Transfer of Fixed-Term Lease Agreements in a Corporate Acquisition by Way of Asset Deal: Beware the Written Form!

When transferring fixed-term lease agreements by singular succession in an asset deal, parties should ensure the transfer complies with the written form requirement.

A recent judgment1 from the German Federal Supreme Court confirmed established case-law2 regarding compliance with the written form requirement (sections 550 sentence 1, 578 para. 1 BGB - German Civil Code) with respect to a change of tenant in connection with a corporate acquisition by way of asset deal. The assumption agreement between a prior tenant and new tenant must comply with the written form requirement, i.e. in particular the agreement must expressly refer in writing to the original lease agreement. If the assumption agreement lacks such sufficient reference and the landlord has implicitly given consent to the assumption agreement, the lease agreement is deemed to have been concluded for an indefinite period of time and the statutory notice period applies. In this situation the new tenant's (i.e. the buyer's) or the landlord's financing may suddenly be endangered, e.g. if the lease which now can be terminated prematurely relates to business premises important to the new tenant (buyer) or if the landlord's financing depends on the cash flow from this lease agreement. In case of a corporate acquisition by way of an asset deal the landlord is in most cases not party to the assumption agreement. The landlord should therefore take into account the written form risk at the latest when granting consent necessary to make the assumption of the lease agreement by the new tenant effective.

The court ruling in detail -

In the facts of the German Federal Supreme Court case, the landlord had concluded a lease agreement with the previous tenant (later the seller) regarding a commercial property with a fixed term of 15 years. The previous tenant concluded an asset purchase agreement regarding its business with a buyer (later the new tenant). The asset purchase agreement provided for a provision according to which the buyer (new tenant) assumed any and all rights and obligations under the agreements listed in an exhibit to the asset purchase agreement. This exhibit contained a general header and a table listing leased properties according to locations, landlord's name and payable rent. The table did not contain any further information, e.g. neither was the respective property specified, nor both parties to the lease agreement, nor the date of the respective lease agreement. The landlord granted its consent to the assumption of the lease agreement by the new tenant. The new tenant then terminated the lease agreement prior to expiry of the fixed term.

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Topics:  Acquisitions, Commercial Leases, EU, Succession Planning

Published In: General Business Updates, Mergers & Acquisitions Updates, Commercial Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Latham & Watkins LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »