Federal Court of Justice, 27/09/2017, Ref.: VIII ZR 243/16
According to Section 573 (1) BGB, a landlord can only terminate a tenancy with notice if he has a justified interest in the termination. Due to the social importance of the flat for the tenant as a centre of life, an interest of significance is therefore necessary. However, this requirement must not lead to interference with the substance of the landlord's property, i.e. the landlord's private use and right of disposal. § Section 573 (1) BGB contains an exemplary list of reasons for which a special interest of the landlord can be assumed. No. 1 lists termination due to a culpable breach of duty by the tenant, no. 2 lists termination for personal use and no. 3 lists termination for realisation. The latter regulates the realisation of the economic exploitation of a value inherent in the rented property. It includes the demolition and new construction, but also the remodelling and sale of the leased property.
The judgement below concerns an action for eviction and the question of whether the interests of third parties must also be taken into account in addition to the interests of the tenant and landlord when weighing up the interests of the tenant and landlord when terminating the lease.
Introduction: Dispute over flat cancellation
This case concerns a legal dispute regarding the eviction and surrender of a rented flat. The plaintiff, owner of the building in which the defendants had rented an approx. 190 m² flat since 2012, terminated the tenancy in 2015. The reason given for the termination was the planned demolition of the building in order to expand the neighbouring fashion shop of S. GmbH & Co. KG, which is also owned by the plaintiff. The lower courts ruled in favour of the action for eviction, but the defendant's appeal to the Federal Court of Justice (BGH) was successful.
Reasons for the cancellation and interests of the plaintiff
The plaintiff justified the termination of the tenancy in accordance with Section 573 (2) No. 3 BGB with the intention to demolish the rental property in order to create new commercial premises. This was to serve economic utilisation by generating higher rental income through the expansion of the neighbouring fashion shop. The plaintiff argued that the continued existence of the tenancy prevented it from realising this, which would put it at a considerable disadvantage.
The Court of Appeal followed this reasoning and ruled that the economic realisation was based on reasonable and comprehensible considerations. It found that the plaintiff could not be referred to other expansion options, as these would involve higher costs. It was also taken into account that the plaintiff considered the fashion business to be of existential importance, as she was the managing director of S. GmbH & Co. KG.
Decision of the BGH: Incorrect assumption of a significant disadvantage
However, the Federal Court of Justice disagreed with the opinion of the Court of Appeal. The Court of Appeal clarified that the cancellation was not legally effective. Although it was recognised that the planned demolition and use of the property to expand the fashion shop could constitute economic exploitation, the arguments put forward by the plaintiff were not sufficient to justify termination in accordance with Section 573 (2) No. 3 BGB.
The BGH emphasised that a termination under this provision is only justified if the landlord suffers a significant disadvantage if the tenancy continues. However, the plaintiff had not specifically demonstrated what disadvantages it would actually suffer by continuing the tenancy. In particular, the desire to optimise profits was not sufficient to justify a termination, as the tenant's interest in continuing to live in their flat was also protected by fundamental rights.
Social obligation of ownership and balancing of interests
According to the BGH, the interests must be weighed up against the background of the social obligation of ownership in accordance with Art. 14 Para. 2 GG. The landlord is not entitled to always enforce the most economically optimal use of the property for him. Rather, the tenant's right of possession of the flat must also be recognised as part of his property. The tenant's interest in keeping their home as the centre of their life must always be taken into account in the context of a termination for economic exploitation.
The consideration of the interests of S. GmbH & Co. KG as the plaintiff's sister company was also inadmissible in the opinion of the BGH. According to Section 573 (2) No. 3 BGB, only the interests of the landlord itself may be taken into account, but not those of third parties, such as the economic interests of the fashion shop in this case.
Conclusion and reversal of the appeal judgement
The Federal Court of Justice overturned the appeal judgement and referred the case back for a new hearing. It found that the Court of Appeal had incorrectly weighed up the interests and that the termination was not effective in accordance with Section 573 (2) No. 3 BGB. In particular, it criticised the fact that the plaintiff was unable to prove sufficient concrete economic disadvantages as a result of the continuation of the tenancy. The Court of Appeal had stated in general terms that any restriction on the free disposal of the property constituted a significant disadvantage for the plaintiff, but according to the case law of the BGH, this was not sufficient to justify a termination.
The BGH therefore ruled that the termination of the tenancy was invalid and that the defendants were not obliged to vacate the flat. The interests of the plaintiff in commercial utilisation did not justify the termination of the tenancy in this case.
Source: Federal Court of Justice
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