The end of the written form requirement?

1. Current Situation

§ 550 of the German Civil Code (BGB) stipulates that a lease contract concluded for a fixed term of more than 1 year must be in writing. If the written form is not observed, the contract is however not invalid. Rather, it is deemed to have been concluded for an indefinite period of time pursuant to § 550 BGB, with the consequence that it can be terminated with the statutory notice period, rather than subject to the fixed term the parties agreed in the contract.

The historical purpose of this provision was the protection of the purchaser of a property entering into the lease pursuant to § 566 BGB. Such a purchaser was thus enabled to inform himself about the obligations he would enter into when purchasing the property solely on the basis of the contract documentation.

Experience shows, however, that purchasers hardly ever make any use of this right of termination. Instead, it is almost always the original contracting parties who – for whatever reason – want to get rid of the lease contract. That is why § 550 BGB has been variously referred to as “golden gate”, “termination joker” or “right of remorse”.

§ 550 BGB causes an enormous amount of work, especially in the context of real estate transactions, and is often used as an argument during price negotiations, since the long-term lease contract is often a bigger valuation factor for the investor than the property itself.

2. A draft act

In October 2021, the Federal Ministry of Justice (BMJ) published a “Draft Act on the Reform of the Written Form Requirement in Commercial Lease Law” on its website.

The draft provides for § 550 BGB to be drastically shortened, for the deletion of the reference to “550” from § 578 BGB and for the insertion of a new § 578a dealing with commercial premises. Paragraph 1 of this § 578a BGB contains the unchanged provision that a commercial lease concluded for a period of more than 1 year shall be deemed to have been concluded for an indefinite period. The second paragraph of the new § 578a BGB stipulates that a legal transaction to amend the lease contract only requires the text form.

While there had been some advocacy to grant such a right of termination only to a purchaser of real estate, the draft did not implement this idea.

3. Reception

Interested parties had the opportunity to comment on the draft until January 2022. The associations in particular have made extensive use of this opportunity. While the efforts to reform § 550 BGB have universal support in principle, the draft law has received much criticism (cf. for example Häublein/Jacoby/Lehmann-Richter ZMR 2022, 265).

The main points of criticism are as follows:

  • That the BMJ’s assumption that most problems with the written form would occur in the case of subsequent amendments to existing lease contracts were not empirically proven;
  • that problems with the written form in the case of addenda to an existing lease contract are most likely to be caused by the fact that the parties do not even consider that the addendum might require the written form, and not because they would handle the written form requirement incorrectly;
  • that it would constitute a break with the overall system that for the first time a different form requirement would be introduced for the amendment of a contract compared with its conclusion and that the breach of the form requirement would entail a stricter legal consequence (namely invalidity according to § 125 BGB) than applied for the breach of the form prescribed for the conclusion of the contract (only terminability according to § 550 BGB); and
  • that the text form of § 126b BGB is actually tailored to unilateral declarations of intent and the requirements for concluding a contract in text form are not regulated at all.

For these reasons, among others, the view is often expressed that § 550 BGB should be abolished without replacement.

It therefore remains to be seen whether, when and how § 550 BGB will ever be reformed.