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The principle of “purchase does not break rent” does not apply to sales to co-owners and joint landlords
If landlords sell their co-ownership share in a rented property to another co-owner/joint landlord, the selling co-owner will remain a landlord and obligated under the lease. According to an October 8, 2018 (8 U 111/18) Court of Appeal (Kammergericht) decision, section 566 (1) Civil Code (“purchase does not break rent”) does not apply in these cases.
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The Court of Appeal decided on a case in which two individuals as co-owners had rented a property to a tenant. One of the co-owners had subsequently transferred his co-ownership share to the other one so that only one owner was left. Only the remaining owner had then terminated the lease with the tenant.
In case of a sale of the rented property “to a third party,” section 566 (1) Civil Code provides for the purchaser to enter into the lease with all rights and obligations in place of the landlord. In particular, this is intended to protect the tenant. It should remain possible for the tenant to continue the use of the rental property in accordance with the provisions of the original lease.
The question as to whether section 566 (1) Civil Code may also be applied to this situation had previously not been clarified by a higher court. The Court of Appeal now decided that section 566 (1) Civil Code is not relevant.
In the court’s opinion, the transfer of a co-ownership share to another co-owner does not constitute a sale “to a third party” in accordance with section 566 (1) Civil Code, because the purchaser has already been a (joint) landlord before. In addition, the Court of Appeal held that the tenant would be placed in a worse position if section 566 (1) Civil Code were applied because he would lose the seller as a contracting party. However, this contradicts the legal purpose of the provision which is to protect the tenant.
Outlook and conclusion:
If co-ownership of a leased property exists and one co-owner transfers his ownership share to another co-owner, it should be taken into account that the selling co-owner continues to remain a landlord. The selling (former) co-owner must participate in all declarations regarding the lease (such as terminations). On the tenant side, it should be noted that all actions and declarations of intent within the scope of the lease must also be made to the former co-owner.