When a let property goes to foreclosure auction, both the tenant and the new owner face legal questions. Does the buyer step into the tenancy automatically? Can they give notice? And what rights does the tenant keep? This article explains the main rules of the German foreclosure act (ZVG) and the civil code (BGB).
The existing tenancy continues in full after a foreclosure auction. The new owner steps into all rights and duties of the tenancy by operation of law. Tenants do not have to move out simply because the property was sold at auction. This follows from § 57 ZVG together with § 566 BGB.
The principle known from ordinary tenancy law, that a sale does not break a lease (§ 566 BGB), applies at foreclosure auctions too. The buyer becomes the new landlord and the tenancy runs on unchanged.
In practice that means:
The new owner has a one-off statutory right of termination. They may end the tenancy at the earliest date the statutory notice period allows. That right does not, however, release them from proving a valid ground for termination.
Important: the special right creates no new ground for termination. The buyer still has to meet the general requirements for a termination for own use under § 573 BGB, or another recognised ground.
Tenants at a foreclosure auction keep the same protection as in any other change of owner:
At first, very little. The tenant receives notice of the change of owner and new bank details for the rent. The tenancy itself is unchanged.
Tenants should keep the following in mind:
The deposit passes to the new owner as a matter of law. In practice the buyer often has no direct access to it, because the money sits in a trust account of the old owner, or because the old owner is insolvent.
| Situation | What it means for the tenant |
|---|---|
| Deposit in a trust account | The claim to get it back on moving out survives |
| Deposit misappropriated by the old owner | The claim against the new owner still stands |
| Old owner insolvent | The tenant must file the claim in the insolvency proceedings |
Tenants should record the account the deposit sits in and tell the new owner in writing that a deposit exists.
For commercial property the same rules apply in principle. Commercial leases are often more complex, though: they frequently contain special terms on maintenance, tenant fit-out or subletting. Those clauses pass to the buyer and should be read before bidding.
If you are buying a let property as an investment, our article on calculating the yield on a buy-to-let bought at auction gives you a basis for the numbers.
Does a tenant have to move out when the house is sold at auction? No, not automatically. The tenancy continues and the new owner steps into it. The tenant only has to leave if the new owner gives valid notice and enforces it through the courts.
Can the new owner give notice straight after the award? No. The buyer must observe the statutory notice periods and prove a valid ground. The special right under § 57a ZVG only allows termination at the earliest date the law permits, not termination without a reason.
What if the tenant was in arrears before the auction? Arrears that arose before the award remain a claim of the old owner. The new owner has no automatic claim to those old debts. Continued non-payment after the award can, however, be a ground for termination in its own right.
May the new owner view the flat before the award? No. Before the award a bidder has no right of entry. Entering the flat needs the tenant's consent or a court order. That is a real information risk when bidding on a let property.
For other third-party rights such as a right of residence or a usufruct, see rights of residence and usufruct at foreclosure auctions. The whole course of proceedings is set out in how a German foreclosure auction works.
This article is general information. It does not replace advice from a qualified lawyer.
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