Real Estate Law2026-11-06

Closing your business: what happens to the commercial lease, and what happens to your staff?

Closing down ends neither your lease nor your employment contracts automatically. Which deadlines are now running, how to get out of a fixed-term commercial lease, and what you must do before the first dismissal.

You have decided to close your business — and you are now realising that the two most expensive contracts you have carry on regardless: the commercial lease and the employment relationships. Neither comes to an end simply because you shut up shop. What you do, or fail to do, over the next few weeks will decide whether you spend years paying rent on empty premises, and whether your dismissals stand up at the employment tribunal.

In short

Closing the business is not, in itself, a ground for terminating the lease. A fixed-term commercial lease generally runs to the end of its term (§ 542 Abs. 2 BGB); an open-ended lease can be terminated under § 580a Abs. 2 BGB no later than the third working day of a calendar quarter, with effect from the end of the following quarter — in other words with a lead time of a good six to almost nine months. Employment contracts have to be ended individually, observing the notice periods in § 622 BGB; above certain workforce sizes, notification to the employment agency (Agentur für Arbeit) and involvement of the works council are mandatory beforehand.

How I can help you

I read your lease for its term, renewal clauses, formal defects and reinstatement obligations, and I work out the latest possible termination date for you.
I check whether a formal defect opens the door to early ordinary termination.
I negotiate with the landlord over a surrender, a replacement tenant or subletting — with a wind-down agreement that also deals with reinstatement and the deposit.
I set out the correct sequence for the staffing measures: works council, notification, official consents, then the dismissals.
I draft the dismissals and termination agreements and represent you in unfair-dismissal proceedings.
If you are unable to pay, I work through with you whether insolvency is in fact the cheaper way out of the lease.

What happens to the lease — and what the closure does not change

First the unwelcome news: the fact that you no longer use the premises does not postpone the rent. § 537 Abs. 1 BGB states expressly that an impediment arising in your own person — and closing the business is exactly that — does not release you from the rent. The landlord need only give you credit for expenses saved and for benefits gained from putting the premises to other use, such as the rent paid by a new tenant.

The next step is to look at the term:

Open-ended lease: § 580a Abs. 2 BGB applies. The arithmetic: if notice reaches the landlord by the third working day of a quarter, the lease ends at the close of the following quarter. Notice given on 2 January takes effect on 30 June; miss the third working day and it becomes 30 September. That single day costs you an entire quarter.
Fixed-term lease: it ends on expiry of the term under § 542 Abs. 2 BGB. There is no ordinary right of termination unless the contract grants one. Check the renewal clause there too — many leases renew automatically unless notice to the contrary is given in good time.

An important planning point: you can hand the premises back before the lease ends. You keep paying, but you are released from operating obligations and opening-hours clauses. That is often the calmer course than a dispute with an uncertain outcome.

Ways out of a lease that is still running

Four approaches that regularly work in this situation:

First, the formal defect. For business premises, § 578 BGB applies the rule that a lease concluded for longer than a year without the statutory form is deemed to have been concluded for an indefinite period. Today text form (Textform) suffices; for older leases the stricter written form (Schriftform) was required, so the date of conclusion determines the applicable standard. The consequence, if the point succeeds: the ten-year lease is in truth open-ended and can be terminated on the notice in § 580a Abs. 2 BGB. The defects usually lie not in the main contract but in later amendments to the rent, the floor area or the term.

Second, subletting. Under § 540 Abs. 1 BGB you need the landlord’s permission. If the landlord refuses it, you may terminate on extraordinary notice at the statutory period — provided the reason does not lie in the person of the subtenant. You should therefore name a specific, solvent prospective subtenant and request permission in writing. The letter is the lever, not the phone call.

Third, the surrender agreement. Landlords agree to this more often than clients expect, particularly in sought-after locations. What is negotiable is a settlement payment, a waiver of reinstatement, the disposal of fixtures and the accounting for the deposit — as one package, not item by item.

Fourth, insolvency. Once you are unable to pay within the meaning of § 17 InsO, the lease continues for the time being under § 108 InsO, but the insolvency administrator may terminate it under § 109 Abs. 1 InsO on three months’ notice to the end of a month, regardless of the agreed term. The landlord can only lodge a claim for the loss caused by the early ending as an insolvency creditor. This is not advice to go insolvent, but it is a factor you need to understand before you give personal security.

Handing back, reinstatement and a short limitation period

Under § 546 BGB you must return the premises when the lease ends. How far reinstatement goes is usually set out in the contract — counter, ventilation, cold rooms, partitions, cabling, floor build-up. A clause that saddles you with reinstating even the previous tenant’s installations is not automatically valid; that is worth checking. Conversely, § 539 Abs. 2 BGB gives you the right to remove installations you yourself fitted to the premises.

A deadline that is often overlooked applies to the final accounting: the landlord’s claims for compensation on account of changes to, or deterioration of, the premises are time-barred under § 548 Abs. 1 BGB after six months, running from the point at which the landlord gets the premises back. Your own claims for reimbursement of expenses and for permission to remove installations are time-barred under § 548 Abs. 2 BGB after six months from the end of the lease. Hence: document the handover with a date, a handover record and photographs — so that the start of the period can be proved.

Your staff: sequence is everything

Shutting the business down is an urgent operational requirement within the meaning of § 1 Abs. 2 KSchG, provided the decision is final and is set to be carried out within a foreseeable period. Anyone who is still recruiting at the same time, or has the business carried on, loses that ground. Dismissals are given on the notice periods in § 622 BGB — four weeks to the fifteenth or the end of a month, graduated up to seven months for longer service. These periods run into your lease period; the two timetables need to be laid over one another.

What must be done before the first dismissal:

Works council: if one exists and the company normally has more than twenty employees entitled to vote, the shutdown is a change to the establishment (Betriebsänderung) under § 111 BetrVG. A reconciliation of interests (Interessenausgleich) and a social plan (Sozialplan) have to be negotiated; the conciliation board (Einigungsstelle) can decide on the social plan under § 112 Abs. 4 BetrVG, but not on the reconciliation of interests. Works council members can in principle be dismissed under § 15 Abs. 4 KSchG only with effect from the date of the shutdown.
Mass redundancy: § 17 Abs. 1 KSchG requires notification to the employment agency where, within 30 calendar days, more than 5 employees are made redundant in establishments with more than 20 and fewer than 60 employees, 10 per cent or more than 25 in establishments with at least 60 and under 500, and at least 30 from 500 employees upwards. A full closure almost always crosses these thresholds. Beforehand, the works council must be informed in writing and consulted under § 17 Abs. 2 KSchG. The law requires the notification before anyone is made redundant — filing it afterwards risks invalid dismissals.
Freezing period: under § 18 Abs. 1 KSchG, redundancies subject to notification take effect before the expiry of one month from receipt of the notification only with the agency’s consent. The employment relationship therefore cannot end any earlier, even where the notice period is shorter.
Special protection: for pregnant employees, those on parental leave and severely disabled people, the dismissal additionally requires the consent of a public authority. These procedures take time and must be initiated before the dismissal.

A social selection under § 1 Abs. 3 KSchG can be dispensed with where all employment relationships genuinely come to an end. As soon as individuals are kept on for the wind-down, or only part of the operation closes, it has to be carried out again — and it is precisely there that dismissals fail.

And the most common misconception: if someone takes over the business — even just the inventory, the fittings and the customer base — there may be a transfer of undertaking under § 613a Abs. 1 BGB. In that case the employment relationships pass to the acquirer, and a dismissal on account of the transfer is invalid under § 613a Abs. 4 BGB. A sale and a closure are two legally quite different events.

A typical case

A hospitality business with fourteen employees is to close at the end of the year. The lease still has four years to run, and the employees’ notice periods range from four weeks to five months. The review throws up two points of attack: an amendment that changed the rent and the floor area does not comply with the required form — which brings a termination under § 580a Abs. 2 BGB into play. And there is a prospective tenant for the premises, for whom permission to sublet is applied for. Both letters go out at the same time. On the staffing side, the information for the works council is served first and consultation takes place, then the notification to the agency is made, and only after that are the dismissals given. The outcome of the negotiation is a surrender agreement with a settlement payment instead of four years’ rent — and dismissals that prompt no claim.

Common mistakes

Clearing the premises and handing over the keys without the lease having been ended — the rent runs on and your negotiating position is gone.
Telling the landlord the business is closing and treating that as a termination. A termination must be declared as such and must hit the right date.
Overlooking the third working day of the quarter and paying for a further quarter.
Checking only the main contract for formal defects, not the amendments.
Giving the dismissals first and only then thinking about the works council and the employment agency. That sequence cannot be made good afterwards.
Selling the inventory and the customer base and at the same time dismissing “for operational reasons”.
Letting the six-month period in § 548 BGB lapse after the handover without lodging your own claims.

Frequently asked questions

Can I terminate the commercial lease because my business is no longer trading?

No, giving up the business is not in itself a ground for termination. With an open-ended lease, ordinary termination under § 580a Abs. 2 BGB is open to you; with a fixed-term lease, the contract ends under § 542 Abs. 2 BGB only on expiry of the term. An early ending generally arises only from a formal defect, a contractual right of termination, or an agreement with the landlord.

Do I have to pay rent while the premises stand empty?

Yes. § 537 Abs. 1 BGB makes clear that a reason arising in your own person does not release you from the rent. The landlord must, however, give credit for expenses saved and for benefits from putting the premises to other use — so if the landlord re-lets, that reduces your liability accordingly.

May I dismiss all my staff if I close the business?

In principle yes, provided the decision to shut down is final; the dismissal is then for operational reasons under § 1 Abs. 2 KSchG. The notice periods in § 622 BGB apply unchanged, and in the case of mass redundancies the involvement of the works council under § 17 Abs. 2 KSchG and the notification under § 17 Abs. 1 KSchG must be completed before the dismissals. Employees have three weeks under § 4 KSchG from receipt of the written dismissal in which to bring a claim.

What applies if someone takes over the business?

Then there is no closure but possibly a transfer of undertaking under § 613a Abs. 1 BGB. The employment relationships pass to the acquirer with all their rights and obligations, a dismissal on account of the transfer is invalid under § 613a Abs. 4 BGB, and the employees must be informed in text form under § 613a Abs. 5 BGB. They may object to the transfer in writing within one month of being so informed.

For how long after the handover can the landlord still assert damage?

Claims for compensation on account of changes to, or deterioration of, the premises are time-barred under § 548 Abs. 1 BGB after six months, calculated from the point at which the landlord gets the premises back. That is why the documented handover date matters so much. Your own claims for reimbursement of expenses are subject to an equally short period under § 548 Abs. 2 BGB running from the end of the lease.

Your next step

Two things are now urgent: the next termination date in the lease, and the sequence of the staffing measures. Have ready the lease together with all amendments, the staff list with start dates and — if you have it — the correspondence with the landlord. With that, I can tell you at the first meeting which date is the latest possible for you, whether a formal defect will hold, and in what order the dismissals must be given. I discuss openly, in advance, what the costs will be; they are set by the RVG or by an agreement, and I will also check any legal-expenses insurance you hold. You will find further articles on tenancy and property matters under Property law.

I represent clients throughout Germany, and the consultation can be held by video or telephone if you prefer. This article gives general information and is no substitute for advice in your individual case.

This article provides general information and is no substitute for legal advice in an individual case. Last updated: 2026-11-06.

Christian Czirnich, Rechtsanwalt (attorney at law), Kirchseeon near Munich

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