12.07.2018 | KPMG Law Insights

Commercial tenant’s right of retention in the event of non-issuance of a rental invoice

Commercial tenant’s right of retention in the event of non-issuance of a rental invoice

The commercial tenant may successfully invoke a right of retention if the landlord has opted for VAT and the rental invoice does not meet the requirements of Section 14 of the VAT Act.

Decision of the Cologne Higher Regional Court of October 17, 2017, Ref. 22 U 60/16

We report on a recently published decision that gives reason to examine the drafting of sample leases from the perspective of VAT requirements. A commercial tenant might otherwise be entitled to withhold rent payments.

Initial case

The rental agreement for a commercial space provided that, contrary to the fundamental exemption from VAT of the rental and leasing of real property pursuant to Section 4 No. 12 letter a) of the German Turnover Tax Act (UStG), the landlord opted for turnover tax pursuant to Section 9 UStG. The tenant wanted to claim the VAT paid on the rent and operating costs by way of input tax deduction, for which she needed an invoice in accordance with the requirements of § 14 UStG. The rental agreement did not meet the requirements in this respect because neither the tax number nor the VAT identification number of the landlord who had entered into the commercial rental agreement as the legal successor of the original landlord were shown therein. The landlord did not comply with the tenant’s request to receive an invoice in accordance with the requirements of § 14 UStG. The tenant then refused to pay the rent and asserted a right of retention. The landlord’s action for payment brought against this was unsuccessful at first instance, whereupon the landlord lodged an appeal.


The appealed Senate dismissed the appeal and recognized that the tenant had a claim against the landlord for the issuance of an invoice that complied with the requirements of Section 14 of the Turnover Tax Act (UStG), since the parties had agreed on the payment of turnover tax. If the tenant wishes to claim the sales tax paid on the rent and the operating costs by way of input tax deduction, it must do so in accordance with Section 15 para. 1 UStG submit an invoice within the meaning of § 14 UStG. In the absence of indication of the tax number or the VAT identification number of the landlord in the lease agreement – one of these two numbers is sufficient – the minimum information pursuant to Section 14 para. 4 No. 2 UStG, so that the tenant’s request regarding the preparation of a proper invoice was justified. Until the invoice has been duly issued, the Lessee may assert a right of retention pursuant to Section 273 of the German Civil Code (BGB).

Practice Notes

In order to avoid the assertion of a right of retention by the tenant in the case of commercial leases where the parties have agreed on the payment of value added tax, care must be taken to ensure that an invoice containing the minimum information required by Section 14 para. 4 UStG is created. In its decision, the Cologne Higher Regional Court specified the information that an invoice must contain within the meaning of Section 14 of the German Turnover Tax Act (UStG). An invoice is any document that shows the name and address of the landlord and tenant, the tax number or VAT identification number of the landlord, the invoice number, the invoice date, the tax rate and the tax amount. The amount of tax must be shown separately, so that both the net charge and the amount of sales tax must be stated. Insofar as the rental agreement contains the required information, this agreement alone is sufficient as a rental invoice, which can be submitted to the tax authorities. If not all details are evident from the lease agreement (regularly the invoice number is missing as a consecutive number with one or more series of numbers, which is assigned once by the issuer of the invoice to identify the invoice) or if a change is required (as in the initial case due to the change of landlord), the missing or incorrect details can be supplemented or corrected by another document. In this respect, care must be taken to ensure that the documents relate to each other and that the information required under Section 14 para. 4 UStG are contained in the documents in any case as a whole.

We recommend that landlords check in their model contracts whether the above-mentioned requirements are sufficiently taken into account or whether the issuance of a (standing) rent invoice is regulated. In the course of negotiating the lease, prospective tenants should immediately ensure that the above-mentioned requirements for proper input tax reimbursement have been observed by the landlord. This shall apply accordingly if the Lessee is informed of a sale of the leased property or any other change of landlord. The assertion of a tenant’s right of retention pursuant to Section 273 of the German Civil Code (BGB) with regard to the rent and operating costs should only be the last resort in an otherwise functioning tenancy in order to enforce the justified tenant interests.

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Dr. Rainer Algermissen

Head of Construction and Real Estate Law

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