Late Fees and Defalut on Commercial Properties in Lower Saxony

When commercial tenants – from retail store chains to freelancers – fall into arrears, the German Civil Code (BGB) strikes a much harsher tone than with private individuals. Landlords of commercial properties in Lower Saxony have much more strong instruments at their disposal for reminder fees and sanctions.

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1. Automatic Determination of Default

Since commercial lease agreements specify fixed payment dates ("At the latest on the third working day of a quarter/month in advance"), a commercial tenant automatically falls into legal default of payment (§ 286 BGB) in the event of non-payment, without any reminder being required.

From the day following the due date, default interest begins to tick, and the landlord has applied legislative .

2. The 40-Euro Default Flat Rate (§ 288 Para. 5 BGB)

Probably the most powerful tool in the commercial sector in Germany to avoid dunning effort is the statutory 40-euro flat rate. If the tenant is not a private consumer, the landlord may immediately and without justification levy a flat rate in the amount of 40.00 euros for every default of payment that has occurred.

• The flat rate becomes due even with the smallest default amounts.
• It is independent of the actual reminder letter postage.
• No clause in the contract required; this is governed by the BGB directly.

If the actual costs of legal prosecution (e.g., instructing a lawyer for an out-of-court reminder or the costs of a collection agency) turn out to be even higher, the 40 euros will be offset against this lawyer's damage claim; the difference can be reclaimed in full from the tenant as default damage.

3. Massive Default Interest Rates in the B2B Sector (§ 288 Para. 2 BGB)

One of the arguably biggest differences to residential tenancy law manifests itself in the interest rates that the landlord may calculate on a monthly basis immediately after the due date. While in the private sector "only" 5 percentage points above the base rate apply, the statutory interest rate for commercial tenants in default is significantly higher:

• The default interest rate in Lower Saxony and the rest of Germany for legal transactions that do not involve a consumer is 9 percentage points above the base interest rate (annually).
• (Adding/subtracting the base rate published semi-annually by the Bundesbank reduces this sum accordingly on a daily basis).

This high interest rate is intended to prevent commercial tenants from quasi abusing their suppliers (or landlords) as free short-term lenders (current account credit substitute) in the context of poor operational cash management.

4. Termination Without Notice for Arrears

Despite the lucrative interest rates, the landlord does not lose sight: Too much goodwill with a struggling business quickly leads to insolvency loss from experience. The landlord also has, just like with residential space, the right to a termination without notice limitary due to default of payment. Requirements:

• Two consecutive rents are unpaid to a significant, high proportion.
• Rent arrears that extend over more than two dates and in total reach at least the amount of two full monthly rents ("Gross rent including ancillary costs").

As soon as the landlord makes use of this possibility, the termination without notice becomes pending. Although a commercial tenant can still "heal" (i.e. undo) this termination if he settles his entire debts within the shortest period of time after service of the eviction lawsuit. However, a commercial customer is mostly only allowed to use this healing right very limitedly in long time intervals, and it is formulated more stringently.

Automated Rent Management with Landager

In the commercial park with 40 tenants, asset managers quickly lose the overview if rents partly arrive unpunctually or only in partial amounts. Landager ensures that your commercial rents are monitored automatically, the 40-euro flat fee along with high 9% default interest are billed without errors, and dunning documents are generated on time and in correct form (incl. preparation for terminations).

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