With the entry into force of the Fourth Bureaucracy Reduction Act (Viertes Bürokratieentlastungsgesetz, “BEG IV”), the written form requirement for commercial leases (including usufructuary leases via section 581(2) German Civil Code (Bürgerliches Gesetzbuch, “BGB”)) was replaced as of 1 January 2025 by a text form requirement. The transitional provision in Article 15 BEG IV, under which section 578(1) BGB (old version) continued to apply to leases concluded before 2025, expired on 1 January 2026. This means that since the beginning of the year, the text form requirement has applied not only to leases concluded or amended on or after 1 January 2025 but also to all previously concluded and unchanged leases.
Looking back at the written form requirement
Until the BEG IV entered into force (or until the transitional provision in Article 15 BEG IV expired), commercial leases with a fixed term exceeding one year were subject to the strict written form requirement in sections 550, 578(1) BGB (old version). The purpose of the requirement was (and, in relation to the text form requirement, still is) to protect purchasers of leased property who, by virtue of section 566(1) BGB, accede to the rights and duties under existing lease agreements and must therefore be able to rely on the documented terms thereof. Over the years, the case law on the written form requirement had become almost unmanageably complicated. There was, however, consensus that the material terms of the lease (e.g. leased object, lease term, amount of rent) had to be apparent from a document signed by both parties. Although, initially, all documents comprising the lease had to be physically attached to each other, in their “Auflockerungsrechtsprechung” (case law relaxing the written form requirement) the courts later accepted a merely conceptual connection, provided that the interrelationship between the various “scattered” elements of the lease was made suitably clear (e.g. through sufficiently precise references in the lease to relevant annexes, or in addenda to the original lease). In deviation from section 125, sentence 1 BGB, violation of the written form requirement did not render the lease void. Instead, it was deemed to have been concluded for an indefinite term and could be terminated in accordance with the statutory notice periods rather than the contractually agreed ones.
Simplified form under the BEG IV
Following the amendment of the statutory form requirements by the BEG IV, whose purpose is to promote digitalisation within the legal system, a lease will now meet the required form if it exists as a legible declaration that names the person making the declaration and is made on a durable medium, cf. section 126b BGB. Text form will also be satisfied where the relevant declarations are transmitted by e-mail, SMS, facsimile, PDF file or via a messenger service. Electronic documents that are permanently stored on a hard drive, USB stick or comparable storage medium also meet the requirement. With the expiry, as of 1 January 2026, of the transitional provision introduced into Article 229, section 70 Introductory Act to the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch) by Article 15 BEG IV, the possibility of terminating a lease for a defect in written form has now been definitively eliminated, regardless of whether the lease concerned was concluded before or after 1 January 2025 and has since been amended or not.
Practical insights and new issues
Although the revision of section 578(1) BGB provides significant relief in contractual practice, it by no means ends the debate on the written form requirement but instead raises a host of new issues.
- First of all, the new text form requirement has not eliminated the risk of early termination of long-term leases due to defects in form. This is because the BEG IV did not amend the specific legal consequences for such defects set out in section 550 BGB but merely raised the threshold for when a defect will exist. In addition, many of the form defects frequently encountered to date (such as an insufficient description of the leased property, missing annexes or diverging verbal agreements) are likely to constitute violations of both the written form requirement and the new text form requirement. The risk therefore remains that the statutory right of early termination due to form defects will continue to be used to pressure the other party into renegotiating an unfavourable lease. Although the expectation is that (alleged or actual) defects in form will be invoked less frequently as a pretext for attempts to interfere with the substance of existing agreements, it is unclear to what extent this will actually be the case.
- Equally uncertain, yet of considerable practical importance, is the extent to which the “Einheitlichkeitsgrundsatz” (principle of unity) as developed in the case law can be applied to the text form requirement, i.e. whether, in conformity with sections 126(2), 126a(2) BGB, all material contractual terms must continue to be embodied in one unified (text form) declaration. The wording of section 578(1), sentence 2 BGB, which refers to a “lease [...] concluded in text form”, supports its continued validity. An argument against applying the principle is that contracts are generally concluded and amended by exchanging reciprocal and corresponding declarations – namely, offer and acceptance. In addition, the development of the principle of unity was largely justified in the case law by reference to the warning and evidentiary functions of the written form requirement. These protective functions apply to the requirement of text form to a significantly lesser degree as text form was originally conceived and primarily designed to facilitate the fulfilment of statutory information obligations and the submission of unilateral declarations. While it may be argued that the information function likewise requires the relevant declaration to be unified and complete, this is difficult to reconcile with the legislative objective: The shift from written to text form is intended above all to facilitate the conclusion and amendment of commercial lease agreements – an aim which would be undermined by requiring one unified declaration in text form. On this understanding, the conclusion and amendment of commercial leases will in future require no more than an exchange of congruent declarations in text form.
- Whereas, in the case of a lease subject to the written form requirement, an exchange not complying with that requirement previously permitted the argument that the declarations in question were not (yet) binding for want of the prescribed form, it will in future be significantly more difficult to distinguish between, on the one hand, declarations made in the course of negotiations and, on the other, declarations intended to give rise to legally binding obligations. Due to the wide range of communication methods capable of satisfying the text form requirement, the circumstances surrounding the exchanges relating to the contract terms in question will assume far greater significance. To avoid uncertainties, it is advisable to agree at the outset of contractual negotiations that once consensus has been reached on all terms, a contract marked as the “execution version” will be exchanged which supersedes all prior arrangements. Alternatively, the parties may make it clear by other means that only a single, specific version of the agreement is authoritative and all other statements are to be regarded as non-binding.
- The amendment to section 578(1) BGB is unlikely to affect the lawfulness of contractual written form clauses, however. Particular care will have to be taken in future when determining whether, in cases involving voluntarily agreed form requirements under section 127 BGB, a violation should render the lease void (in line with the general rule in section 125, sentence 2 BGB), even though the parties are likely to explicitly stipulate that any violation of the contractual written form requirement should only trigger the legal consequence for a text form violation under section 550, sentence 1 BGB. It will be even more difficult to determine the significance to be given in future to a written form clause that was agreed while the statutory written form requirement was still in force. Whereas under the previous legal framework – particularly where sections 550, 578, 126 BGB were referenced – such a clause could reasonably be regarded as referring to the then-applicable statutory requirements and hence as purely declaratory, it will in future be necessary, especially in the absence of any reference of those provisions, to examine in each case whether the clause was intended to be merely declaratory (and thus a dynamic reference to the applicable legal position) or a contractual written form requirement independent of the statutory framework. In the latter case, a second step is required to determine which legal consequences apply in the event of a breach of form – whether the presumption in section 125, sentence 2 BGB applies (rendering the contract void) or whether the lease merely becomes subject to early termination. This can only be assessed by examining all the circumstances surrounding the contract’s conclusion. In practice, however, such provisions will generally be understood as a reference to the statutory form requirement in force when the lease was concluded. Ultimately, any remaining uncertainty can only be eliminated by including a clarifying clause in a (form-compliant) addendum that expressly defines the applicable form requirement and the consequences of any breach of such form.
- Finally, it remains to be seen whether so-called cure clauses will (once again) be deemed permissible under the new text form regime. These clauses provide that, in the event of defects in form, the parties will refrain from invoking any associated termination rights and instead undertake to remedy the defect through a form-compliant amendment. Under the prior written form requirement, the Federal Court of Justice considered such clauses invalid due to the warning and evidentiary functions of section 550 BGB – both in relation to purchasers and between the original contracting parties. Because the explanatory memorandum to the BEG IV explicitly states that purchaser protection under sections 566, 578(1) BGB is not to be affected by the revision of section 578(1) BGB, it is likely that purchasers cannot be effectively bound by a cure clause under the new legal framework, either. For the original parties, however, the situation is different: With the shift from written form to text form – which primarily serves a documentation function – the warning and evidentiary purposes no longer apply. Against this background, it therefore appears quite plausible that text form cure clauses could (once again) be regarded as permissible – at least between the original contracting parties.
Conclusion
Whether the amendment of the statutory form requirements for long-term commercial leases will in fact provide the anticipated relief in contractual practice cannot yet be reliably determined. As outlined, however, the abolition of the strict written form requirement prompts a multitude of new (and old) issues, while the guidance established for written form will continue to remain relevant for the time being. For example, the risk of early termination due to a defect in form – a provision intended to serve a completely different purpose – has not been eliminated even following the amendment of section 578(1) BGB. Until the Federal Court of Justice provides clarity, uncertainties will also remain as to whether and to what extent the case law on the written form requirement can be applied to lease agreements subject to the text form requirement. Despite the legislature’s intention to simplify the conclusion of contracts, contracting parties clearly need to use appropriate arrangements to protect themselves against the risks and uncertainties outlined above – even if that involves additional work ensuring seamless digital documentation of negotiations, for example. Concurrently, the amendments mark the first step towards better digitalisation in commercial lease law and reconcile the principle reflected in section 566 BGB – from which the written form requirement ultimately derived its dogmatic basis – with a changed contractual and practical landscape.
Forward
