GER: Is Excessively Low Rent Contrary to Public Policy?

Apr 25, 2025 Benn-Ibler Rechtsanwälte

An apartment at an extremely low rent – this sounds like a dream for many tenants. In a recent case, the German Federal Court of Justice (Bundesgerichtshof, hereinafter BGH) has clarified that the mere agreement of a low rent for a generously proportioned flat does not yet allow the conclusion that the contract is contrary to public policy and would therefore be considered invalid.

The case concerns a 177 square metre (1905 square feet) apartment in Berlin, which was rented out in 2017 for a net rent of only EUR 600 per month. The lease was signed with a German limited liability company (hereinafter GmbH) as the landlord, and the former managing director of the company signed the contract. Later, in 2021, the GmbH demanded that the tenant vacate the apartment, arguing that the tenant had colluded and that the contract was against public policy. The company argued that the director had exceeded his powers as the company was not actually interested in renting the property out but had wanted to sell it. It was alleged that the contract had been entered into with the involvement of the tenant’s partner, and thus to the detriment of the company.

The Berlin District Court agreed with these arguments and declared the lease null and void. It based its decision on the assumption that the tenant’s partner (who was not a party to the contract but had been involved in the negotiations) had known that the then managing director of the GmbH was not authorised to sign the lease. Furthermore, he was aware of the managing director's intention to sell the apartment and not to rent it. The district court held that this knowledge could be imputed to the tenant under Section 166 of the German Civil Code (hereinafter BGB) and declared the contract to be contrary to public policy.

However, the BGH overturned the district court’s decision and clarified that the low rent and the tenant’s partner’s knowledge of the circumstances of the conclusion of the contract were not sufficient to consider the contract contrary to public policy and therefore invalid. The BGH ruled that in order for a contract to be considered contrary to public policy under Section 138 of the BGB, there must be a deliberate and dishonest interaction between the parties to the detriment of the represented party. However, no such behaviour could be proven.

In addition, the BGH stated that the favourable rental conditions alone do not necessarily allow the conclusion that the power of representation was abused or that an agreement contrary to public policy was concluded. It is not obvious that the tenant should have known from the special conditions of the contract that the managing director was not authorised to conclude this contract.

BGH VIII ZR 152/23 (26 March 2025)