Retail trade, hotels, restaurants and gyms were especially hit by comprehensive restrictions and closures, with few exceptions. These restrictions will apply for the time being from 16 December 2020 until 10 January 2021 (cf. Clauses 1, 5, 6, 9 of the Decision).
However, the resolution’s intent is also to strengthen the position of commercial tenants and leaseholders to make them open the door for negotiations with landlords and lessors on the adjustment of the contract (such as reduction of rent or lease). It does so by applying the doctrine of frustration (“change of basics of the contract”, § 313 German Civil Code, BGB) to state COVID-19 measures (cf. Clause 15 of the Resolution).
The resolution has not been implemented in legal form (law or directive), yet. As of 15 December, it was subject to a draft law (BR Drucks 19/25251). It can be expected that in numerous occasions commercial tenants and leaseholders will take this as an opportunity to request negotiations from landlords with the intention to amend the contract. The following describes the reasoning for such a request but also how it can be repelled.
Previous legal situation
So far, the Law to Mitigate Consequences of the COVID-19-Pandemic (BT DruckS 19/18110 of 24 March 2020) protects tenants and leaseholders from termination as follows:
- Tenants and leaseholders could initially withhold rent for the period 1 April 2020 to 30 June 2020.
- Landlords and lessors are not allowed to terminate due to these arrears until the end of 30 June 2022, provided that the tenant or leaseholder can credibly demonstrate that the withholding of rent or lease is due to the COVID-19-pandemic.
- Only if the tenant or leaseholder does not pay the rent in arrears by the end of 30 June 2022 will the right of termination arise again.
- Other rights of the landlord and lessor in connection with default of payment (especially default interest, damages, and the like) shall remain unaffected.
Tenants and leaseholders were not granted any further statutory rights beyond this. In particular, tenants and leaseholders have not had any statutory right to reduce the rent, for example, due to potential loss of profit. This corresponds to the principle that tenants or leaseholders bear the risk of profitable use of the rented or leased property in principle (cf. BGH, judgement of 3 March 2010, XII ZR 131/08, NJW-RR 2010, 1017 (1018), No. 21).
Previous case law
This principle was supported by numerous court decisions. The rights of tenants and leaseholders in relation to the COVID-19-pandemic were handled restrictively.
- The government-imposed closure of retail shops due to the COVID-19-pandemic is not a defect of the rental property (§ 536 para. 1 sentence 1 BGB) and therefore does not entitle the tenant to reduce the rent (cf. LG Frankfurt a.M., judgement of 5 October 2020 – 2-15 O 23/20, BeckRS 2020, 26613; LG Heidelberg, judgement of 30 July 2020 - 5 O 66/20, BeckRS 2020, 19165; LG Zweibrücken, judgement of 11 September 2020 – HK O 17/20, BeckRS 2020, 24356).
- Government measures in connection with the COVID-19-pandemic are no reason to assume a change of basics of the contract (§ 313 para. 1 BGB) (LG Frankfurt a.M., judgement of 5 October 2020 - 2-15 O 23/20, BeckRS 2020, 26613; LG Stuttgart, judgement of 19 November 2020 - 11 O 215/20, BeckRS 2020, 32275; LG Wiesbaden, judgement of 5 October 2020 - 9 O 852/20, BeckRS 2020, 32449).
- Government measures in connection with the COVID-19-pandemic do not justify an adjustment of the contract (§ 313 para. 1 BGB), as the tenant bears the risk of using the rental object profitably in principle (cf. LG Lüneburg, judgement of 17 November 2020 – 5 O 158/20, press release of the LG Lüneburg No. 59/2020 dated 26 November 2020).
Intended new regulation
This should now change for commercial rent and lease agreements. The principle that tenants and leaseholders bear the risk of profitable use is subject to restrictions. The resolution announces a U-turn by formulating the following (paragraph 15):
"For commercial leases and tenancies affected by government COVID-19 measures, there is a statutory presumption that significant (use) restrictions as a result of the COVID-19 pandemic may constitute a serious change of basics of the contract. This will facilitate negotiations between commercial tenants or leaseholders and owners.“
The resolution applies the principles of change of basics of the contract. A change of basics of the contract can give rise to a claim for adjustment of the contract (§ 313 para. 1 BGB). By introducing the legal presumption that state COVID-19 measures severely change basics of the contract, the decision opens up precisely this possibility for tenants and leaseholders in particular. With the argument that state COVID-19 restrictions severely change basics of the contract, they should be enabled to demand that the rental or lease agreement shall be subject to adjustment (such as deferment agreements or reduction of rent). This shifts the risk for the profitable use of the leased property. This should no longer be borne by tenants or leaseholders alone, but also by landlords and lessors. The way is to be paved to be able to agree on individual contractual adjustments.
According to the Resolution text, tenants and leaseholders should not only have a claim to contract adjustment when their existence is threatened, but already in the case of significant (use) restrictions.
The decision does not specify what such significant (use) restrictions are. This will probably be a case-by-case consideration and thus lead to considerable legal uncertainty, which is to be filled in by case law.
Legal presumption to strengthen position of commercial tenants and leaseholders
The resolution intends to strengthen the position of commercial tenants and lessees. As a result of a statutory presumption, it should be possible to assume that such considerable (use) restrictions as a consequence of the COVID-19-pandemic seriously change of basics of the rental or lease agreement. Tenants or lessees could use this argument to claim an adjustment of the contract (such as a reduction of the rent or lease) (§ 313 para.1 BGB). This could be different, only if the landlord, for his part, could refute this presumption and prove that the (use) restrictions are not a consequence of the COVID-19-pandemic. Landlords and lessors will hardly be able to provide such proof as they do not have any insight into the business principles and decisions of the tenants or lessees.
Increase in demands for adjustment of the rental resp. lease agreement (rent, lease reduction) to be expected
It can be assumed that commercial tenants and leaseholders will use this approach to negotiate with landlords and lessors about the adjustment of the rent or lease agreement. Landlords/lessors would then no longer be able to argue that the risk of use is borne by the tenant/leaseholder alone.
The legal framework for negotiating such an adjustment request is unclear. In particular, the decision has not yet been implemented in legal form (such as through law or regulation), as outlined above. However, considerable legal uncertainties are already becoming apparent.
- The wording of the decision is already contradictory. It is legally presumed that considerable (use) restrictions [...] "may" constitute a serious change of basics of the contract. By choosing the word "may", the presumption is deprived of its rule effect. The rule should not be that considerable (use) restrictions are always a severe change of basics of the contract, but only in certain cases. It is not regulated, which cases this applies to.
- The resolution does not contain a regulation for the period of application. It would be plausible to exclude the applicability of the contract adjustment (§ 313 BGB) at least for the period for which the rent moratorium was provided for in the law to mitigate the consequences of the COVID-19-pandemic (cf. argumentation of LG München II, judgement of 22 September 2020 – 13 O 1657/20, BeckRS 2020, 34250, No. 18; judgement of 6 October 2020 - 13 O 2044/20, BeckRS 2020, 34263, No. 22). Finally, the principles of change of basics of the contract are subordinate to statutory provisions.
- It also remains to be seen whether the applicability of the principles of change of basics of the contract (§ 313 BGB) will only take effect from 16 December 2020, or whether previous situations will also be covered, in particular disputes that are already pending.
- Finally, an adjustment of the contract (§ 313 para. 1 BGB) requires not only a change of basics of the contract (actual element), but also the hypothesis that if the parties had known this change, they would not have concluded the contract at all or not in the concluded version (hypothetical element). Questionable is, e.g., whether the parties to a rent or lease agreement with a fixed term of 10 years and a renewal option of 2 times 5 years would have agreed on a rent or lease reduction for 3 months had they known that these 3 months would be subject to a state-ordered lock down. By nature, the outcome of such a hypotheses cannot be regulated by the resolution, but depends on the interpretation of the respective contract.
As a result of the considerable legal uncertainties, it is not certain that the resolution will achieve its goal of strengthening the positions of tenants and leaseholders. The resolution gives tenants and leaseholders an approach to negotiate contract adjustments with landlords and lessors. However, the numerous legal uncertainties allow landlords and lessors to argue against the adjustment requests.
The resolution’s intention to open the door for negotiations for tenants and leaseholders remains. One therefore can expect that tenants' and leaseholders' demands for contract adjustments will increase. Whether and, if so, to what extent landlords and lessors will agree is a matter of negotiating tactics and skills in individual cases.
In any case, it may be important to conclude only such agreements that are recorded in a written addendum to the rental or lease agreement. In this respect, simple letters to the tenant with a request for countersignature should be avoided. Such letters bear the risk of violating the requirement of written form (§§ 550, 126 BGB) and lead to the rental agreement being terminable at any time.