Protection against dismissal: Federal Court of Justice strengthens tenants' rights

Cities often have a so-called social charter for apartment sales. This should protect tenants against higher costs or terminations.
 So far, it has been controversial whether this type of tenant protection is enforceable in court.
 The Federal Court has now ruled: Tenants can rely directly on such clauses.

       By Wolfgang Janisch, Karlsruhe



    Rent increase, modernization, termination: If municipal flats are sold to an investor, tenants fear that a sharper wind will blow in the future. For such sales, which occurred more frequently around 2005 due to the then still widespread housing vacancies, cities often agreed on a so-called social charter. So far, it has been controversial what this form of tenant protection in court is worth. The Federal Court of Justice has now clarified that tenants can directly refer to such clauses, even if they are only in the purchase agreement between the municipality and the investor – and not in the lease itself.


    Claimants had terminated tenants


    A sibling couple who had bought a property in Bochum and had moved in on the first floor had sued. The plaintiffs had terminated their tenants – a severely damaged former miner and his wife, who live on the ground floor since 1981. The apartment is located in a settlement that the city of Bochum had acquired in the 1970s from a mining association. The miners enjoyed a lifelong right of residence, so it was even in the miner supply note of the tenant – and this is exactly what the city agreed with the buyers of the apartments. However, the safeguard clause was only in the purchase contract, in which the tenant is not even involved. "A sub-optimal solution," admitted tenant lawyer Peter Baukelmann in the BGH hearing. "It would have been better to include the regulation in the lease."


    According to the ruling of the Federal Court of Justice, tenants can now appeal directly to such clauses. "The City of Bochum has done everything it can to ensure the tenants a lifelong right of residence," said the Senate Chair Karin Milger at the verdict. Terminations for own use or for appropriate economic exploitation should therefore be excluded. The dismissal was allowed for "important reason" – but a tenant has to get some debt. According to BGH, this is a so-called "contract in favor of third parties", which also gives the person a direct claim, which is actually the concern – the tenant.


    More than half a million apartments were sold


    This judgment is important for the large-scale sale of communal flats, which was still common until a few years ago. Between 1999 and 2011, the public sector reduced its housing stock by around 550,000 homes, or 17 percent. A well-known example was Dresden in 2006 – around 48 000 communal WOBA flats were sold to Gagfah, a real estate company owned by US investor Fortress. The deal was heavily controversial. At that time, the contract of sale provided for a lifelong right of residence for over 60s, ten-year protection against dismissal as well as other clauses in favor of the tenants.


    Also for other sales from those years the judgment could be relevant, possibly until today. In 2004, for example, Berlin-based housing corporation GSW sold around 65,000 apartments to American investment companies. And in 2012, Landesbank LBBW in Baden-Württemberg sold 21,500 apartments to the real estate company Süwedo. Incidentally, there was also a court hearing on rent increases and the validity of a social charter. How strong the tenant protection really is, of course, always depends on the exact formulation of such clauses. Sometimes the tenant protection was also anchored directly in the leases, such as the privatization of about 11 000 apartments of the trust successor TLG, which went to the Hamburg TAG Group six years ago.


    In the meantime, the sales appetite of the municipalities has been significantly reduced. Above all, because one fears, without municipal housing stock no more design material for the social dealing with the tense real estate market. Nationwide, the municipal housing companies currently have more than 2.3 million apartments, according to a study of the German economy in the spring. It is also true that sales of stocks could still be a good idea today: because prices are currently high, some municipalities could thereby be debt-free at one go and gain scope for other investments.

Over-indebted to live
                        More than a tenth of Germans are over-indebted. One reason for this is the high cost of housing. Striking is also the rapidly increasing number of over-indebted pensioners.
                    By Benedikt Müller, Dusseldorf