The Bundestag ( The German Federal Parliament) has made it clear what effect it will have on rent if shop, café or hotel owners have to close in corona lockdown. Now landlords and tenants can come to an agreement more easily, explains Marvin Rochner.
Changes in tenancy law: an important step for many retailers, says the German Retail Federation (Handelverband Deutschland – HDE)
“The second lockdown represents a severe test for the non-food retail sector. The changes in tenancy law come just at the right time,” said HDE Managing Director Stefan Genth. The HDE had already called for the corresponding legal adjustments since last spring. Genth: “It has finally been made clear that there is a disruption of the basis of the business if retailers have to close their shops or observe frequency restrictions because of the pandemic.” In the past, large property owners in particular had repeatedly refused to amend the rental agreement and relied on the principle that Contracts are to be adhered to. “This unrepentant behavior by many landlords has seriously endangered the existence of numerous retailers,” said Genth.
According to the reasons for the law, it can be assumed in the future that commercial tenants will not regularly have to bear the burdens resulting from government measures to combat the corona pandemic on their own. “This clears the way for a fair and solidarity-based distribution of risk between the tenants,” Genth continued. In the current crisis, it is usually appropriate for both sides to assume half of the risk so that the retailer can cut the rent by 50 percent. Genth: “The real estate industry should now accept the will of the legislature, so that unnecessary legal disputes can be avoided and commercial livelihoods can be secured in the long term.”
Since the beginning of the COVID-19 pandemic, the officially ordered closings in retail, gastronomy, hotel and other industries have been occupying politics and lawyers. One point of contention is the effects of the limited usability of rental properties on rental payment obligations. In some cases, tenants and landlords achieve amicable arrangements; In some cases the courts have already decided – with different results: the Munich Regional Court considered a rent adjustment to be necessary and advisable, the Heidelberg Regional Court rejected an adjustment because the tenant bears the risk of using the rental property. Still others see the Act of Measures to Combat the Pandemic, in particular the temporary exclusion from dismissal,
The legislature has now countered this. The Bundestag has launched two key regulations in the context of the law to adjust the discharge of residual debt. The new section 7 inserted in Art 240 of the Introductory Act to the German Civil Code (EGBGB) states: Are rented properties or rented rooms that are not living spaces not or only for the tenant’s business as a result of government measures to combat the COVID-19 pandemic can be used with considerable restrictions, it is assumed that a circumstance within the meaning of Section 313 (1) of the German Civil Code (BGB), which has become the basis of the rental contract, has changed significantly after the contract was concluded. This regulation is applicable to lease agreements accordingly.
At the same time, in the Introductory Act to the Code of Civil Procedure (EGZPO), a priority and acceleration requirement was introduced through Section 44: Procedures for adjusting the rent or lease for land or rooms that are not residential premises due to state measures to combat the COVID-19 pandemic are prioritized and expedited to treat. In these proceedings, an early first appointment should take place no later than one month after the application is served.
Can also be applied retrospectively to the first lockdown
The applicability extends to all commercial, room and property leases with the exception of residential space. Leases are also expressly recorded. The general legal adjustment options, in particular as a result of a disruption of the business base or a rent reduction, are also generally applicable for the period from April 2020 if and to the extent that publicly ordered usage restrictions existed during this period. The exclusion from dismissal contained in the Measures Act from spring does not constitute a final regulation for this period.
In the context of Section 313 BGB, it is assumed that the effects of the official pandemic measures have significantly changed a circumstance that has become the basis of the tenancy. The presumption regulation thus includes the 1st element of § 313 BGB (change of essential circumstances). The 2nd element (deviating regulation if the parties are aware) and the 3rd element (unreasonableness for one of the parties to adhere to the contract) remain unaffected by the statutory regulation and must be presented and proven by the tenant in individual cases.
The legal consequence of a disrupted business basis also remains open. The design of the adjustment, be it a reduction, deferral or other measures, is still dependent on the individual case and left to the parties.
The regulation comes into force on the day after the announcement and also applies to current and already concluded, but not yet legally decided matters. The express priority and acceleration requirement is intended to prevent lengthy court proceedings and enable rapid legal certainty.
No statutory right of reduction, but the commercial tenants’ negotiating position has been strengthened
With the changes, the legislature has not brought about a final or even blanket regulation of the effects on commercial leases. Nor was the risk unilaterally assigned to a party. But it has eliminated the existing uncertainties and strengthened the negotiating position of the commercial tenants – without affecting the core elements of the disruption of the business basis regulated in § 313 BGB and the general tenancy regulations. These are still to be applied to the specific individual case and place a not inconsiderable burden of presentation on the tenant in the context of the weighing of interests. In particular, he must explain the unreasonableness of maintaining the rental agreement unchanged due to (considerable) losses in sales and a lack of compensation, for example through government measures.
In the event of a successful cost reduction by the tenant in other areas, the chances of an adjustment of the rental agreement are consequently reduced. In line with the approach of wanting to “initiate negotiations”, the legal consequences were not specified, but were expressly left open; here all options remain open to the parties – from rent reductions to deferrals and waivers.
When signing new contracts, the parties are now aware of the risk of a pandemic and the consequences must therefore be regulated accordingly. Otherwise, the tenant could not be able to invoke the now legally standardized presumption of a disruption to the basis of the business. The extent to which the judicial system can implement the required acceleration of the procedures in practice also remains to be seen.
Important for new contracts: A pandemic clause will become standard
The Legal Tribune Online has has come out with the following advise:
If the parties have not yet agreed on the consequences of the past or current lockdown, it can now be worked towards such a thing with force and a legal tailwind. Without an agreement between the parties or a corresponding court decision, the lease remains unchanged. Hopes for a general statutory reduction were disappointed. The statutory reduction remains unaffected and the tenant must take action on his own initiative.
For future rental payments, we can only recommend a payment with the simple reservation of a claim back – in order to neither provoke an extraordinary termination option nor exclude the possibility of a claim back. Since no general statutory reduction has been set, the tenant runs a risk if he withholds this in full or in an unreasonable amount. Furthermore, in the run-up to the negotiations, a comprehensive assessment must be made of the extent to which sales losses could or could be compensated by other cost savings.
Landlords, on the other hand, are advised to enter into negotiations that the tenants want in order to counter resource-intensive legal proceedings. Important for new contracts: A corona or pandemic clause, regardless of the form, should now be standard in every commercial lease at the latest in order to maintain the necessary flexibility for future scenarios.
Due to the anti-corona measures, the frequencies and sales in retail have decreased significantly. The change in the law is intended to make it easier for tenants to reduce rents during this time.