Non-payment

A payment default occurs when a debtor-whether a tenant, a borrower, or a buyer-fails to make a payment in full or at all when it is due. In the real estate sector, this primarily involves missed rent payments (loss of rent), but also includes unpaid mortgage loans and outstanding purchase price payments. Default can lead to significant financial losses for owners and creditors and requires swift, systematic action.

Causes and Early Warning Signs

Default by tenants is often caused by job loss, illness, excessive debt, or-less commonly-intentional misconduct. Early warning signs include irregular payment receipts, late transfers, or a lack of response to reminder letters. In the case of mortgage financing, payment difficulties often arise following unexpected life events (divorce, loss of income) or as a result of rising interest rates on variable-rate loans.

A thorough credit check before signing a contract is the best form of prevention: for tenants, this involves a Schufa credit report, proof of income for the past three months, and a self-disclosure form; for buyers, it involves a bank confirmation of secured financing. The Schufa credit report shows current credit obligations, negative entries, and past payment history-a reliable basis for assessing creditworthiness. Anyone who foregoes this check assumes an unnecessary risk of default.

Legal Options for Responding to Rent Defaults

In the event of non-payment of rent, the landlord should act promptly: After the second missed payment, the landlord has the right to terminate the lease immediately without notice, provided the arrears amount to at least two full months’ rent (Section 543(2) of the German Civil Code (BGB)). Before terminating the lease, it is advisable to issue a formal warning or contact the tenant directly to clarify the cause and, if necessary, reach an agreement on installment payments.

If no agreement is reached, the next step is the judicial dunning procedure and-if that proves unsuccessful-an eviction lawsuit. Eviction proceedings in Germany take six months to over a year, depending on court caseloads-during this time, the loss of rent continues. Rent default insurance can help mitigate part of the financial loss. Alternatively, specialized collection agencies offer landlords efficient out-of-court debt collection services.

Important: Landlords must not take the law into their own hands in the event of late payments (changing locks, removing furniture)-this is a criminal offense and makes the landlord liable for damages. The legally sound approach via termination and eviction proceedings is time-consuming, but it is the only legally secure path.

Default on Real Estate Financing

If a borrower falls behind on mortgage payments, the bank typically initiates a dunning process after two to three missed installments. If the default persists, the loan may be terminated and the mortgaged property may be subject to foreclosure. Foreclosure often results in lower proceeds than a private sale and typically leaves a residual debt for which the former owner remains liable.

For owners facing financial difficulties, it is important to reach out to the bank early on-many institutions offer deferral arrangements, repayment suspensions, or debt restructuring solutions before a formal default occurs. Contacting the bank early on-even if the situation is not yet critical-signals a willingness to cooperate and opens up more room for maneuver.

Rent Loss Insurance: Protection for Landlords

Rent loss insurance (often included as a module in landlord legal protection) reimburses lost rent up to a contractually agreed maximum amount-typically for twelve to 18 months during ongoing eviction proceedings. The requirements are generally: the tenant was properly screened, the notice of termination was legally valid, and an eviction lawsuit has been filed. Premiums range from 1 to 3 percent of the annual net rent, depending on the insurer and the property.

Practical Tip for Property Owners in Nuremberg and Franconia

Landlords in Nuremberg and the surrounding Franconian region benefit from an active housing market with low vacancy rates-which makes it easier to select solvent tenants. When selecting tenants, we always recommend: obtaining a Schufa credit report, requesting complete proof of income for the last three months, and using the tenant’s self-disclosure form. A security deposit equal to three months’ rent covers short-term payment shortfalls.

If rent payments have already fallen behind, we recommend not waiting but taking immediate action: sending demand letters, communicating directly, and seeking legal counsel if necessary. We are happy to advise you on the next steps and, if needed, connect you with partners in Nuremberg who specialize in debt collection and legal services.

Frequently Asked Questions

When can I, as a landlord, terminate the lease without notice?

The right to terminate the lease for cause arises if the tenant is in arrears by at least two months’ rent (Section 543(2)(3a) of the German Civil Code (BGB)) or if, over a period of more than two months, the tenant is in arrears by an amount exceeding one month’s rent (No. 3b). A formal notice is not strictly required in the event of late payment, but it is helpful in the event of a dispute. The termination must be in writing and served on the tenant.

What is rent loss insurance?

Rent loss insurance reimburses the landlord for lost rent up to a certain amount-for example, during ongoing eviction proceedings. Premiums and deductibles vary by provider; it is advisable to carefully review the terms and conditions before purchasing a policy. It is important to understand the coverage conditions: Some insurance policies only pay out if the tenant selection process was properly documented, while others require a specific waiting period.

As a landlord, can I retain the security deposit in the event of non-payment?

Yes, one of the purposes of the security deposit is to cover rent arrears. The landlord may retain the security deposit after the lease ends, provided they are entitled to offset outstanding claims-rent, utilities, or damages-against it. Any surplus must be returned to the tenant. The deadline for settling the security deposit is usually three to six months after the lease ends.

What should I do if the tenant does not move out despite the notice of termination?

If the tenant does not move out despite a valid notice of termination, the landlord must obtain an eviction order from the court (eviction lawsuit) and then have it enforced by a bailiff. Unauthorized eviction measures are prohibited and may result in criminal and civil liability. An experienced real estate attorney can guide you through this process and minimize delays by ensuring the proceedings are handled correctly.

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