COVID-19: Legal impacts on rental law in Germany

By Dr. Dirk Barcaba, Elie Kaufman

04-2020

Temporary exclusion of landlord’s termination right for COVID-19 caused payment defaults

On 27 March 2020 – with promulgation in the Federal Law Gazette - a law “to mitigate the consequences of the COVID-19 pandemic in civil, bankruptcy and criminal procedure law” (COVID-19 Law) became effective. The COVID-19 Law aims at protecting companies that experience financial difficulties as a result of the COVID-19 pandemic.

The COVID-19 Law includes a temporary suspension of landlord’s termination right in case of COVID-19 caused payment defaults occurring from 1 April to 30 June 2020 that applies to both, residential and commercial leases.

Background - statutory termination rights in case of payment default 

According to German statutory law the landlord is entitled to terminate the lease for good reason if the tenant is in payment default on two successive payment dates (or with an amount of two monthly rents for a period spanning more than two payment dates).

Lack of income and shortage of cash due the COVID-19 crises would be no excuse; according to a German law principle a debtor must have money. 

Accordingly, landlord’s termination right for payment default would be given disregarding the fact that the tenant is not at fault regarding Covid-19 caused lack of revenue.

Temporary exclusion of landlord’s termination right for COVID-19 caused payment defaults 

The COVID-19 Law provides for a temporarily suspension of landlord’s termination right for payment default regarding the monthly rents for the time from 1 April to 30 June 2020 provided that the reason for tenant’s non-payment is based on the effects of the COVID-19 pandemic; the period can be extended by the Ministry until 30 September 2020.

The suspension of the termination right of the landlord because of COVID-19 related rent payment default between (at first) April and June 2020 tenant applies until 30 June 2022 at the latest. If the rent is not paid until 30 June 2022, the landlord is entitled to terminate the lease for this payment default. The COVID-19 Law does not grant to the tenant a right to refuse performance but only protection against termination. In addition, default interest is payable until the actual payment (unless the landlord waives the claim for default interest). 

The tenant must demonstrate the relation between the COVID-19 pandemic crisis and the non-payment. In the reasoning of the COVID-19 Law it is said that compulsory shut down of the lease premises due to law/ administrative order shall be a good reason for non-payment; reference is made to the compulsory shut down of restaurants and hotels these days.

Extract from the COVID-19 Law

“Landlords are not permitted to terminate leases for land or premises merely on the ground that the tenant does not make a rental payment in the period from 1 April 2020 to 30 June 2020 despite its being due, insofar as non-payment is due to the effects of the COVID-19 pandemic. The link between the COVID- 19 pandemic and non-payment must be satisfactorily demonstrated. Other rights of termination remain unaffected.”

Further information

The COVID-19 Law does not provide a legal basis for a reduction of the rent.

It remains the question of the specific contract, if a rent reduction can be claimed if the lease space is not in regular use anymore, either because the landlord committed in the lease not only to provide the lease space but also that the lease space can be operated consistently without limitation, or, because of the German rules for adjustment of contracts for interference with the basis of the transaction (Geschäftsgrundlage).