GERMANY LAW AND PRACTICE Contributed by: Wolfram H Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
6.7 Payment of VAT In principle, rent is VAT-free, the landlord is hence not entitled to deduct input VAT. How - ever, 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 supplies 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 ten - ant’s use. 6.8 Costs Payable by a Tenant at the Start of a Lease Rent securities, such as deposits or bank guar - antees, are often requested before the com - mencement 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 payment has to be made irrespective of whether such admin - istrative costs have actually been accrued by the landlord. 6.9 Payment of Maintenance and Repair Generally, the landlord must pay for the main - tenance 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 tenants in propor - tion to their leased area and are normally capped
an annual lump sum can be fixed to cover these costs. It is possible for specific utilities to be allocated to the tenant according to the actual consumption, and a lump sum payment agreed for other utilities. The parties can agree that the tenant will enter into direct contracts with the utility provider for specific utilities. Leases gener - ally 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 Insurance Issues It is standard market practice for the landlord to procure an all-risk insurance policy for the build - ing, 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 policies, however, do not cover any personal property of the tenant; there - fore the tenant should cover possible damages with liability insurance. Landlords also often take out loss-of-rent insurance and, depending on the location of the property, terror insurance at their own cost. Tenants are often obliged to conclude a busi - ness interruption insurance. However, accord - ing to a decision by the Federal Court of Justice ( Bundesgerichtshof ), such insurance does not cover closures of businesses on the basis of the Infection Protection Act ( Infektionsschutzgesetz ) due to COVID-19 as long as COVID-19 is not explicitly mentioned in the insurance policy as relevant illness. 6.12 Restrictions on the Use of Real Estate The specific use of the real estate is generally agreed between the parties in the lease agree - ment. Any change of use is usually subject to
at 5–10% of the annual net rent. 6.10 Payment of Utilities and Telecommunications
The Civil Code provides for two ways of regulat - ing such costs: either the actual costs can be allocated to the tenants on an annual basis, or
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