Why the Federal Court of Justice declared a frequently used clause combination invalid and what this means for commercial tenants. As of: April 2026
Note: This article is for general information purposes and does not replace individual legal advice. Commercial lease agreements are individual; the scope of non-competition protection always depends on the specific contract and the specific situation.
Your business is doing well. Then, two shop units down, a competitor opens with an almost identical product range. The landlord has rented the premises to them. Your sales drop. And your lease agreement states: obligation to trade. You must remain open, are not allowed to change your product range, but can do nothing about the competition.
This is the reality for many commercial tenants in shopping centres and office buildings. With its landmark ruling of 26 February 2020 (XII ZR 51/19), the Federal Court of Justice has declared precisely this situation to be invalid. This article explains what this means for existing contracts, what rights you have as a tenant, and when rent reduction or termination may be considered.
The case of the BGH: In a shopping centre, a tenant had leased a fast-food restaurant whose core offering was potato dishes. Their standard contract included a duty to trade and a binding product range, while simultaneously excluding competition, product range, and trade protection. Over the course of the lease, other providers of potato dishes opened in close proximity. The tenant terminated the lease with immediate effect. The Federal Court of Justice (BGH) ultimately ruled in their favour: the combination of clauses is invalid.
Here is an overview of further typical errors in commercial lease agreements in our article on Most common errors and risks in commercial lease agreements.
What is non-competition protection in commercial tenancy law?
Non-competition protection means: the landlord is not allowed to rent out premises on the same property or in the immediate vicinity to a direct competitor of the tenant. The idea behind this is that someone who rents premises for business purposes can expect the landlord not to poach their customers.
This protection exists in two forms:
Contractual protection against competition
Even without an express agreement in the lease, there is competition protection. This is derived from the landlord's duty to provide the rented property in a condition suitable for contractual use (§ 535 BGB). The Federal Court of Justice recognised this early on (BGH, NJW 1979, 1404): Whoever rents out rooms for the operation of a specific business is not permitted to allow a competing business in other rooms of the same building or on immediately adjacent properties.
Requirement A specific business purpose must have become the subject of the contract. If the lease merely names „business premises“ without a more precise purpose, the protection inherent in the contract is weaker. The more precisely the contractual purpose is defined („operation of a chiropody practice“, „retail sale of sports equipment“), the stronger the protection.
Contractual non-compete agreement
The protection against competition can be explicitly agreed upon in the rental agreement. Then, the specific provisions of the contract apply: which product ranges are protected, which areas the protection extends to, and whether certain exceptions apply. Contractual protection against competition often extends beyond the protection inherent in the contract in its scope.
Likewise, competition protection can be contractually agreed. excluded develop. And this is precisely where the problem begins.
| Inherent in the contract | Contractually agreed | |
| Basis | § Section 535 BGB, BGH case law | Express clause in the rental agreement |
| Prerequisite | The purpose of the business must be the subject of the contract | No special requirements |
| Range | Same plot of land and directly adjoining plots of the landlord | As defined in the contract (may be extended) |
| Exclusion possible? | Yes, also through general terms and conditions (but not in combination with an obligation to operate + product range restrictions) | Yes, through individual agreement or general terms and conditions (with limits) |
Operating obligation: What it means and when it applies
There is no statutory obligation to actually operate a rented shop. The tenant has a right to use the premises but no obligation to use them. An operating obligation only exists if it has been contractually agreed upon (Federal Court of Justice, 04.04.1979, VIII ZR 118/78).
In shopping centres, the obligation to trade is standard. The tenant undertakes to keep their shop open during the centre's core opening hours and to offer a range of goods that complies with the contract. Typical wording: „The tenant is obliged to operate and keep the rented premises open from Monday to Saturday from 9 am to 8 pm within the framework of the agreed business purpose.“
Why Landlords Insist on the Duty to Operate
The landlord has a legitimate interest in shop premises being open. Any vacancies reduce the attractiveness of the entire shopping centre. Less footfall means lower turnover for all tenants. In shopping centres with turnover-based rent, the landlord also loses out directly.
Consequences of violation
A breach of the duty to operate is a breach of contract. The landlord can:
- demand the fulfilment of the operational obligation (if necessary through legal action),
- Claiming damages (e.g. lost turnover-related rent),
- to claim an agreed penalty clause,
- to Warning letter the cancellation without notice pronounce (Federal Court of Justice, 29.04.1992, XII ZR 221/90).
A lack of sales or a poor profit situation does not change this. The entrepreneurial risk lies with the tenant (BGH, XII ZR 252/98). Even if several shop premises in the shopping centre are already vacant, this does not generally entitle the tenant to cease their operating obligation.
An exception: If the shopping centre is largely unoccupied and consideration for other tenants is no longer necessary, the enforcement of the operating obligation by the landlord may be contrary to good faith (§ 242 BGB).
Operational obligation and Corona
The pandemic has cast the issue of the operating obligation in a new light. Many commercial tenants had to close their retail premises due to official orders. In these cases, the operating obligation was suspended due to impossibility: what is legally prohibited cannot be contractually owed. However, as soon as the official order was lifted, the operating obligation revived.
The courts have since ruled on various cases where tenants did not resume operations even after the end of the lockdowns. The courts were strict in these cases: economic difficulties after the pandemic do not absolve tenants from their obligation to operate.
The triple trap: why the combination is ineffective
This is where it gets specific. Many commercial leases for shopping centres contain three clauses at the same time:
- Operational obligation The tenant must operate their business during core opening hours.
- Range commitment The tenant must offer a specific range of goods or services.
- Exclusion of non-competition clauses The landlord is not obliged to keep away competition.
Each of these clauses is, in itself, generally effective. The Federal Court of Justice (BGH) has expressly confirmed this. However, the combination of all three clauses is ineffective as a standard term and condition (§ 307 paragraph 1 of the German Civil Code - BGB). The BGH decided this in its landmark ruling of 26 February 2020 (XII ZR 51/19).
Why? The BGH's logic
The reasoning is understandable: the tenant is in a trap from which they cannot escape.
- Competition is coming The landlord is permitted to allow competitors to set up shop in close proximity. The tenant has no grounds for complaint.
- Adapt range? It can't be done. The range commitment prohibits it. The tenant cannot alter their offering to circumvent competition.
- Save costs? Nor does it. The obligation to operate prevents the tenant from reducing opening hours or closing temporarily.
The tenant bears the full economic risk of competition, but has no single instrument with which to react to it. This is an unreasonable disadvantage.
What does „unwirksam“ mean in concrete terms?
The ineffective clauses are deemed non-existent. The contract shall otherwise continue. The BGH has expressly clarified: the ineffectiveness of this combination of clauses alone establishes none important reason for an immediate termination. The contract continues.
However, without the ineffective clauses, the protection against competition inherent in the contract is revived. If the landlord has actually allowed competition in the shopping centre, this may constitute a breach of the protection against competition. And this A breach of contract can be grounds for termination.
What does this mean for existing contracts?
The BGH ruling confirms that the ineffective combination of clauses has no effect even in existing form contracts. Anyone who has signed such a contract does not have to comply with the invalid clauses.
Landlords should amend their standard contracts. Two options: either remove the non-competition exclusion (then the operating obligation and product range commitment remain in effect) or remove the operating obligation and product range commitment (then the non-competition exclusion remains valid). The combination of all three clauses remains ineffective.
The decision opens up opportunities for tenants: Anyone who has a contract with the ineffective clause triad and suffers from competition can invoke the revived protection against competition. However, this should not be done on your own. Have the contract checked before you reduce the rent or give notice of termination.
What happens if the landlord allows competition?
A breach of the protection against competition (whether inherent in the contract or contractually agreed) is a Defect of the rented property within the meaning of Section 536 BGB. This was clarified by the BGH in its judgement of 10 October 2012 (XII ZR 117/10).
Legal consequences:
| Legal consequence | Explanation |
| Rent reduction | The right to a reduction in rent arises by operation of law (§ 536 BGB). The amount depends on the specific degree of impairment. The loss of profit due to the competitive situation is decisive. |
| Removal | The tenant can demand that the landlord eliminate the competitive situation, for example by terminating the competitor (as far as possible). |
| Compensation for damages | If the landlord has caused the insolvency (e.g. by intentionally entering into a further rental agreement), the tenant has claims for damages. |
| Termination without notice | If the competition significantly impairs the tenant's business and the landlord does nothing despite a warning notice (§ 543 paragraph 2 of the German Civil Code). |
Crucially, not every product range overlap is an infringement. The landlord does not have to keep out all tangible competition. In a shopping centre, certain overlaps are normal and are part of the concept („competition stimulates business“). The limit lies where the economic survival of the tenant is jeopardised.
How much can the rent reduction be?
There are no flat-rate percentages. The Federal Court of Justice (BGH) focuses on the specific loss of profit that has occurred due to the competitive situation. In the case of the orthopaedic practice, the tenant claimed a rent reduction of 50 percent (XII ZR 117/10). The BGH left it to the appellate court to examine whether this extent was justified.
Relevant for the calculation are: the decline in revenue after the competitor's opening, the comparability of the product ranges, the spatial proximity and the duration of the impairment. The closer the competition, the higher the reduction. A shoe shop that can prove revenue losses of 30 percent since a second shoe shop opened three doors down is in a significantly better position than a tenant complaining of vague „competitive pressure“ without being able to provide figures.
Tip: Keep a record of your sales. If a competitor opens in your neighbourhood, you need reliable figures for the before and after analysis.
Features in Shopping Centres
The same rules apply in shopping centres, but the balancing act is different compared to a stand-alone retail unit.
The BGH has confirmed that protection against competition is also inherent in shopping centres. However, the standard is narrower: a certain degree of overlapping product ranges is part of the concept of a centre. An Italian restaurant next to a Greek restaurant is not an infringement. Two shops with an almost identical product range (e.g. two potato restaurants) can be.
Whether a violation has occurred depends on the individual case: How big is the centre? How many tenants are there? To what extent do the product ranges overlap? Is the offer aimed at the same customer group? How severe is the economic impact on the tenant concerned?
For example: Case law has affirmed a claim for protection of competition when a snack bar and a pizzeria target the same customer base at the same time of day. Protection was, however, denied when a women's fashion shop and a men's fashion shop were located next to each other: same industry, but different customer base. The dividing line, therefore, does not run along the industry, but along the actual competitive situation.
Trade association and duty to operate
In most shopping centres, tenants must join a retail association and pay contributions for joint advertising and events. This is generally permissible. However, the level of contributions must be comprehensible and the use of funds transparent. Inappropriately high or non-transparent advertising cost contributions may be invalid.
The advertising association is closely linked to competitor protection: a tenant who contributes to the financing of joint advertising benefits from the attractiveness of the centre. If this attractiveness is diminished by the establishment of direct competition, this provides an additional argument for competitor protection.
Turnover rent and protection against competition
In shopping centres, a mixture of base rent and turnover-dependent rent is often agreed upon. This makes competition protection a double-edged sword for the landlord: on the one hand, they want to keep the centre attractive through variety. On the other hand, if competition becomes too strong, the turnover of individual tenants, and thus also the variable rent component, decreases.
For the tenant, turnover rent simultaneously means that a loss due to competition is easier to prove. The development of turnover before and after the competitor moves in is often the central piece of evidence for the amount of rent reduction.
What commercial tenants should do
Before contract conclusion
- Formulate the purpose of the contract precisely: The more precisely the business purpose is defined in the contract, the stronger your protection against competition will be. „Operation of a speciality shop for children's clothing“ is better than „retail“.
- Negotiate non-competition clause: Have the protection against competition expressly guaranteed. Define which sectors and product ranges are protected and to which radius the protection extends.
- Check combination of clauses: Does the contract simultaneously contain an operating obligation, a product range commitment and an exclusion of protection against competition? Then the combination is invalid according to BGH case law. But it is better to negotiate this before concluding the contract than to have to invoke the invalidity later.
- Penalty clause to be observed: Many contracts provide for contractual penalties in the event of a breach of the operating obligation. Check the amount and conditions.
In the current rental agreement
- Document competition: If a competitor opens in your neighbourhood, document this immediately: photos, comparison of the product range, sales development before and after the opening.
- Give the landlord a written warning: Inform the landlord of the breach of the protection against competition and ask him to remedy the situation. Set a reasonable deadline.
- Examine rent reduction: A rent reduction due to a breach of the protection against competition occurs by law. However, the amount must be reasonable. Do not reduce the rent on your own authority without being able to prove the extent of the impairment.
- Check clause combination: If your contract contains the ineffective clause trio, have the entire contract reviewed by a lawyer. The legal consequences affect not only competition protection but also the duty to operate and the product range commitment.
You can find detailed information on the rights in the event of termination of the tenancy in our article on Termination of commercial leases.
Competition protection also for freelancers and doctors?
Yes, protection against competition applies not only to retailers and restaurateurs, but also to freelancers: doctors, tax consultants, physiotherapists, lawyers and other practices that rent premises for commercial purposes.
The BGH has expressly recognised the contractual protection against competition for medical practices. In a case in which a landlord had contractually guaranteed an orthopaedist protection from competition and then allowed a joint practice with overlapping specialisms in the same property, the BGH affirmed the rental defect (BGH, XII ZR 117/10). The tenant had claimed a rent reduction of 50 per cent; the BGH referred the question of whether this amount was justified to the court of appeal for review.
The argument: A GP relies on their patients from the immediate locality. A competitive situation within the same building directly impairs contractual usage.
Frequently asked questions
Do I have protection against competition, even though nothing is stated in the contract?
In principle, yes. The protection against competition inherent in the contract exists even without an express agreement, as long as a specific business purpose has become the subject of the contract (Section 535 BGB, BGH NJW 1979, 1404). The prerequisite is that the rental agreement makes it clear which business you are running.
Can the landlord exclude protection against competition in the contract?
In principle, yes, even in general terms and conditions. However, the exclusion may not be combined with an obligation to operate and a product range commitment. This combination is ineffective (BGH, XII ZR 51/19). The exclusion alone is effective.
Can I reduce the rent if competitors move into my property?
If the landlord has violated the protection against competition: yes. The violation is a rental defect (§ 536 BGB). The rent reduction occurs by law. The amount depends on the loss of profit due to the competitive situation. Document your loss of sales.
Do I also have to keep my business open in case of losses?
If an effective operating obligation has been agreed: yes. Lack of turnover is no reason to breach the operating obligation. The entrepreneurial risk lies with the tenant. Exception: If the shopping centre is largely empty and enforcing the operating obligation would be contrary to good faith.
When can I cancel without notice?
Termination without notice in accordance with Section 543 BGB is possible if the landlord violates the protection against competition, you have warned him and he has not remedied the situation. In addition, the competition must significantly impair your business. The mere fact that clauses in the contract are invalid is not enough to justify cancellation.
What exactly is an assortment commitment?
The product range commitment obliges the tenant to maintain a range of goods or services defined in the contract. It may not be combined with an exclusion of competition or an operating obligation. On its own, it is effective as a GTC.
Does the protection against competition also apply to neighbouring buildings?
The contractually inherent protection against competition extends to the same piece of land and immediately adjoining plots owned by the landlord. It does not apply to plots owned by third parties. Contractual protection against competition can be broad.
My contract contains the invalid combination of clauses. What should I do?
Have the contract reviewed by a solicitor. Then negotiate a contract amendment with the landlord. Many landlords have an interest in correcting this, for example, in the event of a change of ownership or refinancing. If the landlord has actually allowed competition, you can consider a rent reduction, damages, or, in extreme cases, termination.
Does my competition protection extend if I expand my product range?
No. The BGH has clarified that the protection against competition is not extended by the fact that the tenant subsequently changes its product range in breach of the contract. The contractually agreed business purpose is decisive, not the product range actually carried. If you would like to expand your product range, you should agree this with the landlord and amend the contract accordingly.
Does non-competition protection also cover online competition?
No. The contractual non-competition clause only applies to the landlord renting out premises to competitors in close proximity. Online competition is not covered by the non-competition clause.
What applies in the event of a change of ownership?
The protection against competition is transferred to the new landlord in the event of a change of ownership in accordance with Section 566 of the German Civil Code (BGB). The new owner enters into the rights and obligations of the rental agreement, including protection against competition. This applies to both contractual and inherent protective obligations. You can find more information on the written form and its consequences in the event of a change of ownership in our article on Written form clause.
We are reviewing your commercial lease agreement
Whether before the conclusion of a contract or during an ongoing tenancy: we will review your commercial lease agreement for invalid clauses, negotiate contract amendments with the landlord and represent you in cases of rent reduction, claims for damages or termination disputes before the Cologne Regional Court.
