Protection against competition in lease agreements

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Clause effective only in case of actual impairment

In commercial lease agreements, a competition protection clause can be agreed upon. However, a reduction in rent due to a breach of the competition protection clause requires that there has actually been an impairment. This was clarified by the Higher Regional Court of Düsseldorf in its judgment of September 12, 2023 (Case No.: I-24 U 47/22).

In principle, according to § 535 of the German Civil Code (BGB), the landlord is obliged to hand over the leased property in a condition suitable for the contractually agreed use. This statutory provision can already derive competition protection for the tenant. However, a competition protection clause can also be explicitly agreed upon in a commercial lease agreement. Such a provision protects the tenant from a direct competitor moving into the same building, according to the commercial law firm MTR Legal Rechtsanwälte, which advises on real estate law, among other areas. However, according to the judgment of the Higher Regional Court of Düsseldorf, such a competition protection clause only applies if there is actually an impairment.

Competition protection agreed in lease

In the proceedings before the Higher Regional Court of Düsseldorf, the parties entered into a commercial lease agreement in 2010. The tenant intended to establish a physiotherapy practice in the leased premises, covering an area of about 650 square meters. The commercial lease agreement included a clause stating that no premises would be rented to individuals or companies that compete with the physiotherapy practice. The landlord committed not to rent or allow to be rented on the premises any spaces to individuals or entrepreneurs who directly compete with the tenant’s business area. The contract explicitly states: “This makes the operation of another similar physiotherapy practice impermissible.”

Seven years later, the landlady rented out practice rooms on the premises to a naturopath specializing in American chiropractic. The tenant of the physiotherapy practice saw this as a violation of the competition protection clause and reduced the rent by 25 percent. The landlady then filed a lawsuit for the payment of the full rent. She argued that the agreed competition protection clause only covered protection from “direct competition.” A naturopath’s practice did not fall under this.

Landlady entitled to full rent payment

The Kleve Regional Court dismissed the landlady’s lawsuit. In the appeal proceedings before the Higher Regional Court of Düsseldorf, the landlady was successful with her lawsuit. The court found that there was no breach of the competition protection clause. The Regional Court had interpreted the scope of the competition protection clause too broadly, according to the Higher Regional Court. The clause did not cover protection from a naturopath’s practice specializing in American chiropractic. Even if this were the case, there would be at most only a minor impairment, which should be disregarded and would not justify a rent reduction, the court clarified.

Rental parties are generally free to agree on complete competition protection, which also includes businesses from different sectors. However, this was not the case here, the Higher Regional Court of Düsseldorf explained. In the clause, protection from “direct” competition was specifically addressed. Thus, the competition protection was clearly described, and the prohibition of renting premises to third parties was limited to another similar physiotherapy practice, the court clarified. However, the naturopath does not operate a physiotherapy practice and does not have a physiotherapy education. They represent significantly different professions, according to the Higher Regional Court. Had smaller overlaps with the physiotherapeutic services of the tenant been intended to be covered by the competition protection, these should have been explicitly mentioned if possible.

A significant impairment of the use of the rented premises was not established, so the landlady is therefore entitled to the full rent payment, the Higher Regional Court decided.

Legally secure contract drafting

The competition protection clause should have been much more detailed if it was also intended to prevent the establishment of a naturopath or other practices.

MTR Legal Rechtsanwälte advises on the legally secure drafting of a commercial lease agreement and other real estate law topics.


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