No Limits on Late Landlords?

A surprise intensely disliked by commercial tenants in Germany: some time in February, the mail contains the annual ancillary charges account (Nebenkostenabrechnung) sent by their landlord or facility managers – mind you, the account for the year before last. And if that was not enough, the document, unpleasantly voluminous and not too self-explanatory, either, ends up with a hefty arrears claim and an increase of future monthly advance payments. What makes tenants so cross is, above all, the fact that, well over a year after the end of the period actually accounted for, you are really hardly capable of following up on why new items have been added, or some positions of the balance have come out unexpectedly high. After all, one operates an office or practice, and has had more important things on one’s mind.

This is a nuisance exclusive to tenants of commercial space in Germany. By contrast, the law is clear regarding residential leases, in that landlords are under the obligation to set up, and send, the annual ancillary charges account not later than by the end of the twelfth month following the period accounted for. More importantly, once this deadline has expired, the landlord is barred from claiming any arrears payment unless he can show the delay really was not his fault (sec. 556 para. 3 of the German Civil Code – BGB -).

Little wonder that there is an urgent desire among commercial tenants not to be treated any differently from apartment tenants concerning annual charges accounts, not least because the amounts at stake in office leases tend to be significantly higher. However, German courts have always had a tendency to find in favour of the land­lords, refusing to apply the accounts preclusion deadline to commercial leases by analogy. Only one first instance court (Wiesbaden) had stood out, doubting that the German legislator had consciously intended to except office tenants from the preclusion rule, and arguing that the overall objective of the rule, legal certainty, could hardly end at residential thresholds. This view had been confirmed, in December 2008, by the Darmstadt Regional Court, in a judgment that had become final and, therefore, had quite some potential to lead other courts up the same road. The end of the February visitations seemed close at hand.

However, on 27 January 2010, the Federal Supreme Court (Bundesgerichtshof – BGH -) has now ended the discussion – alas, to the tenants‘ detriment (File Ref. XII ZR 22/07). The federal judges held that the application of the preclusion rule to office leases by analogy was out of the question already because there was no concrete evidence that the legislator could have „forgotten“ to extend sec. 556 para. 3 BGB to commercial tenants. There were rather strong indications that a deliberate choice had been made in drafting and passing the law in its current form.

The end of limits on landlords who come up late with their annual ancillary charges accounts? – Not quite. On one hand, there may still be special cases in which tenants can invoke what we call „forfeiture“: a situation in which the tenant exceptionally had concrete reason to believe that no arrears claim for a specific period would be made anymore. On the other hand, one of the things that the BGH also made clear in its judgment is the existence of a general rule (in the absence of any more specific contractual provision) that landlords have to present their charges accounts within a year following the period accounted for. If such is not the case, the tenant may formally demand the landlord to provide the charges account – and may exercise a right of retention by not making any further monthly advance payments until it is received. Reason enough to hope that this is a perspective unpleasant enough to make landlords and facility managers think twice before slumbering away their deadline for delivering the annual charges accounts – even though that deadline will not keep them from claiming any outstanding amounts.