not precisely regulated. For agricultural leases, for example, this means that the property is to be farmed, while a contract for a restaurant provides for a catering business. In principle, the landlord has the right to specify the use in the contract. The tenant must always comply with this if he wishes to lease a property. To this end, subleasing is excluded in accordance with the German Civil Code (BGB) unless it has been contractually agreed. The tenant must therefore manage the property himself.
Termination of a lease agreement
Certain deadlines must be observed for the termination of a lease agreement. They differ depending on whether the relationship is for a fixed term or an indefinite term. In the case of a fixed-term contract, it is not possible for the tenant to terminate the contract before it expires. However, in the case of an open-ended contract, the tenant can terminate the contract with due notice. This is valid at the end of the lease year and the notice period is six months. The notice of termination must be received by the tenant no later than the third working day of the half-year in which the contract is terminated. A notice period of two years applies to land leases. Extraordinary termination makes it possible to terminate the contract more quickly, but there must be a valid reason. This is the case, for example, if the lease has not been paid for some time or the property has fallen into disrepair. In the case of land leases, there is an extraordinary right of termination in the event of the tenant’s death, which provides for termination within one month with a notice period of six months. For all other variants, the contract is transferred to the tenant’s heirs upon the tenant’s death.
The contract regulates the transfer of use of a leased object, usually a property, for the purpose of generating profit. This is referred to in technical jargon as “profit extraction”. The leased property, the period of use and the proper management of the leased property are stipulated. There are many examples of lease agreements. For example, it is also possible to conclude a lease agreement for your garden plot. A simple lease is agreed for this.
In principle, the term of a contract is not limited. It can therefore run for a limited or unlimited period.
The tenant’s obligations include the proper management of the property in accordance with the German Civil Code (BGB). The tenant is entitled to demand that the landlord creates the necessary conditions for this. This is done through maintenance and renovation work, for which the lessor is always responsible. Ordinary repairs are carried out by the tenant, such as cosmetic repairs, painting window frames or replacing damaged pasture fences.
While a tenancy exclusively regulates the transfer of a plot of land, an apartment or a house for use, a tenancy also includes the generation of profit. This is the generation of profits from the operation of the leased property. There are also differences in the notice periods. The lease can also include fixtures and fittings, and it is generally not possible to increase the rent during the term of the contract.
When concluding a lease agreement, there is an unrestricted right of use in order to generate profits. However, the maintenance and proper condition of the leased property must be ensured. In the event of damage to or destruction of the property, these must be replaced to an appropriate amount.
