20.03.2020 Newsletter

Waiver of the rent payment obligation during the corona crisis?

On 16 March the Federal Government and representatives of the federal states agreed on guidelines to fight the corona epidemic. The guidelines provide for drastic restrictions on public life and closures of non-key sector establishments. The federal states and competent local authorities are expected to implement these guidelines in the short term, if they have not already done so.

The measures pose considerable economic challenges for both lessees and lessors of the establishments affected, in particular shops, restaurants and hotels. Among other things, the question arises whether rental or lease payment obligations continue to exist for commercial leaseholds. Since hardly any contractual provisions cover such a situation, however, the legal situation is not clear and depends on the individual case:

In the meantime, the authorities are already implementing corona measures by issuing general decrees and ordinances with regard to specific businesses and industries. In this context, it is not the leased building as such that is the subject matter of these official orders, nor do they address the building owners; it is the lessees as operators who are the addressees. Almost exclusively, commercial lease agreements assign the operational risks and restrictions to the lessee. In return, the lessor is only responsible for ensuring that the leased property is permissible under building law, which has not been questioned by the authorities to date. Correspondingly, case law also assumes in the case of business-related public law restrictions that these basically concern the lessee's risk of use and do not lead to a defect in the leased property. An officially ordered closure of the lessee's business is therefore not regularly considered to be a defect in the leased property which would entitle the lessee to a rent reduction. This is to apply even if a restriction of business operations makes the lessee's business temporarily impossible.

For these reasons, a so-called defect in the lessee’s surroundings (“Umfeldmangel") is also not established in the current situation. A reduction in rent due to defects in the lessee’s surroundings is normally only possible if the defect in the surroundings could be foreseen by the lessor at the time of concluding the lease agreement. Obviously, this does not apply to the corona crisis.

However, there could still be a ray of hope for lessees: This is because most commercial leases not only regulate the letting of the (empty) space, but also regulate in detail the intended purpose of the lease and use. On the one hand, the lease purpose obliges the lessee not to use the lease object beyond the agreed purpose. On the other hand, however, it also obliges the lessor to provide the lessee with a lease object that is suitable for the agreed use. If this lease purpose, e.g. the use as a retail shop, can no longer be realized as a result of an official order, this could constitute a (temporary) impossibility of the provision of the lease property for the agreed purpose as owed by the lessor. The first legal consequence would be an exemption of the lessee from its counter-performance, i.e. the rent, for the period of impossibility. One could of course argue that, in the case in question, the lessor could also continue to lease the property as a retail business, albeit currently to an extent limited to a few key sectors such as food retailing. However, this argument is unsuitable if the lease agreement provides for a specific purpose, such as the renting of a clothing store or the lease of a restaurant.

It would also be wrong to assign the obstacle to performance solely to the sphere of the lessee, because the current corona measures are not in response to an obstacle arising from the lessee's specific business operations, but to the fact that the leased areas can generally no longer be used, for example, for retail trade. Neither other lessees nor the lessor itself would be able to use the leased areas in a contractual conform manner for the duration of the official orders (apart from the envisaged exceptions in key sectors). This shows that the current situation, whose occurrence was not even remotely dreamed of by the parties, cannot simply be assigned to the risk sphere of one of the parties to a lease.

For these reasons, the official orders or the corona crisis as such could conceivably be seen as a disruption of the transaction basis. In the past, case law has assumed a disruption of the transaction basis if, for example, business opportunities have been lost as a result of embargoes or war-like conditions or other events that could not have been foreseen. Especially in view of the current dynamic development of the crisis, there is a strong case for classifying corona measures and their effects in this category, as they obviously cannot be assigned to the risk sphere of one party to a lease agreement. The legal consequences of the disruption of the transaction basis range from the adjustment of the agreement (i.e. in particular a reduction in rent) to the cancellation of the lease agreement, which could come into consideration in the event of a longer-lasting crisis, for example.

In practice, in view of the uncertain legal situation for both sides, negotiation is currentlythe best way forward and the recommended option in any case. Neither party could see this situation coming and both should react with the aim of maintaining a healthy leasehold relationship that will continue after the crisis. In addition to mutually agreed rent reductions for the coming month, deferral agreements also regularly come into consideration.

Back to list

Marc Alexander Häger<br/>LL.M.

Marc Alexander Häger
LL.M.

PartnerAttorney

Konrad-Adenauer-Ufer 23
50668 Cologne
T +49 221 2091 552
F +49 221 2091 333

Email
Marvin Rochner

Marvin Rochner

Junior-PartnerAttorney

Konrad-Adenauer-Ufer 23
50668 Cologne
T +49 221 2091 435
F +49 221 2091 333

Email