Effects of the corona crisis on commercial and residential leases
The current corona crisis raises a number of issues in terms of tenancy law. Among other things, questions arise from the fact that tenants may not be able to pay part or all of their rent and thus landlords could also find themselves in considerable difficulties, specifically where they are heavily dependent on rental income, for example, because they have to repay relevant financing.
Particularly freelancers, self-employed individuals, artists, but also restaurateurs might find it difficult to pay rent at the turn of the month due to the loss of fees or income. It is also not entirely unrealistic that this situation will not be reduced to just one month.
Against this backdrop, tenants and landlords are considering how to deal with this situation.
As a matter of principle, the law does not provide for any exceptions to the payment of rent or for rules on the deferral of rent. In general, therefore, rent must be paid. Under no circumstances should rent payments, therefore, be deferred without comment. Tenants in financial difficulties are strongly advised to seek the dialogue with landlords and to explain the specific circumstances. For commercial leases, such as of restaurants, payment difficulties are likely to become apparent to the landlord anyway if the premises are entirely closed.
As is well known, landlords may terminate leases after two consecutive rent payments have been missed. It is obvious that the strict implementation of this statutory provision is difficult to imagine in times of a corona crisis through no fault of one’s own, which is also a matter of concern for the Federal Ministry of Justice and Consumer Protection. Solutions currently being discussed are the suspension of the aforementioned termination provision or direct financial assistance so that tenants will not even miss two consecutive rent payments.
The parties to a lease agreement are, however, advised to deal with each other fairly and constructively now already and not to take advantage of the crisis, for example, to finally be able to rent out properties with speculative intent under the guise of the crisis. Rather, in accordance with the prevailing idea of solidarity, pragmatic and constructive solutions should be found that enable both parties to continue the original contract.
For residential leases, tenants in financial difficulties may wish to consider whether they might be entitled to housing benefit claims, which currently appear to be less bureaucratic to apply for and claim.
Another solution that is frequently discussed involves Section 313 Civil Code, according to which contracts may be subsequently adjusted according to the principles of interference with the basis of the transaction due to force majeure. To date, the Federal Court of Justice has generally rejected this corrective for commercial leases because the risk of use and profit is generally borne by lessees. The Federal Court of Justice has, however, never been confronted with the effects of a pandemic in its decisions. An argument in favour of adjusting rents is that these are exceptional circumstances, which were not taken into consideration by either party when the lease was entered into. Therefore, if the inability to use the premises is due to orders by the authorities, both parties should consider adjusting the contract. If, on the other hand, the lack of use is based on the lessee’s decision to switch to work from a home office as a precautionary measure, this is certainly not a case of force majeure.
Provided that the payment delay was caused by the corona crisis, at least the temporary prohibition of termination due to late payment seems obvious. It would then be difficult to establish according to which criteria this would actually have to be examined. Irrespective thereof, the legislator has shown, for example as relates to the adjustment of short-time work allowance, that it is, in fact, capable of adapting laws to the needs of the crisis within just a few days.
In conclusion, there is currently no universal solution, except for the principle of generally contacting the landlord in the event of payment difficulties and to communicate any such difficulties in a constructive manner.
Operating duty in the lease
Many commercial leases provide for the duty of lessees to operate the business, for example in the case of hotels or restaurants or of “anchor tenants” in shopping centres. It should be noted that such provisions will retain their effectiveness in principle as long as no orders by the authorities have been issued. The simple argument of a decline in sales is not sufficient to counter the operating duty.
The situation is different if restaurateurs or hotels are forced to close. In such events, tenants or operators are unlikely to be guilty of infringing the lease if they are complying with orders by the authorities.
It is always necessary, however, to review the individual lease to gain clarity about the rights and obligations thereunder.
Tradesperson appointments
In light of the recent events, this is another topic that has gained in importance. If landlords have already arranged an upcoming appointment with a tradesperson prior to the crisis, tenants are obligated to admit them to the premises, for example, to maintain the heating equipment, but tenants may still cancel the appointment if they fear an infection or particularly if they are members of the risk group. Also, in this case, tenants should openly communicate the reason for the termination to the landlord so as not to provoke a termination.
Since the corona crisis and in particular, its consequences are uncharted territory for the judiciary as well, many cases cannot be clearly answered. Nonetheless, it will be possible to work out individual solutions for many problems. We are available to assist our clients in all of these matters.