Change of Control

Change of Control - A change-of-control clause is a contractual provision that grants one party specific rights in the event of a change in the ownership or control structure of the other party. In the real estate sector, such clauses are found in commercial leases, loan agreements, articles of association, and joint venture agreements. Typical legal consequences include a special right of termination, a right of consent, or an obligation to provide additional collateral.

Areas of Application in Real Estate Law

Change-of-control clauses appear in various real estate contracts:

• Commercial Leases: The landlord is granted a special right of termination if the tenant’s ownership structure changes significantly-this protects against the entry of unknown or less solvent tenants without a new credit check
• Loan agreements: The bank may call in the loan if the owner of the real estate company changes-this protects the bank against a deterioration in credit quality
• Joint Ventures: One partner is granted a right of first refusal or a right of consent if the other partner wishes to sell their stake to a third party
• Share Deals: In real estate transactions involving the purchase of shares (rather than a direct purchase), change-of-control clauses in the target company’s existing contracts come into effect

Significance in Real Estate Transactions

In share deals-the acquisition of a real estate company rather than the property itself-change-of-control clauses play a central role in due diligence. Share deals are frequently chosen in the real estate industry to save on real estate transfer tax, as the purchase of company shares (up to certain thresholds) incurs no or reduced real estate transfer tax. If change-of-control clauses in lease or loan agreements are overlooked, the acquirer may trigger unexpected special termination rights held by key tenants or lenders-with significant financial consequences.

Reviewing all material agreements for change-of-control clauses is therefore a standard component of any transaction review and belongs in the data room of any professional due diligence process. This aspect should not be neglected, particularly in Nuremberg commercial real estate transactions-such as the purchase of office and warehouse buildings in the Nuremberg-Eibach industrial park or the Technology Park.

Structuring Guidelines for Landlords

Landlords who wish to benefit from a change-of-control clause should carefully define the threshold, the legal consequences, and the procedure. A clause that relies solely on a change in the direct shareholder can be circumvented through multi-tiered ownership structures. It is recommended to include a reference to the indirectly controlling person or a combination of a change in shareholders and management as the triggering event. The tenant’s duty to provide information-that is, the obligation to report a change in ownership immediately-should also be regulated in the contract.

Change-of-Control Clauses at a Glance - Contract Types and Legal Consequences

Contract Type	Typical Trigger	Threshold	Legal Consequence	Practical Relevance
Commercial Lease Agreement	Change in the tenant’s ownership	≥ 25-50% of shares	Landlord’s special right of termination	High for anchor tenants
Loan Agreement (Bank)	Change of ownership of the real estate company	Control (> 50%)	Loan termination/additional collateral	High for share deals
Joint Venture Agreement	Sale of shares to third parties	Any sale	Right of first refusal, requirement for consent	Standard in JV structures
Service agreement	Change of client/operator	Depending on the agreement	Right of termination, renegotiation	Medium (property management, FM)
Credit line / syndicated loan	Change of shareholders at the borrower	Control (> 50%)	Event of default, call for payment	High for large transactions

Practical Tip for Property Owners in Nuremberg and Franconia

We recommend that commercial landlords in the Nuremberg metropolitan region include a change-of-control clause in long-term lease agreements that provides for a special right of termination or at least a right to be informed in the event of significant changes in the tenant’s ownership. This clause is particularly important for tenants whose creditworthiness is crucial to the property’s marketability (e.g., anchor tenants in a retail park or office building), as it protects against unexpected declines in creditworthiness. For investors who hold real estate through companies: Before a planned sale of shares, review all existing lease, loan, and service agreements for change-of-control clauses and, if necessary, obtain the required consents in advance so as not to jeopardize the transaction.

Frequently Asked Questions

At what threshold does a change-of-control clause take effect?

The threshold is defined individually in the contract-typically 25%, 50%, or 75% of the voting rights or company shares. At 50%, this is referred to as a change of control in the strict sense. Some clauses take effect even with a change in the “indirectly controlling person”-in such cases, a change of ownership at a higher corporate level may also be relevant, even if the immediate company remains unchanged. The exact threshold should be tailored to the creditworthiness of the tenant or partner.

Can a change-of-control clause be agreed upon in residential lease agreements?

In residential tenancy law, a change-of-control clause is uncommon and, under German tenancy law, hardly relevant, as residential lease agreements are generally concluded with natural persons. In commercial lease agreements with legal entities or commercial partnerships, however, it is standard and recommended because the shareholder structure is decisive for the tenant’s creditworthiness and reliability.

What happens when a change-of-control clause is triggered?

The legal consequence depends on the specific terms of the contract. Often, the other party is granted a special right of termination (they may terminate the contract but are not required to do so), a right of consent (the transaction requires express consent), or additional security becomes due, such as an increased security deposit or a bank guarantee. Failure to comply with a consent clause may render the transaction invalid or justify termination of the contract-serious consequences that make thorough due diligence indispensable.

Change of Control and Share Deal Transactions in Nuremberg

In the Nuremberg metropolitan region, commercial real estate-office buildings, logistics warehouses, retail properties-is often held through corporate structures and traded via share deals. In this context, reviewing existing change-of-control clauses is a core component of legal and financial due diligence.

Particularly in the case of long-term leases with solvent anchor tenants-such as companies in the technology or healthcare sectors-the stability of these leases contributes significantly to the property’s value. A change-of-control clause that grants the anchor tenant a special right of termination upon a change of ownership can, in the worst-case scenario, lead to the most important tenant terminating the lease following an acquisition-with direct consequences for the purchase price and financing. Experienced transaction advisors in Nuremberg therefore obtain what is known as “vendor consent” prior to signing: a declaration from the tenant stating that, despite the change-of-control clause being triggered, they waive their special right of termination or have agreed to it. This consent has measurable value and should be addressed early in the transaction process.

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