I. Facts of the case

In 2009, the defendant tenant (a GmbH) and the claimant landlord concluded a ten-year lease agreement for a commercial space. After several changes, the lease was terminated extraordinarily and without notice at the end of 2014. However, in October 2015, the lease was reestablished by the parties by way of an addendum and a limited lease term (fixed term) of more than one year was agreed.
The GmbH is generally represented by its two managing directors with joint power of representation. This was also evident from the rubrum of the addendum. Furthermore, the addendum contained two signature fields for the tenant. The names of the two managing directors of the tenant were each typewritten under a signature field. Only one managing director of the tenant signed the addendum and added the tenant’s company stamp to his signature. The second signature field remained empty. In the internal relationship of the management, the managing director was given the appropriate authorization to sign the addendum alone.
The tenant duly terminated the lease in due time before the expiry of the agreed fixed term on the grounds that due to the missing signature, the legal written form according to sec. 550 p. 1 German Civil Code (Bürgerliches Gesetzbuch, BGB) had not been observed, creating an unlimited lease which could be duly terminated.
The landlord requested a determination that the lease would continue for the fixed term and could not be terminated in an orderly manner.

II. Background of the high requirements for the written form

Disputes over the question of the possibility of terminating a fixed-term lease before the end of the fixed term arise again and again. This occurs despite the fact that a (effectively) limited lease can only be terminated without notice during its term (which presupposes the existence of good cause). The background to the susceptibility to dispute is the provision of sec. 550 p. 1 BGB, which, in the case of fixed-term lease agreements concluded for a period of more than one year, orders their conclusion in written form. If the written form is not complied with, the lease shall be deemed to have been concluded for an indefinite period by legal fiction. Such a lease concluded for an indefinite period of time can be terminated at any time in accordance with the statutory and, if applicable, contractually agreed notice period.
Written form is defined as the personal signature of the parties on the lease agreement document. The purpose of this provision is to protect the contracting parties from rashly entering into long-term relationships. In constant case law, however, the BGH also requires that, in order to comply with the written form requirement of sec. 550 p. 1 BGB, all essential contractual terms and conditions must be contained in the document signed by both parties. If essential contractual conditions are not laid down in the lease agreement itself, but are outsourced to annexes, so that the overall content results only from the interplay of these “scattered” conditions, all documents must be marked accordingly in order to maintain their coherence. To do so, the intellectual connection is sufficient which must be expressed in a reference without doubt. This clarity over the lease term of the lease is also necessary because a possible acquirer of the rented premises should be able to recognize which lease term has been agreed and thus which possibilities of termination of the lease exist for him. The acquirer enters directly into the rights and obligations of the selling landlord under the lease (sec. 566 para. 1 BGB). These high and thus error-prone requirements for the written form within the meaning of sec. 550 p. 1 BGB are the reason for a large number of disputes and an already very detailed case law of the BGH in this regard.
In fact, the BGH has already decided that if one of the board members of a company appointed as joint representative signs a rental agreement, the written form pursuant to sec. 550 p. 1 BGB is only maintained if all other board members also sign or it can be seen from the appearance of the document that the signatory also wishes to represent the other board members who have not signed. However, the BGH has denied the written form in the above-mentioned cases if the representation regulation of a corporation is stated in the rubrum of the lease agreement, because without an additional representation clause it is not recognizable whether the other legal representatives still have to sign. In such cases, doubts about the completeness of signing follow directly from the document itself and stand in the way of compliance with the written form requirement.
In a different case, the BGH assessed whether, according to the appearance of the contractual document, the signatory alone claims the right to conclude the rental agreement and indicates this by an addition indicating the sole representation of the company. Adding the company stamp to the signature can constitute such an addition. The addition of the company stamp to the signature is regarded as such a sign in business and legal practice and is understood as legitimation of the signatory to represent the company described in the stamp.

III. Decision

In the present case, the BGH further refined its case law described above (under section II.) and decided that the signature of one of the tenant’s managing directors, despite the addition of the company stamp under a lease agreement in which the tenant’s overall representation is expressly mentioned in the heading, does not comply with the written form. This is because the second signature field with typewritten name indication remained free for the further managing director of the tenant with joint power of representation. In the opinion of the BGH, the contractual deed gives an incomplete impression because it is not clear whether the signing managing director wanted to represent the other managing director or whether the latter still had to sign himself. The outward appearance of the conclusion of the document was missing. A possible acquirer of the premises could not recognize whether all necessary signatures were put under the lease.
The written form of the lease agreement was not observed in the present case, so that the lease agreement is considered to run for an indefinite period. The tenant was thus able to terminate the lease in accordance with the fixed-term agreement in the agreement.

IV. Consequences for the practice

The decision of the BGH emphasizes the importance of compliance with the representation regulation for a GmbH in general as well as the serious effects of non-compliance with the written form (due to incorrect representation of the GmbH) in the case of limited lease agreements in particular.

1. Tenancy law – conclusion of limited lease agreements

When concluding fixed-term lease agreements by managing directors of a GmbH with joint power of representation, both parties to the lease agreement should pay meticulous attention to the effective representation of the contracting parties involved and thus to compliance with the written form. Otherwise, there is a great risk that the lease will be deemed to be concluded for an indefinite period of time and can be terminated at any time. This entails major financial risks for both tenants and landlords, particularly in the field of commercial space leasing, as there is a threat either of losing the rental space required in the long term or of defaulting on planned rental payments. Likewise, purchasers of (commercial) rental space must ensure that the written form is complied with and that the parties to the lease agreement are effectively represented in order to gain legal certainty regarding the long-term existence of the lease relationships they are to take over.
The tenancy law component of the missing power of representation of a managing director with joint power of representation when concluding a limited lease constitutes a special case. This is because the law feigns the emergence of an unlimited lease due to the resulting lack of written form.
In order to conclude limited lease agreements, the managing directors of a GmbH with joint power of representation should always sign the agreement in a number of authorized representatives (often in pairs). If this is – as in the present case – not possible or not desired, it must be absolutely ensured when the agreement is signed by a managing director that it is clear from the contractual document without any remaining doubt that the signing managing director also represents the other managing director and thus acts with power of representation for the GmbH. In order to preserve the written form in the case to be decided by the BGH, the sole signing managing director could, for example, have (i) adjusted the heading of the agreement to make it clear that he is the sole representative of the GmbH upon conclusion of this lease agreement, (ii) signed with a representation suffix such as “in Vertretung (per procurationem)” or the abbreviation “i.V. (p.p.)” and ideally with the addition of the company stamp, and (iii) as a precautionary measure, either removed the second signature line for the other managing director with joint power of representation or signed in the latter also with representation suffix. The will of the acting managing director to represent the other managing directors with joint power of representation must also come to the fore, thus removing any doubt from the contractual document as to its conclusion.
Before the conclusion of lease agreements or addendums as well as the acquisition of rental space, the lease documentation should be subjected to a precise legal analysis in order to gain clarity with regard to the effectiveness of the representation of a GmbH as a party to a lease agreement and thus the observance of the written form in the sense of sec. 550 page 1 BGB.

2. General contract law – consequences of the lack of power of representation

When contracts are concluded by a GmbH, which are not lease agreements with a limited term, the question of effective representation of the company by its managing directors is equally important. The general rules of civil law apply in this respect, according to which the contract is pendingly ineffective if the actor lacked the power of representation (sec. 177 para. 1 BGB). The effectiveness of the contract is then dependent on the approval of the represented GmbH, i.e. the subsequent consent of the other managing directors with joint power of representation. Until the contract has been approved, the other party may revoke the contract. In the absence of such approval, the acting managing director of the other contracting party shall be liable for performance of the contract or damages (sec. 179 para. 1 BGB).

3. Recommendations in practice for the conclusion of contracts

The conclusion of contracts (also outside of tenancy law) must be carried out by the managing directors authorized to represent the company and/or, if authorized signatories are present, with their participation. If this is in fact not possible, there is the possibility that managing directors authorized to represent the company as a whole may authorize individual other managing directors to conduct certain business on their own. Such a so-called joint power of representation is subject to certain restrictions with regard to its scope because it may not be designed as a general power of representation and thus de facto as a sole power of representation, which would be ineffective. In the practice of concluding contracts, the overall representative authorization can be an effective means to minimize the administrative effort. In individual cases, however, the permissible structure can be complex and should be flanked by obtaining legal advice.