Are Foreign Wills valid in the United Kingdom?

To be valid, a Will must bear the signature of two witnesses, right? Well, in principle yes. Section 9 of the Wills Act 1837 (as amended) provides that a Will shall not be valid unless: (a) it is in writing and signed by the testator, or by some other person in his presence and by his direction; (b) it appears that the testator intended by his signature to give effect to the will; and (c) the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and (d) each witness either: (i) attests and signs the will; or (ii) acknowledges his signature, in the presence of the testator (but not necessarily in the presence of the other witness), but no form of attestation shall be necessary.

However!

If the testator has failed to satisfy section 9 of the Wills Act 1837, the Will may still be saved by coming within the terms of section 1 of the Wills Act 1963:

Formal Validity of a Will: A will shall be treated as properly executed if its execution conformed to the internal law in force in the territory where it was executed, or in the territory where, at the time of its execution or of the testator’s death, he was domiciled or had his habitual residence, or in a state of which, at either of those times, he was a national.

Thus, if, for instance, a German national living in England writes a German style Will, i.e. a hand written (holographic) “eigenhändiges Testament” without involving any witnesses, said Will is still accepted as being valid both in England and in Germany, because German law has corresponding legislation in place which deals with the formal validity of foreign Wills. Note: Since August 2015 these matters are dealt with by the EU Succession Regulation (EU Nr. 650/2012), which – however – the UK has opted out of.

Another example: If an English national who works as an expat in Germany for a few years (and thus has his habitual residence in Germany) executes a German style Will without witnesses, that Will is still valid in the UK.

Be careful with terminology: Lawyers often refer to section 1 Wills Act 1963 as dealing with “Wills made outside England and Wales”. This definition of scope is too narrow and thus incorrect. Because, as we have seen above, such a “Foreign Will” is valid even if it was executed on English soil, for example if the testator was domiciled in Germany or a German national, while living in England.

For more information on German-British will preparation and probate matters please see these posts provided by the international succession laws experts of Graf & Partners LLP

Or simply click on the “German Probate” section in the right column of this blog.

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The law firm Graf & Partners and its German-English litigation department GP Chambers was established in 2003 and has many years of experience with British-German and US-German probate matters, including the representation of clients in contentious probate matters. If you wish us to advise or represent you in a German or cross border inheritance case please contact German solicitor Bernhard Schmeilzl, LL.M. (Leicester) at +49 941 785 30 53

Why are German Contracts so short?

To the eyes of an English or a US contract lawyer, agreements drafted under German law appear shockingly short. This is not due to German contract lawyers being more lazy than their Anglo-American colleagues. Instead, the reason is the concept of Codification. Virtually all legal principles of German private and commercial law are laid down in statute books, most importantly the German Civil Code (Bürgerliches Gesetzbuch, BGB), the Commercial Code (Handelsgesetzbuch, HGB), the Code on Limited Liability Companies (GmbH Gesetz) and the Code on German Stock Corporations (Aktiengesetz). A large number of these statute books are even available in an English translation on the official government website www.gesetze-im-internet.de (German Laws & Statutes Online).

Codification means that the legislator provides the basic structures of an area of law. Now, Germans being Germans, the German legislator did not merely stick to basic principles, but has, in many areas of German law, set out very detailed rules, especially when it comes to consumer protection laws. Thus, if a German landlord leases an apartment to a German tenant, for example, nothing other needs to be agreed than the monthly lease amount and the beginning of the lease period. Virtually everything else is regulated by the relevant section of the German Civil Code (§ 535 to § 580a BGB). The same is true for most other contract types. That is why German contracts are so short and appear to be “unprofessionally drafted”. Well, sometimes they are, but briefness is usually not the problem.

The parties, within certain limits, are allowed to steer away from the default regimes of the various German contract types. However, this is exactly, where problems often are created. Especially if a foreign lawyer uses non-German templates, which contain terminology and legal concepts strange to German codified law. This happens all the time in Anglo-German business transactions. If the parties are later in dispute about what a certain clause or term shall mean, that is when they realise that German lawyers had a completely different understanding than their British or American colleagues all along. Classic issues, for example, are the meaning of the legal term “guarantee” or the concept of “indemnification”, which is rather strange to a German lawyer.

In a jurisdiction which uses Codification (Germany, France, Netherlands etc), legislation contains general principles and guidelines and defines the terminology used. Specific statutes lay down rules for individual types of contracts, such as contracts of sale, lease, loan and many others. Most importantly, German law provides general

catch-all provisions that apply where the parties have not explicitly agreed otherwise. Thus, when drafting a contract, one should stay away from mixing up legal terminology from different jurisdictions. However, in my experience as an international contract lawyer, this is being done all the time, because inhouse and outhouse legal counsels from different countries want to get their standard boilerplate clauses in, which is a rather dangerous approach, because contradicting language will make it very difficult for a judge or arbitrater later on, to interpret the agreement. Instead, one should either stick with the Common Law approach of putting everything in the agreement, including long lists of definitions (which appear redundant and sometimes even funny to a German lawyers eyes). Or use the German approach, stick with the brief German style templates and trust your German counsels when they tell you that everything you need is the statutory law anyway.

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The law firm Graf & Partners was established in 2003 and has many years of experience with British-German and US-German legal matters, including the preparation and drafting of English-German commercial agreements and corporate documents.

The Anglo-German litigation lawyer team of GP Chambers is well equipped to advise and represent clients from the UK and other English speaking countries. If you wish us to advise or represent you in a German or cross border case, or if you need an expert report on German law, please contact German lawyer Bernhard Schmeilzl, LL.M. (Leicester), managing partner and head of the litigation department. Bernhard is also frequently asked by British and US Courts and Tribunals or by legal counsels to provide expert reports and legal opinions on German law.

Most Germans die without a Will

German Intestacy Rules Explained

The German rules about what happens when a person dies without having made a valid will (intestacy), are set out in section 1923 to 1936 German Civil Code (Bürgerliches Gesetzbuch, an English translation being available here.

Intestate succession affects many families because roughly two out of three Germans die without having a valid Will in place. German intestacy rules are very different from those in Common Law countries. Children of the deceased have a much stronger legal position in Germany compared to children under English or US succession law. And there is the famous German “Pflichtteilsrecht” (“compulsory share”), which appears a rather baffling concept to British or US-American succession lawyers, because it entitles one’s closest relatives to a share in the Estate (up to 50%) even if the testator cannot stand that person (for details see here).

Who gets how much under German Intestacy Rules?

Before we get too technical, let’s look at the outcome in the three most common constellations:

  1. Married couple with child/children: Half of the deceased’s estate goes to the surviving spouse, the other half goes to the child of the deceased (if more than one child, the children have to split this half share between themselves). This is, however, only true if the spouses live in the German default marital property regime (gesetzlicher Güterstand) which is the regime of Zugewinngemeinschaft (community of accrued gains). If the spouses have changed the German standard marital property regime, which is only possible by entering into a formal agreement recorded before a German notary, then the share of the surviving spouse is reduced to 1/4.
  2. Married couple and no children: Surviving spouse (only) gets 3/4 of the deceased’s estate, the rest goes to the sibling(s) of the deceased! This is a result, which the deceased in most cases would never have intended. Since this particular German intestacy rule is something which many couples are unaware of, this outcome leads to the most ugly disputes between the surviving spouse and the brothers or sisters of the deceased, who are now suddenly co-owners of the family property.
  3. Not married: Everything goes to the child (or children). If there are no children, then everything goes to the parents of the deceased. If they have already passed away: the siblings of the deceased.

If the family situation is more complex, especially in patchwork constellations, the intestacy rules can lead to quite unfortunate results, especially since under German probate law there is no personal representative who is responsible for the administration of the estate and can take care of matters. Instead, all co-heirs (Miterben) must act together and are forced to agree about everything by unanimous vote. In other words: Even a co-heir who has only a minute share in the estate, can block the administration of the estate by constantly voting against the majority. In practice, this means that houses and stock can’t be sold, bank accounts can’t be closed, monies can’t be distributed until all (!) beneficiaries unanimously agree or until a German Court of Law has decided. Thus, contentious probate and disputes among co-heirs are rather common in Germany, because intestacy rules often create a community of heirs consisting of people who cannot stand or do not trust each other.

For Lawyers

In more generic terms and technical legal lingo, the German rules on intestacy can be explained like this: Legal heirs (gesetzliche Erben) in Germany are determined by employing a rather complicated parental system per stirpes. On intestacy, German law distinguishes between certain “orders of succession”. These orders (degrees or categories of German succession law) are:

  • 1st Order: children of the deceased and their descendants;
  • 2nd Order: parents of the deceased and their descendants;
  • 3rd Order: grandparents of the deceased and their descendants;
  • 4th Order: great-grandparents of the deceased and their descendants.

Each “Ordnung” precludes the following orders, i.e. as long as any relations of one of the prior orders can be located, all those of the next order are excluded from benefiting. Relatives within a particular category inherit in equal shares (succession per stirpes). Within a particular degree, an existing beneficiary excludes all his or her descendants from benefiting.

What about the Surviving Spouse?

Under German intestacy rules, the surviving spouse (or registered same sex partner) also has a right of inheritance, which is determined by the matrimonial property regime. The percentage depends on whether the deceased had any close relatives. The surviving spouse of the deceased is entitled to receive:

  • 1/4 f the estate if there are any surviving children (or their issue) of the deceased
  • 1/2 of the estate if the deceased is survived by his/her parents or their issue (i.e. sisters/brothers or nieces/nephews of the deceased) or grandparents
  • The total estate if the deceased is not survived by any issue or parents

In addition, the surviving spouse is entitled to the following statutory legacies:

  • household and personal effect / personal chattels (Hausrat) and
  • the wedding presents (preferential benefit)

Please note that the above percentages only apply if the spouses have not altered the German standard marital property regime (see in particular section 1371 German Civil Code).

Also, and this is another big difference to the situation under English succession law, the spouse is not entitled to anything under German intestacy rules if at the time of the death of the deceased the requirements for the dissolution by divorce of the marriage were satisfied and the deceased had petitioned for or consented to the divorce (section 1933 German Civil Code). So there is no need for a final court order. Formally initiating divorce proceedings is enough to assure that the (soon to be ex-) spouse is no longer entitled to any statutory inheritance.

In these posts, you can find more information on German Probate, German Inheritance Tax and Will Preparation. In case of contentious probate, disputes can be brought either before a German Probate Court (Nachlassgericht) or before the Civil High Court (Landgericht). More on civil litigation in Germany here and on the website of our litigation department (GP Chambers, German Barristers).

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The law firm Graf & Partners was established in 2003 and has many years of experience with British-German and US-German probate matters. If you wish us to advise or represent you in a German or international inheritance case please contact German solicitor Bernhard Schmeilzl, LL.M. (Leicester) at +49 941 785 30 53. Bernhard is also frequently asked by British and US Courts and Tribunals or by legal counsels to provide expert reports and legal opinions on German law, particularly German contentious probate matters and German inheritance tax issues.

Standard of Proof in German Civil Litigation

Is the Standard of Proof any different under German Law than English Law?

The standard of proof in German civil litigation is defined in section 286 German Civil Procedure Rules (Zivilprozessordnung):

Section 286: Evaluation of evidence at the court’s discretion and conviction

(1) The court is to decide, at its discretion and conviction, and taking account of the entire content of the hearings and the results obtained by evidence being taken, if any, whether an allegation as to fact is to be deemed true or untrue. The judgment is to set out the reasons informing the conviction of the judges.

(2) The court shall be bound to statutory rules of evidence only in the cases designated in the present Code.

Thus, a certain fact is (only) proven if the judge is personally fully convinced that this certain fact is indeed true. The German word for this is “Vollbeweis”, i.e. full conviction. This is a somewhat higher threshold than the concept of “the balance of probabilities” which is used in common law systems.

However, please note that section 287 German Civil Procedure Rules reduces this high standard of proof threshold (Vollbeweis) for the questions of whether a damage has occurred and what the exact amount of compensation shall be:

Section 287: Investigation and determination of damages; amount of the claim

(1) Should the issue of whether or not damages have occurred, and the amount of the damage or of the equivalent in money to be reimbursed, be in dispute among the parties, the court shall rule on this issue at its discretion and conviction, based on its evaluation of all circumstances. The court may decide at its discretion whether or not – and if so, in which scope – any taking of evidence should be ordered as applied for, or whether or not any experts should be involved to prepare a report. The court may examine the party tendering evidence on the damage or the equivalent in money thereof; the stipulations of section 452 (1), first sentence, subsections (2) to (4) shall apply mutatis mutandis.

(2) In the event of pecuniary disputes, the stipulations of subsection (1), sentences 1 and 2, shall apply mutatis mutandis also to other cases, insofar as the amount of a claim is in dispute among the parties and to the extent the full and complete clarification of all circumstances authoritative in this regard entails difficulties that are disproportionate to the significance of the disputed portion of the claim.

Thus, one must take a close look at what exactly is in dispute between the parties. With regard to the question of damages and their extent, German Courts use a standard of proof concept which is very similar, if not identical with the “balance of probabilities” concept. However, section 287 CPR does, for example, not apply to the question of whether the Defendant has injured the Claimant at all. For this, as for many other questions, the basic rule of “full conviction” (Vollbeweis) remains applicable.

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The law firm Graf & Partners was established in 2003 and has many years of experience with British-German and US-German legal matters.The Anglo-German litigation lawyer team of GP Chambers is well equipped to advise and represent clients from the UK and other English speaking countries. If you wish us to advise or represent you in a German or cross border case, or if you need an expert report on German law, please contact German lawyer Bernhard Schmeilzl, LL.M. (Leicester), managing partner and head of the litigation department. Bernhard is also frequently asked by British and US Courts and Tribunals or by legal counsels to provide expert reports and legal opinions on German law.

Does German Law of Torts know the Egg Shell Skull Rule?

Under English law of torts, a claimant is entitled to pursue a claim for injuries that have been sustained as a result of the negligence, even if their response to the damage they suffered was unusual or not predictable (e.g. due to brittle bone disease, haemophilia or a nervous disease of the injured person). This principle is known as the “egg shell skull” rule and means that the wrongdoer takes the claimant in the position they find him or her.

Does this concept also exist under German law of torts? Yes it does. The equivalent of the “egg shell skull” principle under German law is called “Schadensgeneigtheit” or “besondere Schadensanfälligkeit des Geschädigten” and is usually referred to and explained with statements like “the wrongdoer must take the injured person as he/she is” or “the injurer cannot demand to be treated as if he had injured a healthy and robust person.” For details see the leading German commentary to the Civil Code: Münchner Kommentar zum Bürgerlichen Gesetzbuch, 7. Auflage 2016, Band 2, page 348; § 249, Rd. 138 which refers to the relevant case law of the German Supreme Court and other German Courts of Law.

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The law firm Graf & Partners was established in 2003 and has many years of experience with British-German and US-German legal matters.The Anglo-German litigation lawyer team of GP Chambers is well equipped to advise and represent clients from the UK and other English speaking countries. If you wish us to advise or represent you in a German or cross border case, or if you need an expert report on German law, please contact German lawyer Bernhard Schmeilzl, LL.M. (Leicester), managing partner and head of the litigation department. Bernhard is also frequently asked by British and US Courts and Tribunals or by legal counsels to provide expert reports and legal opinions on German law.

The Perils of German Inheritance Tax and Gift Tax

German Inheritance Tax applies when British Legators (and their Lawyers) least expect it

UK and US lawyers are used to an inheritance tax regime where (only) the estate as such is being taxed. In that system, it does not matter too much, who the beneficiary is and where he or she is domiciled.

The German Inheritance Tax concept works entirely differently (basics explained here). Instead, it taxes the individual beneficiary. However, if that beneficiary is domiciled outside Germany, the German IHT code also taxes the estate. In other words, to a British lawyer, German IHT also does apply in surprisingly many circumstances, namely:

  • (i) the deceased has been resident in Germany (domicile is not required, simple residency triggers German IHT); or
  • (ii) the beneficiary is resident in Germany; or
  • (iii) certain assets are located within Germany (details are explained below).

An everyday example, which very often leads to unpleasant surprises is this: The English testator has his entire estate within the UK and sets up an English Will in which the testator gives a legacy of say GBP 50,000 to a friend or relative who lives in Germany. From a UK perspective, the estate is subject to UK Inheritance Tax. End of story. However, English solicitors often forget that the beneficiary in Germany is also subject to German inheritance tax. If the Will says that the gift is “free of IHT” the dispute begins whether the testator really intended that the German tax shall also be paid by the estate (on top of the UK IHT).

And this is only a very simple example. Most cases we deal with are much more complex and involve various layers of taxation plus the matter of whether taxes paid in one country can be set off against taxes due in another.

For those who wish to examine the German Inheritance and Gift Tax Code in more detail, let me explain section 2 of the German IHT Code, which distinguishes between two situations: (i) legator / donor or beneficiary is resident in Germany or (ii) neither legator  /donor nor beneficiary is resident in Germany:

(i) Resident within Germany

According to sec. 2 para. 1, lit. 1a and lit. 1b Erbschafts- und Schenkungssteuergesetz / German Inheritance and Gift Tax Code, someone who has any kind of residence (Wohnsitz) in Germany, is qualified as “Steuer-Inländer” (i.e. German Tax Resident), which means that:

If the Steuer-Inländer dies, all his/her global assets are subject to German IHT (unbeschränkte Steuerpflicht, i.e. unlimited IHT liability). In this case, the German tax authorities will base their calculation of German IHT on the entire global estate.

If the Steuer-Inländer is a beneficiary (i.e. a donee, heir or a legatee), everything that person receives (not just the German assets) is subject to German IHT.

(ii) Non-Resident within Germany

If neither the donor nor the recipient are resident in Germany, then according to sec. 2 para. 1, lit. 3 Erbschafts- und Schenkungssteuergesetz / German Inheritance and Gift Tax Code German IHT does apply in regard to those assets which are defined as „Inlandsvermögen“ pursuant to section 121 Bewertungsgesetzes, these cases are called “beschränkte Steuerpflicht”.

Acording to sec. 121 Bewertungsgesetz (here), property and other certain investments fall into this category of Inlandsvermögen (national assets) and are thus subject to German IHT.

In other words: German IHT will always be due on German property and the other investments listed in the Bewertungsgesetz, regardless of whether donor or beneficiary were / are resident here or not.

Still, the issue of whether a person has a residence in Germany is extremely important, especially if the estate contains (i) pure monetary investments in Germany and/or (ii) significant assets (of whatever kind) outside of Germany.

Whether and how much tax will actually be due depends on the individual tax exemptions available to the beneficiaries, see sec. 16 ErbStG (here).

What makes the taxation of German assets for non-residents even more dangerous is the fact that the donor or the beneficiary is qualified as an IHT non-tax-resident, the German IHT code only grants the German estate an allowance of EUR 2,000 (yes, 2k – this is not a typo, see sec 16 para. 2 ErbStG). This is a huge disadvantage to the normal personal inheritance tax allowances of EUR 500,000 for the spouse, EUR 400,000 per child and EUR 200,000 per grandchild. Thus, in some cases, it may be the wiser choice to actively opt to be treated as an Steuer-Inländer (German tax resident), because then the full personal allowances become available. Such a right to opt is available in certain circumstances, see sec. 16 ERbStG. However, this choice only makes sense if (i) the beneficiary is a close relative and thus has high personal allowances and (ii) the non-German assets do not outweigh the German assets, because opting to be treated as German tax resident of course also means, that all global assets are subject to German IHT.

UK residents with property or IHT relevant investments in Germany should therefore get professional tax advice if they want to avoid their assets being double taxed by German and British tax authorities. The simple trick of mortgaging the German property is usually not helpful, because German tax authorities will not accept a mere mortgage notice in the German Land Registry (Grundbuch, details here). They will want to see evidence whether the mortgage – which could be an empty shell – is backed by an actual obligation towards a third party, i.e. they will want to be provided proof of loan agreeements, statements or even affidavits from the lender etc. Here is an extract from the main German IHT form (Erbschaftssteuerformular) which the beneficiaries have to fill in and submit.

erbstbescheidAs you can see from lines 84 onward, the German tax office demands the names and address of creditors and lenders, and they want to see copies of the actual loan agreements “Bitte fügen Sie entsprechende Belege bei”)

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For more information on German IHT please see the postings: “German Inheritance Tax Rates and Personal Tax Exempt Amounts” and “Can foreign Taxes be set off against UK Inheritance Tax?”

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The law firm Graf & Partners was established in 2003 and has many years of experience with British-German and US-German probate matters. If you wish us to advise or represent you in a German or cross border inheritance case please contact German solicitor Bernhard Schmeilzl, LL.M. (Leicester) at +49 941 785 30 53

Notices of Termination under German Law

Under German Law, the requirements, both in relation to the form as well as length of the notice period needed in order to terminate a contract for the performance of a continuing obligation (Dauerschuldvertrag), can vary significantly, depending on the type of contract that is in question. Employment contracts (Arbeitsverträge), Service Contracts (Dienstverträge) and Contracts for the production of a piece of work (Werkverträge) can be terminated without regard for any agreed notice period as long as it is for “a compelling reason” (wichtiger Grund, see Section 314 para. 1 German Civil Code). Compelling reason in these types of cases means that it is either impossible or unreasonably damaging for a party to continue the contractual relationship.
Anything beyond that, one would have to consider what is stated in the contract.

a) Employment Contracts (Anstellungsvertrag, Arbeitsvertrag)

Employment contracts are characterised through “a dependency of instructions”. The closer an individual’s activities are regulated, the more likely it is that they are qualified as an employee under German law (in contrast to a freelancer providing services).
Employment contracts can only be terminated by written notice (this does not include email or fax, and there must be a handwritten signature) and, usually have rather long notice periods. They are also quite unique in that even the regular notice of termination is only allowed in specific circumstances. More in depth information on employment contracts can be found here: German Labour Law: The Basics of Employee Protection against Dismissal.

b) Service Contracts (Dienstvertrag, section 611 German Civil Code)

This is a type of contract that involves an ongoing task, most often some kind of counselling. Service contracts have no special form requirements unless stated in the contract. However, for ease of reference, it is advisable always to have the terms written down.
The statutory notice period varies depending on the specific payment arrangemenents contained in the agreement (see section 621 BGB):

1. If payment is provided per day, the period is each day to the end of the next day.
2. If payment is provided per week, the period at the latest from the 15 of a month to the end of that month.
3. If payment is provided per month, the period is each day to the end of the next day.
4. If payment is provided per quarter of a year or longer periods, the period at least 6 weeks to the end of the year.
5. If payment is not based on time sequences there is no notice period. In cases where a majority of a person’s working time is spent fulfilling the service contract there is a notice period of two weeks.

Thus, if the contract is silent on both termination periods as well as payment intervals, the agreement can – as a rule – be terminated anytime with immediate effect. However, no rules without exceptions.

 

c) Contracts to Produce a Work (Werkvertrag, section 631 German Civil Code)

This category has a slightly misleading name. It encompasses every contract that focuses on specific quantifiable successes. Recurring shipments of raw materials are one of the more common forms this kind of contract encompasses.
Much like service contracts, there is no inherent formal requirement for terminating them.
Contracts to produce a work can be terminated at any time by the one commissioning the work in question, as long as the work has not been completed. However, the other party can, in that case, demand the agreed upon payment minus (i) any money saved by not having to fulfill that contract and (ii) any money that was earned or should have been earned by the commissioned party by using the resources freed up by the termination (Section 649 BGB).

There is, however, yet another important factor in all of this. Any contract that is limited to a certain time in a legally binding way cannot be terminated by ordinary notice of termination if there is no mention of that possibility in the contract. A simple statement to the effect of “the notice periods as written in the BGB are to apply to this contract” or any other notice periods agreed upon by both parties suffice to prevent this from happening.
If a contract is made with a time limit but continues to be performed upon beyond that limit with the knowledge of both parties, it is from that moment on considered by German law to be a contract without a time limit.

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The law office Graf & Partners was established in 2003 and has many years of experience with British-German and US-German legal matters. If you wish us to advise or represent you please contact German solicitor Bernhard Schmeilzl, LL.M. (Leicester) at +49 941 785 30 53 or English solicitor Elissa Jelowicki in Munich at +49 (0) 89 / 45 23 55 747. Or simply write an e-mail to elissa(at)grafpartner.com.

Tenants beware of Waiver Clauses in German Property Lease Agreements

Renting a House or Flat in Germany? Do not sign a “Kündigungsverzicht” Clause

The basic rule under German law is that tenants have the right to terminate an open-ended lease agreement by giving 3 months notice (see s. 573c German Civil Code in the chapter “property leases for an indefinite period” ). In contrast to the UK, such open-ended lease agreements are standard in Germany.

However, a tenant can waive this right by signing it away (Kündigungsverzicht). In our firm we regularly come across cases, where the German landlord includes such a termination waiver clause, without expressly discussing this with the prospective tenant. Since tenants from the UK are used to fixed term lease agreements, they are mostly not aware that they are signing something which is the rare exception in Germany and which is to their disadvantage compared to the default rule in the German Civil Code. Again: the statutory rule is that a tenant can always terminate by giving three months notice (without having to give a reason). The thinking behind this law is that a tenant must be flexible, in case he has to relocate to another town for job reasons. The landlord – in contrast – cannot freely terminate, but must be able to demonstrate cause. In practice, a landlord in Germany can thus only terminate the property lease in two cases: (i) because the tenant has breached his contractual obligations, or (ii) if the landlord can credibly establish that he (or a close family member) wants to move into the flat or house himself. This rule annoys some landlords, thus the attempt to sneak in the waiver clause (Kündigungsverzicht).

However, even if you find that you have signed such a clause, which binds you foralonger period than you wish to be bound, all is not yet lost, because German courts still do protect tenants by finding those clauses void, which result in an unreasonably long commitment of the tenant.

Here is where it gets complicated, because the German courts distinguish between cases where the landlord has provided to the tenant a standard lease agreement template, which he does use or intends to use regularly. Such standard templates are called “Allgemeine Geschäftsbedingungen” (AGB), see sections 305 to 310 German Civil Code. AGB’s are subject to strict scrutiny, because the natural assumption is that the other party does not fully understand the implications of all these clauses with the user of the template had all the time in the world to fine tune in his best interest.

Thus, if a landlord has used AGB, such a waiver of the termination right (Kündigungsverzicht) is only legally permitted for a maximum of 4 years. If the period is longer, the clause is simply void and the general rules of German Civil Code apply.

If, however, the landlord can establish that the lease agreement (especially the termination waiver clause) was really intensely negotiated between lessor and lessee, then the agreement would no longer qualify as a “standard template”, but as an “Individualvereinbarung” (individually negotiated contract). In those cases, the courts tolerate longer periods, up to 10 years or longer, because the court takes the position that the tenant has thought about whether he actually wanted to accept this. If so, the tenant does not need to be protected.

Thus, be careful, if a prospective landlord wishes to discuss such a waiver clause with you. Chances are, he is planning on to later reason that you have explicitly wished such a clause to be included in the agreement. Sometimes, they use the argument that it is in your best interest to have such a long term lease agreement, so he cannot kick you out after one or two years. But remember: The landlord can only terminate for cause anyway. So, in general, the tenant is already well protected against termination.

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The law office Graf & Partners was established in 2003 and has many years of experience with British-German and US-German legal matters. If you wish us to advise or represent you please contact German solicitor Bernhard Schmeilzl, LL.M. (Leicester) at +49 941 785 30 53 or English solicitor Elissa Jelowicki in Munich at +49 (0) 89 / 45 23 55 747. Or simply write an e-mail to elissa(at)grafpartner.com.

Using a German Distributor? Beware of Choice of Law Clause!

What UK Suppliers should know about German Commercial Law

You are a UK based supplier using a German-based distribution agent (Handelsvertreter) within Germany? So far, so good. However, in case you have accepted German law to be applicable or if you have chosen to remain silent on the issue of applicable law: Are you aware of what will happen upon termination of the distribution agreement?

German law differs significantly from UK law when it comes to distributors and agents. The main difference being that it is does not differentiate between an “agent” and a “distributor” – unlike in the UK.

Within Germany, a distribution agent will, no doubt, at the beginning of a contractual relationship work incredibly hard to build up relationships between the supplier and customers. Usually, this will last several years, until the supplier has established a large customer base in that country. When this happens, the usual course of events is for the supplier to terminate the agreement with the agent and liaise directly with customers. What happens to the agent and what does this mean for you? Unlike UK law, under German law, if and when an agent agreement is terminated, the agent is entitled to substantial compensation.

Therefore, it you either have chosen the route of a distribution agreement or an agency agreement, you must be aware of section 89b German Commercial Code! Under this section, which implements Council Directive (EEC) No. 86/653 on Commercial Agents (Directive), the agent is entitled to claim compensation from the supplier after the termination of the agency agreement so long as the agent can prove that the principal will substantially benefit from the business relationships that were established by the agent and that the agent will lose commission as a result of the termination.

So if the supplier keeps delivering goods to customers that have been found by the agent, the agent must be paid for this.

On the other hand, under UK law, there is a major difference between an “Agent” and a “Distributor”. Yes, if you are deemed an “Agent”, and if your contract is terminated, then possibly compensation will be due. However, if you are not, and are a “distributor”, then in most cases compensation will not be due, unless it can be proved that the distribution agreement was a sham.

Therefore, in order to decide whether compensation is due under UK law, one needs to ascertain whether the agreement was that of an agency or a distributor. Essentially, an agent is appointed by the principal to negotiate and possibly conclude contracts with customers on the principal’s behalf. He is paid commission on the sales he makes, usually on a percentage basis. The only contract for sale of the products is made between the principal and the customer. The agent does not deal with customer directly – that is left to the principal.

On the other hand, a distributor can be a person/company who buys goods on his/its own account from the supplier or exporter and resells them to customers in his/its own territory. He/it is essentially an independent contractor. Unlike an agent, he/it does not act as a channel of communication between the supplier and the customer and will usually have no authority to create a contract between the supplier and the customer. Instead, he/it acts as the contracting party.

In the UK, Council Directive (EEC) No. 86/653 on Commercial Agents (Directive) (and, accordingly, the UK Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) (the Regulations)), does not apply to distribution agreements. Therefore, within the UK, there is no requirement to pay compensation to a distributor on termination of the distribution agreement.

Care should be taken when negotiating contracts and choice of jurisdiction clauses from both the part of the Supplier and that of the agent and/or distributor. As there is a big difference in the UK, the choice of law applicable to the agent agreement is extremely important when you are initially negotiating contracts, as it will be a huge deciding factor of whether you are entitled to compensation or not.

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The law office Graf & Partners was established in 2003 and has many years of experience with British-German and US-German legal matters. If you wish us to advise or represent you please contact German solicitor Bernhard Schmeilzl, LL.M. (Leicester) at +49 941 785 30 53 or English solicitor Elissa Jelowicki in Munich at +49 (0) 89 / 45 23 55 747. Or simply write an e-mail to elissa(at)grafpartner.com.

Apartment Prices in Germany: How to get a quick Overview

Most expats or students coming to Germany will not buy property but instead lease an apartment. There is good news for potential tenants in Germany: Once you have secured a lease agreement, it is almost impossible for the landlord to kick you out again, due to “Mieterschutz” laws, which protect residential tenants against termination of the lease agreements (more on this here). Also, in 2015, the German Civil Code was changed so that estate agents can no longer stick the tenants with their bill (usually the equivalent of 2 months’ rent) even if the landlord had hired the agent. Now, the party who has hired the estate agent (Immobilienmakler) must pay for their services.

How much rent does an apartment cost in Germany?

Well, this obviously depends on the city and the part of town you are looking at. While in former east Germany, some towns are virtually dying, because young people are leaving for the big cities, in boomtowns like Munich, Stuttgart, Frankfurt or Hamburg, apartment lease prices are going through the roof and families are forced to move to the suburbs. In Munich, for example, the same 70 square foot apartment will cost EUR 1,400 at stylish Marienplatz, 900 EUR in still somewhat central parts of Munich and 650 EUR at the endof the Munich underground lines.

To give potential tenants an idea about what lease prices are in German cities, the real estate web portal Immobilienscout24 has created a number of “Miet-maps“. For some cities, they have used that town’s respective underground line map and calculated the average apartment lease for each underground station area (for Munich in early 2016 see the above map).

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The law firm Graf & Partners was established in 2003 and has many years of experience with British-German and US-German legal matters. If you wish us to advise or represent you in a German or cross border inheritance case please contact German lawyer Bernhard Schmeilzl, LL.M. (Leicester) at +49 941 785 30 53