Lease Law in the Legislative Package against the Consequences of the Corona Crisis

As a remedy for the severe distortions to the overall economy caused by the Covid-19 pandemic, the federal government has drafted a package of laws that provides for far-reaching temporary changes in civil law. The Bundestag (Federal Parliament) and Bundesrat (Federal Council) are rushing through this package in order to have it passed this week. It is due to come into force on 1 April 2020.

The lease law will also be affected in central points. We will give you an overview.

Current lease law before the corona crisis

• Operating risk for lessees, including closure or partial closure by official order due to corona/force majeure.
• No rent reduction in accordance with the warranty legislation on rental defects
• No contract adaptation due to discontinuation of the business basis according to section 313 German Civil Code (BGB) (FCJ, judgement of 11 December 1991, XII ZR 63/90) but option of termination if unreasonableness comes into effect.
• Thus unrestricted payment obligation and termination option of the lessor in case of default of payment.

New provisions of the Corona Protection Act

• Obligation to pay remains but no termination by lessor in case of default of payment due to corona in the period 1 April to 30 June 2020, possibly extended to 30 September 2020
• Subsequent payment within two years
• Lessee must provide credible evidence that there is a delay in payment due to corona.

A more detailed view of the corona protection screen

According to the current legal situation, the lessor can already give extraordinary notice to his lessee without notice in accordance with section 543 (2), no. 3a BGB if the lessee is in default with payment of the rent for two consecutive periods. The draft bill now provides for this regulation to be temporarily defused:

Lessors should not be entitled to extraordinary termination of the lease contract due to rent debts arising in the period from 1 April 2020 to 30 September 2020 and based on the effects of the coronavirus pandemic.

The lessee has to substantiate - and the hurdles for establishing prima facie evidence do not appear to be very high - that its payment shortfalls are due to the effects of the corona crisis. It should be possible to extend the period from April to June 2020 by ordinance. However, unlike other payment obligations for which there is even an extensive moratorium, the rent payment obligation remains in place and enforceable. Due to the lack of the termination option, however, lessors initially forfeit a decisive leverage. It shall then be possible to terminate the agreement again from July 2022 on the basis of the arrears accumulated for the corona effects in the specified period. This undoubtedly exposes lessors to the risk that lessees who do not meet their rental payment obligations in the next few months will not make up these payments until years later.

Contrary to initial drafts, further protective provisions of the legislative package are only intended to benefit consumers and micro-enterprises. The intended changes in lease law, on the other hand, cover all commercial rental and lease agreements.

Since the obligation to pay is to remain in force, the lessor is therefore at least entitled to default claims (such as interest) in the event of payment default. Recourse to security deposits is also possible. This, however, requires that the security agreement/guarantee text does not contain any conflicting provisions, for example, that the prerequisite for using the security deposit is a notice of termination.

No modifications or facilitations of any kind result from the draft bill for further obligations of the parties - such as production obligations of the lessor under forward lease agreements or operating obligations of the lessee. Facilitations can only result from the generally applicable statutory provisions, such as those relating to default, impossibility and interference with the basis of the business transaction.

Summary and Conclusion

The proposed law turns the previous regulations on termination without notice in lease law upside down. But it should be noted that only the lessors' right of termination will be restricted. The general obligation to pay the rent in the agreed amount, instead, remains in place.
Although the proposed regulation places a significant emphasis on the protection of lessees against dismissal, the lack of rental income over several months can also become a considerable financial burden for lessors. Small private landlords in particular are often dependent on income from rentals in order to service loans or make their own living.
While new opportunities are opening up for lessees in order to be able to hold on to their lease agreements even in times of crisis, the risks of financial shortages may increase considerably for lessors - also due to further changes in other areas of relevance to the real estate industry as a result of the Corona Protection Act. With regard to the implications of the new regulation, not all detailed questions have been clarified by far.

Our consultancy

Should you have any questions, please contact the experts in the practice group headed by Klaus Beine. Real estate law has been one of BEITEN BURKHARDT's core areas for decades. We assist our clients with all real estate related issues, covering the entire real estate life cycle.

Klaus Beine, Partner, Lawyer and Notary, Frankfurt am Main
T: +49 69 756095-405
E-mail: Klaus.Beine@bblaw.com