Fourth Bureaucracy Reduction Act (BEG IV) – The End of the Written Form and the Beginning of the Text Form

With the passing of the BEG IV in the German Bundestag, far-reaching changes to the formal requirements for commercial leases are imminent - subject to the approval of the Federal Council (Bundesrat).

Until now, commercial leases with a term of more than one year had to be executed in written form (Schriftform) in accordance with Secs. 550, 578, 126 para. 1 BGB (German Civil Code). Otherwise, the contract could be terminated prematurely (ordentliche Kündigung) despite a longer fixed term.

Even for diligent legal practitioners, avoiding all potential errors regarding the written form during the conclusion and execution of a commercial lease has been challenging, as numerous problem areas and a complex body of case law surround the written form. Even minor deviations can constitute a violation of the written form. In practice, this often leads to legal uncertainty - particularly with long-term commercial leases, which are frequently associated with significant investments.

 

1. Purpose of the Written Form Requirement

The written form requirement is primarily intended to give the purchaser of a property the opportunity to withdraw from long-term lease agreements which he acquires together with the property pursuant to Sec. 566 para. 1 BGB, but the content of which could not be verified due to non-compliance with the written form requirement. In addition, violations of the written form requirement have been used by parties to terminate long-term commercial leases that are no longer desired. In practice, the written form requirement leads to considerable bureaucracy, which is often met with incomprehension, especially by foreign clients.

 

2. New Legal Framework under BEG IV

On 26 September 2024, the German Bundestag adopted the BEG IV (Bundestag printed paper 20/11306). This Act fundamentally reforms the written form requirement for commercial lease agreements pursuant to Secs. §§ 550, 578, 126 para. 1 BGB and replaces it with a text form requirement pursuant to Sec. 126b BGB. It also introduces further measures to reduce bureaucracy in Germany.

According to Secs. 578 para. 1, 550 BGB as amended, a commercial lease with a fixed term of more than one year that is not in text form is deemed to have been concluded for an indefinite period and may be terminated in accordance with the statutory notice period, as was the case with breaches of the written form requirement under the previous law. This amendment also applies to land lease agreements (Pachtvertrag) by virtue of the reference in Sec. 581 para. 2 BGB.

The text form under Sec. 126b BGB imposes less stringent requirements than the written form under Sec. 126 BGB: A readable declaration on a durable medium that clearly identifies the declarant is sufficient. For example, declarations can be made in text form by e-mail or as a paper document without a signature.

 

3. Entry into Force of BEG IV

The BEG IV still requires the approval of the Federal Council (Bundesrat). It will enter into force on the first day of the quarter following its promulgation.

 

4. Transitional Provisions

During the transitional period of one year after the entry into force of the BEG IV, commercial leases concluded before this date can still be terminated on the grounds of lack of written form. However, if such existing commercial leases are amended or new commercial leases are concluded during the transitional period, a violation of the text form pursuant to Secs. 578 para. 1, 550 BGB as amended will be required for the right of termination. After the transitional period, this rule will apply to all commercial leases.

 

5. Future Lease Agreements and Amendments

In order to avoid uncertainties and disputes in connection with commercial leases and real estate transactions, all agreements between the parties to a commercial lease should, as before, be carefully documented.

Any communication in emails or written correspondence should make it clear whether the parties are still negotiating or whether a final agreement has already been reached. Failure to do so may result in ambiguity as to the agreed content of the commercial lease or in unintended, written side agreements. The verifiability of the receipt of declarations of intent is also a challenge under BEG IV. A declaration of intent is deemed to have been received when it has entered the sphere of influence of the recipient in such a way that the recipient can take cognisance of it under normal circumstances (Section 130 para. 1 of the BGB). Declarations of intent which are subject to formal requirements must be made and delivered in the prescribed form. The burden of proof lies with the party invoking the contract. Receipt of paper documents in text form is easier to prove because they can be sent by registered post with advice of delivery. Proving the receipt of e-mails, however, is more difficult as it is at the discretion of the recipient to send an acknowledgement of receipt.

 

6. Agreed Written Form

In order to maintain the status quo, the parties could agree by means of a so-called double written form clause that the commercial lease agreement and its amendments may only be concluded in writing and that amendments to the written form requirement itself must also be made in writing pursuant to Sec. 127 para. 1 BGB (mandatory written form). Irrespective of whether such a clause can be validly agreed, the Federal Court of Justice (BGH) has ruled that a double written form clause can be waived by an implied or oral individual agreement (BGH, judgment of 25 January 2017 – XII ZR 69/16). Therefore, residual risks cannot be completely excluded by agreeing to a written form clause.

 

7. Impact on Due Diligence in Real Estate Transactions

In the context of due diligence for real estate transactions, this new rule would theoretically mean that all email and written correspondence between the parties to the lease would have to be reviewed to rule out unnoticed side agreements in text form. However, to avoid an excessive scope of review, the due diligence could be limited to those agreements identified and disclosed by the seller. In addition, it is advisable to include a seller’s warranty in the property purchase agreement that there are no non-text form ancillary agreements and that all lease agreements have been disclosed.

In the case of the more frequent real estate transactions resulting from restructuring measures, where seller warranties are not usually agreed, it is particularly important to check for non-text-form compliant ancillary agreements.

 

8. Conclusion

The BEG IV is an important step towards reducing bureaucracy and modernising commercial tenancy law. The introduction of text form instead of written form for commercial leases under Sec. 550 BGB could significantly increase the flexibility and efficiency of the conclusion of contracts. However, it remains to be seen how these changes will work in practice and whether they will really reduce legal uncertainty, as not all previous issues have been resolved and new questions have been raised.

It will be crucial for all parties involved to adapt quickly to the new requirements and to implement appropriate measures for contract documentation and communication. Should the Federal Council approve the BEG IV, it will become clear whether the new law will bring the expected relief or whether further adjustments will be necessary.