Competition protection in a commercial lease: you are protected even without a clause

When a competitor appears in their own building, most commercial tenants first search the lease for a competition-protection clause – and give up when there is none. That is the costliest misconception in this area: German commercial tenancy law grants competition protection even where the parties have agreed nothing on the subject. This article explains what the protection covers and where its limits lie: general information, not legal advice.

The protection is not in the contract, it is in its purpose

Anyone who rents premises in order to run a particular business is not merely renting floor space but the ability to run that business there. From the landlord's principal obligation to grant the tenant use in accordance with the contract (Section 535(1) BGB), the courts derive what is known as implied competition protection (vertragsimmanenter Konkurrenzschutz). ³

It obliges the landlord not to expose the tenant to direct competition through its own further lettings – without any express agreement being required. The protection is therefore not a bonus to be negotiated but the default position, from which the parties would have to depart.

How far the protection reaches – and where it ends

Competition protection is not territorial protection. Under the case law it covers premises in the same building and immediately neighbouring land, to the extent that the landlord owns it. If a competitor opens two buildings away on third-party land, it does not help.

Three limits matter for the assessment:

1. It concerns the core product range, not every overlap. A peripheral range that happens to touch on yours does not automatically establish a breach.
2. The yardstick is the contractually agreed purpose of use. What the lease states as the business purpose determines what you are protected against – a broadly drafted purpose protects more widely, a narrow one more narrowly.
3. It remains an individual assessment. How far the protection carries in a specific case, whether it is restricted or exceptionally absent, cannot be answered in the abstract.

A breach is a defect of the leased premises

The practically most important point: if the landlord breaches competition protection, this is not merely a contractual breach alongside the rent but may constitute a defect of the leased premises. The Federal Court of Justice has held that breach of a competition-protection clause agreed in a commercial lease constitutes a defect that can lead to a reduction of the rent – what matters is whether the fitness of the premises for the contractually intended use is impaired (Section 536(1) BGB). ^1,4

The tenant therefore has the ordinary remedies for defects: reduction, alongside damages, and – after a warning and where the requirements are met – extraordinary termination without notice under Section 543 BGB. ⁶

The amount of a reduction cannot be read off a table. It depends on the degree of impairment; in a commercial setting the reference point is regularly the actual economic effect of the new competitive situation.

Shopping centre: the combination brings the clause down

In shopping centres, standard-form leases usually exclude competition protection. At the same time they oblige the tenant to keep the shop open and to carry a particular product range. Together this produces an uncomfortable position: obliged to operate, not permitted to change the range – and direct competition moving in next door.

In 2020 the Federal Court of Justice set a limit to this construction. What is decisive is the combined effect: ^2,5

• A standard-form operating and opening duty is, taken on its own, generally valid.
• A standard-form product-range commitment is, taken on its own, likewise not unreasonable.
• A release from competition protection is, taken on its own, not automatically invalid either.
• But where, in a typical shopping centre, all competition protection is excluded and an operating duty with a product-range commitment is imposed at the same time, that combination unreasonably disadvantages the tenant and is invalid under Section 307 BGB.

In the same context the court clarified that implied competition protection can in principle also exist for tenants in a shopping centre. ²

Your checkpoints

Four questions help with a first assessment of your own lease:

1. How is the purpose of use worded? It determines the reach of the protection. The more precisely your own business is described, the clearer the line against competitors.
2. Is there a competition-protection clause – or an exclusion? Both are informative. If neither is present, the implied protection applies.
3. Is there an operating duty and a product-range commitment? If so, and if competition protection is excluded at the same time, the case law on the invalid combination concerns you directly.
4. Does the landlord own the neighbouring space? The protection ends at third-party property – who owns the adjoining land is part of the answer.

As an aside: the same court decision also deals with requirements as to the form of the contract. What applies since the reform introducing text form is covered in the article on the written-form requirement in commercial leases.

boomerent analyses your commercial lease automatically and shows how the purpose of use, operating duty, product-range commitment and competition protection interact in your contract. Whether claims arise in an individual case is for a lawyer to assess.