New rules for commercial leases: Why you should take a closer look now

• Contracts can be entered into more easily and with more flexibility, as the text form requirement represents a lower threshold.
• There will probably be fewer involuntary early terminations due to formal errors, as fewer errors will be made when using the text form.
• Commercial leases can now be modified more quickly and more efficiently.

What may sound like a simplification can cause new problems in practice:

• Unclear contractual situation: The text form especially makes it difficult to distinguish between a draft version and the final contract. This is because before a contract is entered into, the parties usually exchange numerous draft versions by, for example, e-mail, which basically already fulfils the text form requirement. Signatures offered a decisive advantage in this respect in that they generally made it possible to ascertain beyond doubt that the document to which they were affixed – rather than any of the prior draft versions – was intended to be the final contract.
• Reduced evidentiary value: A lease entered into in writing is presumed to be complete and correct; this cannot be achieved with the text form.
• More administrative effort: Determining the specific contents of a contract is much more difficult and prone to error when using the text form. In order to determine what the parties ultimately agreed, all communications exchanged need to be stored and looked through. The aim implied by a “Bureaucratic Relief Act” is thus reversed into its opposite.
• Difficulties when selling real property: When buying or selling real property, existing leases will have to be reviewed more thoroughly as a result of the new legal situation. Buyers will need to take greater precautions, as changes to leases can now be made less formally. Sellers will probably increasingly have to make representations and warranties in purchase agreements to ensure that there are no undiscovered ancillary agreements in text form and that all correspondence in relation to the lease has been disclosed. This is why it would seem to make sense to look ahead and include a clause in the lease saying that if the property is sold, the tenant must confirm that the data room is complete.

Even though the text form is now sufficient according to law, you remain free to contractually agree a stricter form, such as the written or electronic form. This may reduce certain risks, but can also give rise to new ones. In the event of failure to comply with the agreed written form, for example, there might be a risk of the entire contract being invalid according to Section 125, second sentence, German Civil Code, instead of it being “merely” terminable. In any case, however, you should be absolutely clear in your communication about whether you are negotiating or entering into a binding agreement. Furthermore, you should carefully document all understandings reached to avoid any misunderstandings or even liability when selling real property.

Our recommendation: The new rules may give you more flexibility, but they can also create legal uncertainty. It may be worth having a legal advisor take a closer look to find the best possible solution for you.