Lease payments during the COVID 19 pandemic - the legal attempt at a solution

Background

Since the COVID 19 pandemic began in the spring of 2020, the significant impact of government imposed closures in the retail, restaurant, hotel and other industries has occupied politicians, associations and lawyers alike.

The point of contention is the impact of the restricted usability of leased properties on the rent payment obligations of the lessees concerned. In some cases, lessees and lessors have reached amicable agreements; in others, the courts are already ruling on individual cases. The first decisions reached by the courts in these cases have in turn come to different conclusions: some consider a rent adjustment to be necessary and required (Regional Court of Munich), whilst others reject such an adjustment, because the lessee bears the risk of the use of the leased property (Regional Court of Heidelberg).

In addition, some consider the German Act on Measures to Combat the Pandemic [Maßnahmengesetz zur Bekämpfung der Pandemie], in particular the temporary exclusion of termination, to be a conclusive regulation with the consequence that the general statutory regulations do not apply. This has now been countered by the legislator.

Statutory Regulation

By decision dated 17 December 2020, the Bundestag initiated two important regulations within the framework of the Act on the Adjustment of Residual Debt Discharge [Gesetz zur Anpassung der Restschuldbefreiung]:

The newly inserted § 7 in Art. 240 Introductory Act to the German Civil Code [Einführungsgesetz zum Bürgerlichen Gesetzbuch, EGBGB] now states: If, as a result of state measures to combat the COVID 19 pandemic, leased property or premises which are not residential premises cannot be used for the lessee's business or can only be used with considerable restrictions, it is presumed that a circumstance within the meaning of § 313 (1) German Civil Code [Bürgerliches Gesetzbuch, BGB], which was made the basis of the lease agreement, has seriously changed insofar after the conclusion of the contract.

This provision applies analogously to leasehold agreements granting use and profits [Pachtverträge].

As an accompanying measure, a priority and acceleration requirement was introduced by way of the Introductory Act to the German Code of Civil Procedure [Einführungsgesetz zur Zivilprozessordnung, EGZPO] through § 44: Proceedings to obtain an adjustment of the rent or leasehold fee for properties or premises other than residential premises are to be given priority and expedited treatment on grounds of the governmental measures to combat the COVID 19 pandemic.

In such proceedings, an early first hearing is to be conducted no later than one month after service of the statement of claim.

The material effects can be derived from a synopsis of the text of the law and the explanatory memorandum:

• Its applicability extends to all commercial tenancies and lease relationships for premises and properties, except residential. Leaseholds granting use and profits [Pachtverhältnisse] are also expressly covered.
• The general statutory adjustment possibilities, in particular resulting from a disturbance of the business basis or a rent reduction, are also fundamentally applicable for the period from April 2020, if and to the extent that publicly imposed restrictions on use existed during this period. The termination exclusion contained in the Measures Act passed this spring does not represent a conclusive regulation for this period.
• In the context of § 313 BGB it is presumed that, with the effects of the official pandemic measures, there has been a material change of a circumstance which became the basis of the lease relationship. The presumption regulation thus covers the 1st element of § 313 BGB (change of material circumstances). The 2nd element (deviating regulation in case of knowledge of the parties) and the 3rd element (unreasonableness for one of the parties to adhere to the contract) remain unaffected by the statutory provision and must be represented and proven by the lessee in each individual case.
• The legal consequence of a disrupted business basis also remains open. The form of the adjustment, whether by way of a reduction or deferral of rent or other measures, continues to depend on the individual case and is left to the parties.
• The regulation enters into force on the day following its promulgation and also applies to ongoing cases and cases which have already been concluded but not yet finally decided.
• The explicit priority and acceleration requirement is intended to prevent lengthy court proceedings and to facilitate rapid legal certainty.

Appraisal

The legislator has not achieved a conclusive or even blanket regulation of the effects on commercial tenancies with the amendments. Nor has the risk been unilaterally assigned to one party.

Rather, the legislator wanted to eliminate the uncertainties that existed in some cases and strengthen the negotiating position of commercial lessees - without wanting to touch the core elements of a disturbance of the business basis as regulated in § 313 BGB and the general provisions of tenancy law. These still have to be applied to the specific individual case and impose a more than inconsiderable burden of representation on the lessees in the weighing of opposing interests. In particular, the lessee must demonstrate the unreasonableness of not amending the lease agreement due to (considerable) turnover losses and a lack of compensation through, for example, state measures. Consequently, if the lessee is successful in reducing costs in other areas, the chances of the lease agreement being adjusted are reduced. In accordance with the approach of wanting to provide an "impetus for negotiation", the legal consequences also have not been specified, but expressly left open. Here, all options are left open to the parties, from rent reduction or deferral to a waiver of the rent.

When concluding new contracts, the parties are now aware of the risk of a pandemic and the consequences therefore must be regulated accordingly. Otherwise, the lessee could be prevented from invoking the now legally standardised presumption of a disturbance of the business basis.

The extent to which the judicial system can implement the required acceleration of procedures in practice also remains to be seen.

Practical tip:

To the extent agreement has not yet been reached between the parties on the consequences of the past or current lockdown, they can now work towards reaching such agreement with vigour and legal backing. In the absence of an agreement between the parties or a corresponding court decision, the lease relationship remains unchanged. Insofar as a blanket statutory rent reduction was hoped for, this hope has been disappointed. The right to reduce rent remains untouched and activity on the part of the lessee is unavoidable.

For future rent payments, therefore, we can only recommend payment under a simple reservation of reclamation - in order neither to provoke the possibility of an extraordinary termination nor to exclude the possibilities of reclamation. In the absence of a statutory right to reduce the rent in the specific case, it will therefore regularly be risky for the lessee to withhold the rent completely or in an unreasonably high amount.

Furthermore, before conducting negotiations, a comprehensive assessment should be made of the extent to which revenue losses could or might be compensated for by other cost savings.

In turn, lessors are advised to enter into the negotiations sought by the lessee in order to avoid resource-intensive court proceedings.

Important for new contracts: a corona or pandemic clause, whatever its form, should be a standard clause in every commercial lease agreement from now on at the latest.

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