Termination due to default of payment

In the following, I would like to give tenants who are renting an apartment and have been given notice of termination of their rent contract because they are in arrears with rent payments (in legal German “Zahlungsverzuges mit der Miete” or ‘default of rent payment’), some tips from my experience as lawyer on how to deal with such situations. As always, however, these explanations are no substitute for seeking legal advice.

1. Do not panic!

If your rent contract has been terminated because you have rent arrears, and even if your landlord has terminated your rent contract without notice, that does not mean you will find yourself on the street overnight. Before evicting you, your landlord needs to receive a judgement from a local or regional court instructing a bailiff to carry out the eviction. Enforcing a notice of termination due to default of payment and eviction for apartments is a lengthy procedure. If you defend yourself against the declaration of termination and also pay the current rent, it is usual that an eviction will only be possible after one year at the earliest.

If your landlord decides to arbitrarily replace the door locks, which has been known to happen, this  is completely illegal. Again and again courts have decided here in favour of the tenant and a lock change can be prevented or reversed by means of an interim injunction. Should your landlord try to enforce eviction in this way, you should contact a lawyer immediately. The landlord almost always has to pay the costs for the interim injunction.

So if you receive a notice of termination due to default of payment, don’t panic! Instead take the necessary steps to protect your rights. It is not possible for your landlord to suddenly turn up with a removal van at your door, making you homeless from one moment to the next.

2. The termination due to default of payment might not be effective

In recent years, the German Federal Court of Justice has relaxed the requirements for dismissal both in formal and substantive terms. Nevertheless, landlords often make mistakes when giving notice of termination.

The notice of termination must be in writing and justified

Notice of termination must be given in writing (Section 568 (1) of the BGB [German Civil Code]) and must be justified (Section 569 (4) and Section 573 (1) of the BGB). If a notice of termination does not comply with these requirements, then the landlord has made what is called a formal error. Common examples are: the property manager has issued the termination but failed to specifically state that the notice of termination is being declared in the name of the landlord; or the written form is not observed (original signature); or the reason for termination, in this case the amount of arrears, is not presented in a comprehensible manner; or the notice of termination is not declared vis-à-vis all tenants.

Power of attorney is often necessary

If the termination is not declared by the landlord themselves but by a third party (property manager), an original power of attorney must be enclosed as proof of authorisation (but often no authorisation is enclosed or only a copy is sent). In this case, it is possible to object to the notice of termination because it is lacking proof of authorisation, which then must be submitted immediately (Section 174 sentence 1 BGB). Although the power of attorney can be submitted at a later date, this at least delays the termination procedure and you have the chance to prevent an extraordinary termination without notice if you manage to quickly settle the rent arrears in full (Section 543 (2) sentence 2 BGB).

Objections against the termination?

If what is known as a ‘material error’ has been made, then there is no reason for termination, e.g. in cases where the rent “arrears” arise from the tenant paying a reduced rent amount, which however the tenant was permitted to do, but the landlord did not take this into account when calculating the arrears. The normal notice of termination because of rent arrears according to Section 543 (2) sentence 3 no. 3 BGB is only justified when a tenant is actually in arrears with the rent. Rent here refers to net cold rent as well as advance payments for operating and heating costs.

Any other claims by the landlord, e.g. additional claims referring to service charges, claims for damages or reminder fees are not included (although, with regard to additional claims arising from a service charge settlement, caution should be applied as the Federal Court of Justice explicitly left this question open in a judgement from 2016). Although such claims may also justify a termination of the rent contract, in such cases the landlord must first set a deadline for the tenant to remedy the situation, as outlined in Section 543 (3) sentence 1 BGB.

3. Contact the landlord or the real property manager immediately

It is not uncommon for landlords to be quite willing to continue the tenancy as long as the arrears are settled, preferably immediately, of course, and in one payment. The legal enforcement of an eviction claim is always subject to some measure of uncertainty and also bears a considerable risk as far as costs are concerned. Even if the landlord can expect to re-let the apartment at a higher price, a number of landlords shy away from taking any risks and are content to stay with “the devil they know”, as it were. If you receive benefits from the JobCenter, you can also offer the landlord the option of having the rent transferred directly to the landlord’s account by the JobCenter in future.

Practical tip

After a termination has been issued, an agreement must be reached on the continuation or re-establishment of the tenancy. Although this can also be done orally, it should, however, at least be confirmed by the landlord in writing so that there is written proof of it. When a rent contract is terminated, this means it ceases to exist. While Section 545 BGB states that a tenancy can be reinstated even without an express agreement, most standard rent contracts effectively exclude this. If a continuation of the tenancy was not agreed upon or if proof of this agreement cannot be given later, the landlord has the possibility of demanding eviction even after a considerable period of time.

Even if there is little chance of success in defending yourself against the termination and the landlord is not willing to continue the tenancy, it is often at least possible to agree in personal contact with the property manager/landlord to an extended period of time before the eviction is carried out. The landlord is of course also aware that the legal enforcement of the eviction takes some time. In order to avoid the cost risk this entails, landlords are regularly prepared to reach a goodwill agreement if the tenant voluntarily vacates the apartment.

4. If possible, the arrears should be settled immediately

It has been shown in the past that it is important to clear the arrears as soon as possible. Due to the current jurisdiction being seen in some Berlin rent appeal chambers in particular, it is becoming increasingly advisable to follow this recommendation.

Legal significance of settling rent debts

Termination without notice due to rent arrears can be averted by paying the rent arrears within the period of grace – up to two months after receipt of the action for eviction – which only applies, however, if the contract has not already been terminated due to rent arrears in the last 2 years (Section 569 (3) no. 2 BGB). If possible, the arrears should therefore be paid immediately after an attempt has been made to reach an agreement with the landlord. You should also pay even if the rent arrears have accrued from only a reduced rent payment. In this case, however, you must inform the landlord that this subsequent payment is being paid under the reservation of reclaim because of the defects. You can then demand the reduced rent back from the landlord.

While subsequently paying arrears solves only the problem concerning the termination without notice, it does not address a simultaneously issued ordinary termination. Nevertheless, the courts are likely to be more benevolently disposed towards tenants who fulfil their obligation to pay their rent, even if it the money is transferred late.

Further outcomes of paying arrears

This benevolent attitude among judges described above is remarkable on two levels:

Previously it has been generally argued that an ordinary termination of a rent contract that is  issued together with the termination without notice is almost always valid. However, the German Federal Court of Justice has now declared that, in the case of an ordinary termination, a materiality threshold must have been exceeded and that not every minor or only short-term delay in payment justifies ordinary termination. For this reason, a number of courts are now examining the validity of ordinary terminations more closely, at least in Berlin.

In determining whether the materiality threshold has been exceeded, the immediate payment of arrears, the length of the tenancy, the period without complaints, the amount of arrears in rent and any conduct by landlords in breach of their duties can then be taken into account. However, the prerequisite here is that the rent arrears have been paid within the period of grace thus rendering the extraordinary termination without notice ineffective.

What is more, decisions concerning an eviction period (see item 6) are made by the judges at their own discretion, “i.e. on a rule-of-thumb basis”. So here too, it is beneficial if the judge is sympathetic to your situation.

Practical tip

Very often, even in the case where a notice of termination has been issued because a tenant has rent arrears, the tenants declare an objection to the termination. This only makes sense in absolutely exceptional cases! You only have a right to object against an ordinary termination. However, according to Section 574 (1) sentence 2 BGB, objecting to an ordinary termination is excluded if the reason for termination also entitles the landlord to issue an extraordinary termination without notice (i.e. always in the case of a termination due to rent arrears). If a termination without notice is therefore justified, but is then averted by the tenant paying the rent arrears within the period of grace, the tenant has no right whatsoever to lodge an objection against the ordinary termination.

The only effect in practice is that the landlord can now take legal action immediately to enforce the future eviction of the rented property (Section 259 ZPO [German Code of Civil Procedure]), because the landlord is afraid you will not vacate the rented property. If you do not file an objection, the landlord will usually wait and see whether you have moved out on the eviction date. This means that the landlord can effect a court decision concerning the termination of the tenancy much earlier because the tenant’s objection is completely ineffective.

Update

In a decision dated 1 March 2018, the 64th Chamber of the Berlin Regional Court was of the opinion that the tenant has a right to object to an eviction due to hardship if the tenant has been given extraordinary notice of termination without notice due to rent arrears and the termination without notice has become invalid because the tenant has paid the arrears within the period of grace. In any case, however, the objection should not be sent immediately, but as late as possible.

5. Searching for a new apartment

If you know that the termination of your rent contract is justified, you must immediately start looking for a new apartment. And – very important – you must document these efforts in detail. Finding a new apartment in Berlin at an acceptable price is very difficult. Without a certificate of exemption from rent debts, which you certainly will not have after having been issued a notice of termination due to default of payment, the search will be even more difficult.

If the search for a new apartment is unsuccessful, you can still delay moving out by applying for a time extension for vacating the premises and for an order protecting you from execution of the eviction. However, your efforts to find a new apartment must be presented plausibly to the judge. The judge wants to see that you have really made an effort. And here again, it cannot hurt to have the judge’s goodwill.

You can find a form for documenting your efforts here: Wohnungsbewerbungsprotokoll (Housing Application Protocol)

6. In the trial: Apply for a period of eviction

If – contrary to my explicit advice – you decide to represent yourself in court, you have to imperatively submit an application for a period of eviction. In the vast majority of cases, the courts will grant such an period of eviction, but for different lengths of time in each individual case. As far as the length of the period is concerned, the courts will generally give a positive assessment if you are paying your current rent punctually and if you have documented all the efforts you have made to find a new apartment. If no period of eviction is granted, the judgement can be enforced two weeks after delivery of the reasoned judgement, possibly against a security deposit.

7. Attend the oral proceedings

Regardless of whether you have a good chance or not, you should definitely attend the oral proceedings. Although this will increase the costs of the legal dispute, this increase is still moderate compared to the costs already incurred.

In case of doubt, failure to appear will be interpreted as a lack of interest in your own home. In addition, a judgment by default can be issued, and this is enforceable without the landlord having to provide a security. In the case of a normal judgment by trial, the landlord must provide a security in a considerable amount. This is why a large number of landlords prefer to wait and see whether the appeal is successful.

If you want to hire a lawyer after the oral proceedings, it may be useful to have a default judgment issued against you. In this case you may not apply for the claim to be dismissed. However, you should still apply for a period of eviction, as otherwise the default judgment can be enforced immediately. In addition, you will often have a chance to re-negotiate an agreement with the landlord or their lawyer during the oral proceedings.

8. Already prove that there are defects by writing to the court

If you have decided to pay a reduced rent sum due to defects in your apartment and the landlord gives notice of termination because he considers this reductions to be rent arrears, you will have to present these defects in letters to the court before the oral proceedings in a way that is comprehensible to the court (for example, with photos, witness statements, expert opinions).

I very often experience defendants who appear in court without having made any statements concerning the claim before the oral proceedings take place. Apparently many people with no legal background  think that they can turn up in court on the day and just explain their side to the judge during the oral proceedings. However, according to the German Code of Civil Procedure, presenting your arguments for the first time at the oral proceedings is almost always too late and does not even have to be taken into account by the court. Judges who have already prepared themselves to issue a simple default judgment do not like being surprised in this way at all!

The important thing is that, not only do tenants have to prove there is a defect, they also have to demonstrate that they have specifically reported said defect to the landlord, or that the landlord was aware of the defect even without the tenant having to report it.

Practical tip

To avoid having to bear the costs of an expert’s opinion yourself, if you are unable to pay expensive legal fees, you should apply for legal aid. If this is granted, the costs of your own lawyer will also be covered.

9. Invoking the right to refuse rental payments in the case of still existing defects

Many tenants do not know that they have a right to withhold the rent as well as to assert a reduction in the rent payment if the rented property has defects. The courts regularly set this right to withhold rent at an amount of one reduced rent payment at the least. So if the judge decides that the rent reduction you have asserted was exaggerated, then this right to withhold rent can save you from termination due to default of payment.

However, it is important to pay the withheld rent immediately after the defect has been remedied.

10. Let us help you!

As you can see from my explanations, knowing the correct way to behave when faced with a termination due to default of payment is a complicated matter. In this article I have only been able to offer you a brief overview of some possible reactions to such a notice of termination.

If you unnecessarily lose your apartment because you have failed to prevent a termination from being asserted, or because you have failed to provide the proper defence against the termination, then you may face considerable financial losses. It is therefore absolutely necessary to hire a qualified lawyer to advise you and, if necessary, represent your interests. Only a lawyer can realistically assess the chances of successfully attacking the validity of the ordinary termination. Tenants without the adequate financial means can always get hold of a so-called ‘legal advice cheque’ which means they can receive legal counselling from a lawyer of your choice. In this case, you only have to pay a personal contribution of currently 15.00 EUR for a consultation appointment with a lawyer.

If all else fails: if you are worried that you might be facing homelessness, there are numerous non-profit organisations, as well as counselling and assistance services provided at the municipal level (in Berlin at the district offices).

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