Rent refers to the amount regularly paid for the temporary transfer of use of a property.1 In accordance with section 535 II of the Bürgerliches Gesetzbuch (BGB – German Civil Code), the tenant is required to pay the landlord the agreed rent. The amount of rent must be contractually regulated. It is usually paid monthly in advance.2
The following terms are used in property industry practice in relation to rent:
The rent can be freely agreed in principle and thus is usually dependent on market conditions.4
For commercial leases, usually for retail property, the parties can also agree sales-based rent. This means that in addition to a fixed rent, the tenant also pays the landlord a variable rent based on the tenant’s sales. The landlord thus participates in the business success of the tenant and guarantees appropriate relief in periods of weak sales.5 In addition to sales-based rent, other contractual agreements (incentives) are common for commercial leases. Examples include rent-free periods, cost contributions for leasehold improvements, rent guarantees, etc., which are indirectly seen as part of the rent.
In commercial leases the landlord can only implement a rent increase if the tenant voluntarily agrees to it. In the drafting of contracts it is therefore normal to agree value adjustment clauses that provide for a rent increase after certain intervals (graduated rent) or depending on the cost of living (rent index).
Furthermore, the landlord can opt for VAT for commercial rented properties. In such event it must be explicitly indicated that VAT must be calculated on the rent and whether the rent specified in the lease is net or gross. Moreover, the tenant must comply with the requirements of VAT law. This means that the leased property can only be used for commercial activities which in turn entitle it to deduct input tax. This must be included in the lease as an obligation for the tenant, with a claim for damages allocated in the amount of the tax disadvantage to the landlord.6
Owing to legal regulations, the landlord has less flexibility in residential leases.
Here the landlord can unilaterally demand a rent increase in accordance with section 558 BGB unless contractually regulated otherwise. The conditions for this are that the rent has remained unchanged for 15 months, it increases by no more than 20% in three years and does not exceed the average rent for comparable dwellings in the area after the increase.7 If there is insufficient population with rental apartments at appropriate conditions, this cap is reduced from 20% to 15%.8 Graduated rents or a rent index can also be agreed in accordance with section 557 a and b BGB.9 In addition, there is a cap (known as the rent brake) for new rentals on strained housing markets, which means that rent cannot be more than 10% higher than the average rent for comparable dwellings in the area (section 556 d BGB).10