GERMANY Law and Practice Contributed by: Wolfram H. Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
6.5 Rent Variation In principle, the parties are free to agree on the amount of the rent and its increase under commercial tenancy law. The parties generally agree on rent adjustment systems, such as indexation rent, graduated rent or turnover-linked rent. For residential leases, strict limi - tations apply to a possible rent increase. 6.6 Determination of New Rent It is usual to agree on the rent adjustment system in the lease agreement itself. It is seldom agreed to negotiate a new rental based on the then-applicable average market rent after a certain number of years, or if the tenant has exercised an option right. Generally, commercial rents are adjusted according to changes in the Consumer Price Index ( Verbraucherpreisindex ). A graduated rent will be raised by a specific amount after a certain period. A turnover-linked rent will be adjusted to the change of turnover of the tenant for a certain period; in order to mitigate the risk of fall - ing sales, however, a minimum fixed rent is usually agreed. 6.7 Payment of VAT In principle, rent is VAT-free, the landlord is hence not entitled to deduct input VAT. However, the landlord may waive the VAT exemption, resulting in its right to deduct input VAT. Such waiver is only effective if the tenant exclusively uses the premises to render sup - plies which do not exclude the right to deduct input VAT; ie, the landlord’s input VAT deduction depends on the tenant’s use of the property. Lease agreements therefore normally provide for a compensation claim if the landlord’s waiver fails due to the tenant’s use. 6.8 Costs Payable by a Tenant at the Start of a Lease Rent securities, such as deposits or bank guaran - tees, are often requested before the commencement of a lease, if agreed upon in the lease agreement. In landlord-friendly markets such as Berlin, Frankfurt and Munich, landlords also increasingly demand a lump- sum payment for administrative costs of between 1% and 5% of the annual rent. Such lump-sum pay - ment has to be made irrespective of whether such administrative costs have actually been accrued by the landlord.
6.9 Payment of Maintenance and Repair Generally, the landlord must pay for the maintenance and repair of commonly used areas, provided no other agreement has been made in the lease. In commercial leases, those costs usually must be borne by the ten - ants in proportion to their leased area and are normally capped at 5–10% of the annual net rent. 6.10 Payment of Utilities and Telecommunications The Civil Code provides for two ways of regulating such costs: either the actual costs can be allocated to the tenants on an annual basis, or an annual lump sum can be fixed to cover these costs. It is possible for specific utilities to be allocated to the tenant accord - ing to the actual consumption, and a lump sum pay - ment agreed for other utilities. The parties can agree that the tenant will enter into direct contracts with the utility provider for specific utilities. Leases generally provide for a monthly utility cost prepayment together with the rent. The actual costs will be settled regularly within 12 months of the end of each rental year. 6.11 Payment of Property Taxes Real estate taxes, specifically property tax ( Grunds- teuer ), are typically the responsibility of the landlord. The landlord is directly liable for these taxes since they own the property. However, it is common for land - lords to pass these costs on to tenants through the ancillary charges ( Nebenkosten ). This only works if the specific tax is either explicitly allocated to the tenant in the lease agreement or reference is made to the Operating Costs Ordinance ( Betriebskostenverord- nung ) which determines that ongoing public charges, in particular, property tax, are part of the operating costs of a property. 6.12 Insurance Issues It is standard market practice for the landlord to procure an all-risk insurance policy for the building, usually covering the risks of fire, storm, hail, water damage and other natural disasters. The incidental insurance premiums are allocated to the tenant as part of the operating costs. The landlord’s insurance poli - cies, however, do not cover any personal property of the tenant; therefore the tenant should cover possible damages with liability insurance. Landlords also often take out loss-of-rent insurance and, depending on the
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