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26.10.2017 | KPMG Law Insights

Termination for non-payment of service charges?

Termination for non-payment of service charges?

Unpaid service charges do not entitle the landlord of residential and commercial premises to terminate the lease. This is unsatisfactory for landlords, because high sums can accumulate here over time. An early provision in the lease can remedy the situation.

Many a landlord has already had to make the experience: his account is regularly debited with the property costs for real estate tax, insurance, cleaning, garbage collection, etc., but his tenant does not pay the ancillary costs or only pays them in part. However, even if the tenant is in arrears with additional payments for a longer period of time, the landlord may not terminate the tenant’s lease for this reason, according to prevailing opinion, even if the lease agreement refers to the extraordinary right of termination for default of payment pursuant to Section 543 (1) of the German Civil Code (Bürgerliches Gesetzbuch). 2 No. 3 letter b BGB.

Incidental costs no periodic payment obligation

The reason: Receivables from service charge settlements are not considered periodic payment obligations in the sense of a monthly rent payment. This was recently confirmed by the Federal Court of Justice. So what can the landlord do?

Should a tenant exceptionally fail to make a payment obligation in his regular payments, the tenant could set off the payment against the service charge arrears. In practice, however, this is unlikely to happen frequently, because even without an explicit reference, a regular payment is considered to be payment of the rent owed and cannot simply be “reallocated” by the landlord.

Payment protection through timely action

To avoid getting into the situation of having to sue for additional charges, a landlord should include a provision at the beginning of the lease that at first glance has nothing to do with additional charges: He should agree with the tenant in the contract that a rental security deposited as a guarantee or pledge can also be claimed during the rental period and also for disputed claims arising from the rental relationship. Without this additional provision, this would not be possible, but in this way the landlord has a means of enforcing outstanding service charge back payments against a defaulting commercial tenant, even out of court.

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Dr. Rainer Algermissen

Partner
Head of Construction and Real Estate Law

Fuhlentwiete 5
20355 Hamburg

tel: +49 40 3609945331
ralgermissen@kpmg-law.com

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