COVID-19 – Rent reduction in response to lockdown

Mahmood Hussain Advocates & Legal Consultancy | View firm profile

The return to a state of lockdown has hit many businesses and entrepreneurs hard. Meanwhile, the courts are arriving at different conclusions regarding whether government-mandated business closures justify rent reductions.

The period in the run up to Christmas saw the metaphorical lights go out in a lot of pedestrian zones and at many businesses, many of which have had to close due to the latest lockdown in response to the coronavirus pandemic. While businesses have experienced a drop in income during what is typically a lucrative time of year in terms of sales, their overheads – e.g. in the form of rent payments for commercial premises – are still due as usual.

Section 536(1) of the German Civil Code (Bürgerliches Gesetzbuch, BGB) provides for the possibility of rent reduction if the rented property exhibits a defect that renders it unsuitable for use in the manner defined in the relevant contract. We at the commercial law firm MTR Rechtsanwälte can report that the courts have reached different conclusions to date on whether the government-ordered lockdown constitutes grounds for rent reduction.

The Landgericht (LG) Heidelberg – the Regional Court of Heidelberg – was one of the first courts to rule in a judgment from July 30, 2020 that the coronavirus lockdown does not amount to a defect in the rented property within the meaning of the legislation (Az.: 5 O 66/20). The court held that the landlord has a duty to maintain the rented property in a condition that allows it to be used in the manner defined in the relevant contract. The government order requiring the closure of businesses in order to limit the spread of the coronavirus has nothing to do with the state of the rented property. The LG Heidelberg ruled that the risk lies with the tenant, that there is no frustration of contract based on an undermining of its commercial basis, and that the tenant is not entitled to lower the rent.

The regional courts of Zweibrücken, Frankfurt, and Oldenburg delivered similar rulings.

However, the Landgericht München – the Regional Court of Munich – arrived at a different outcome in a judgment dated September 22, 2020, ruling that commercial tenants can seek a partial but also substantial reduction in rent where stores are forced to close because of government orders or where restrictions are put in place due to the coronavirus pandemic (Az.: 3 O 4495/20). It went on to say that, depending on the scope of the restrictions, the rent can be reduced by as much 80 percent.

That rent reduction ought to be possible is a view apparently shared by Germany’s federal government. Point 15 of the joint federal and state resolution (Bund-Länder-Beschluss) of December 13, 2020 concerned with implementing stricter coronavirus measures states that where commercial tenancy and lease contracts are affected by government measures related to COVID-19, the law assumes that significant restrictions on use resulting from the coronavirus pandemic may represent a serious change to the commercial basis of the contract. The idea behind this is to facilitate negotiations between commercial tenants and landlords.

Experienced lawyers can provide counsel on legal issues pertaining to the coronavirus pandemic.
https://www.mtrlegal.com/en/legal-advice/real-estate-and-property-law/commercial-law-of-tenancy-and-lease/corona-and-commercial-tenancy-law.html

 

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