Lease Agreements in the Event of Insolvency in Germany

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Insolvency brings with it many financial uncertainties. A particularly common question is what happens to an existing lease agreement. Can the landlord terminate the lease? Who is required to continue paying rent? And what happens to the security deposit?

As a general rule: Insolvency does not automatically lead to the termination of a lease agreement. Both tenants and landlords have certain rights and obligations, which are governed by the Insolvency Code (InsO).

What happens to the lease agreement in the event of insolvency?

According to § 108 InsO, existing lease agreements generally remain in effect even after the opening of insolvency proceedings.

This means:

• The lease agreement generally remains valid.
• Insolvency alone is not a valid reason for termination.
• The agreed-upon rent must continue to be paid.
• The legal requirements for termination must be met.

Different rules apply to private residential units and commercially used properties.

1. Leases in the Case of Personal Insolvency

Can the landlord terminate the lease?

Under Section 112 of the Insolvency Code (InsO), the landlord generally may not terminate the lease after a petition for personal bankruptcy has been filed solely on the grounds of a deterioration in the tenant’s financial circumstances or due to rent arrears dating from before the petition was filed.

Important: If new rent arrears arise after the petition for personal bankruptcy has been filed, the landlord may still terminate the lease under the statutory conditions, for example, in the case of significant payment arrears.

Who Pays the Rent During Insolvency?

Even during personal insolvency, tenants are generally required to continue paying their monthly rent. Rent payments are typically made from income that is exempt from garnishment. The insolvency trustee does not automatically assume responsibility for ongoing rent payments.

Therefore, it is important to pay the rent in full and on time even during the insolvency proceedings.

What role does the insolvency trustee play?

The insolvency trustee manages the insolvent person’s attachable assets.

In the case of an owner-occupied apartment, the trustee may not terminate the lease under the special right of termination provided for in insolvency law. Instead, the trustee may issue a so-called declaration of release pursuant to § 109(1), sentence 2, InsO.

This means:

• The lease remains in effect.
• The tenant may continue to live in the apartment.
• After the statutory period has expired, any rent claims that become due at a later date can no longer be asserted against the insolvency estate.
• The tenant remains personally responsible for these rent payments.

The declaration of release from liability thus does not terminate the lease agreement but limits the liability of the insolvency estate.

What happens to the security deposit?

A security deposit that has already been paid generally remains with the landlord for the duration of the lease. If the tenant moves out at a later date, it depends, among other things, on whether the insolvency administrator has issued a declaration of release from liability.

If such a declaration exists, the tenant is generally entitled to a claim for reimbursement of a legally permissible security deposit. However, the landlord may offset legitimate claims against the security deposit.

2. Commercial Leases in the Event of Insolvency

Different rules may apply to properties used for commercial purposes, such as business premises, offices, or warehouse space.

Can a commercial lease be terminated?

Even in the case of commercial leases, insolvency does not automatically lead to termination. However, the insolvency administrator has a special right of termination under § 109(1), sentence 1, InsO.

In principle, the insolvency administrator may terminate a commercial lease with three months’ notice to the end of the month, even if a longer lease term was originally agreed upon. A shorter applicable notice period remains possible.

What happens to outstanding rent claims?

In the case of rent arrears, a distinction is made based on when the claims arose:

• Before the commencement of insolvency proceedings: Outstanding rent claims may generally be filed as insolvency claims.
• After the commencement of insolvency proceedings: Current rent claims are generally considered liabilities of the insolvency estate as long as the lease continues to have effect for the insolvency estate.

Early termination by the insolvency administrator can cause financial disadvantages for landlords, particularly if a new tenant cannot be found quickly.

3. What happens if the landlord becomes insolvent?

Landlords can also be affected by insolvency.

In principle, the existing lease agreement remains valid under § 108 InsO.

This means:

• Tenants may, in principle, continue to use the rented premises.
• The agreed-upon rent must continue to be paid.
• The landlord’s insolvency alone does not terminate the lease agreement.

If the property is sold during insolvency proceedings, the new owner may have special termination rights under certain conditions. For residential leases, the statutory protections against termination continue to apply.

4. What should tenants and landlords keep in mind in the event of insolvency?

To avoid legal and financial difficulties, the following points should be taken into account:

• Ensure rent payments: Even during insolvency proceedings, ongoing rent obligations must be met.
• Keep records: Lease agreements, proof of payment, and correspondence from the insolvency administrator should be carefully retained.
• Check for rent arrears: It is particularly important to determine when the outstanding debts arose.
• Clarify the security deposit: The impact of insolvency on the security deposit depends on the specific case.
• Seek assistance early on: If anything is unclear, a debt counseling service or legal advisor can help.

We’re here to help

Our service and interpretation agency assists Romanian clients with questions regarding tenancy agreements and insolvency proceedings in Germany.

We help you understand correspondence from government agencies and attorneys, fill out forms, and communicate with landlords, insolvency administrators, and the relevant authorities.

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