Germany: Rent reduction during lockdown
By: Eva Knickenberg Giardina
Germany: Rent reduction during lockdown
Also the German Courts have been asked to decide if the tenant of a commercial lease contract is entitled to a rent reduction during the lockdown periods which were decided by the Public Authorities in 2020 as a consequence of the Covid-19-pandemic.
The first judgements were issued by the Courts of Heidelberg, Frankfurt a.M. and Zweibrücken. In all mentioned claims the judges considered the closure of shops or restaurants as a risk pertaining to the sphere of the tenant and not of the landlord and, consequently, denied an entitlement of the tenants to reduce the rent.
One of the discussed aspects was, if the fact that – due to the closure order – the shop or restaurant was not usable for the commercial activity of the tenant, can be considered a defect of the leased property. Section 536 of the German Civil Code provides that the tenant is exempted from paying the rent, if the leased property has a defect which removes its suitability for the contractually agreed use. For the period of time when suitability is reduced, the tenant needs only to pay a reasonably reduced rent.
The judges stated that the closure orders did not establish a limitation of use of a specific property (which could be considered a defect under Section 536), but rather a limitation of exercise of the tenant’s activity, because the Public Authority considered this activity as dangerous under the aspect of infection risks. Therefore, the limitation itself has to be regarded as linked to the tenant’s risk area.
Another aspect which could have led to a rent reduction entitlement is the impossibility of performance. If the performance of the landlord (i.e. to permit the use of the leased property) becomes impossible, there is no entitlement of the landlord to consideration (Sections 275 and 326 of German Civil Code). But the judges stated that the performance of the landlord was non generally impossible given that certain uses were still possible. The impossibility of a specific use (such as the exercise of the tenant´s activity) is part of the risks of the tenant.
The third aspect examined in the mentioned judgements is the principle of interference with the basis of a transaction, ruled in Section 313 (1) of the German Civil Code:
„If circumstances which became the basis of a contract have significantly changed since the contract was entered into and if the parties would not have entered into the contract or would have entered into it with different contents if they had foreseen this change, adaptation of the contract may be demanded to the extent that, taking account of all the circumstances of the specific case, in particular the contractual or statutory distribution of risk, one of the parties cannot reasonably be expected to uphold the contract without alteration.“
The judges confirmed that the pandemic situation and the consequent measures of the Public Authorities constitute a significant change of the circumstances being at the basis of a lease contract. Furthermore, the parties would have entered into the contract with different contents if they had foreseen this change. Nevertheless the judges did not consider inacceptable to uphold the contract without alteration, because the tenant did not give evidence that the payment of the rent during the lockdown would pose a threat to his continued economic existence.
But now it seems that things and thoughts are changing: recently two “tenant friendly” decisions on appeal have been issued in Dresden and Berlin (OLG Dresden, 24 February, 2021, n. 5 U 1782/20; Kammergericht Berlin, 1 April, 2021, n. 8 U 1099/20).
The news concerns the interpretation of Section 313 (1) of the German Civil Code and, in particular, the question if the continuing existence of the contract without changings is acceptable for the tenant. Both judgements state that the period of closure due to the pandemic is an impactful and unforeseeable event which is not attributable exclusively to the sphere of risk of the tenant and jeopardizes potentially his economic existence. In the opinion of the judges the negative impact caused by such type of event has to be distributed in solidarity between tenant and landlord.
In contrast to the previous Court decisions the judges at Dresden and Berlin do not request the tenant to provide concrete proof that his economic existence would be endangered if he has to fulfil the lease contract unaltered. In case of a closure of one month or even more the presence of such risk is probable and this probability is considered to be a sufficient reason for the tenant´s request to adapt the contract.
It is presumable that the judges have been inspired by the new rule provided for by article 240 section 7 EGBGB (Introductory Act to the German Civil Code) which establishes for commercial lease contracts a legal fiction of significantly changed circumstances, if the use of the leased property is limited or completely interrupted due the pandemic measures. The new rule entered into force only on 31 December 2020 and is therefore not applicable to the lockdown periods during 2020.