Savills goldenquest

First and foremost, when acquiring commercial properties, investors assume that remaining terms of ten years or more agreed on leases will continue to be valid, as this forms the basis of purchase price calculations and refinancing. Therefore the purchaser should protect himself against premature termination by tenants and carefully check that leases are set out in compliance with the required legal form. Non-compliant leases are legally binding but may be terminated with a six-month notice period. Therefore it is important that leases be checked before signing the contract of sale as, often, vendors do not wish to take responsibility for compliance with requirements relating to legal form. This applies not only to original leases but also to any addenda. Therefore, any agreements with tenants should also be checked carefully after the property has been purchased, to avoid the landlord incurring expenses at a later stage.

International investors are often surprised to learn that certain costs cannot be officially charged to the tenant. "Triple net leases", common in international business, are rare in Germany. Here, the landlord generally bears the cost of "roof and structure" plus the maintenance costs. In addition, strict time limits for carrying out improvements chargeable to the tenant are not always practicable, and ultimately oblige the landlord to carry out the repairs himself. Finally, the tenant is only responsible for those operating costs that are expressly mentioned in the lease or its appendices. Therefore, it is important that not only the form, but also the content of the lease are carefully checked.

In Germany there is no such thing as automatic extension like it is common practice in Ireland after 5 years. However, it is possible to terminate open-ended leases.

Lease agreements may contain so-called indexation clauses. A rent indexation agreement is arranged to bind the lease to changes in price of specific goods or services. An indexation clause qualifies as authorised, if the respective basis is a consumer price index adopted by the Statistics Office of European Community, Federal or State Government. Rent indexation agreements exceeding the percentage change of the respective basis are invalid.

The Pre-emptive right as integral part of the lease agreement defines a right to substantiate or to extend for the entitled. The option to extend entitles to unilateral extension of the lease period for a certain period of time. The exercise of the option requires an explicit declaration form of the Tenant prior lease term expiration. Usually, the dead-line date is recorded in the Lease agreement. After expiration of the defined term the exercise of the Pre-emptive right is no longer possible.