Commercial Space Rent Remains Due Even During Corona Closure

The issue of "coronavirus" or "COVID-19 pandemic" has been given considerable attention in real estate law in recent months. One of the first legal issues to be intensively discussed in connection with the effects of the COVID-19 pandemic was the impact of officially ordered closures of operations on commercial leases.

In our presentation of 30 March 2020 entitled "Possible effects of the Coronavirus on Real Estate Law", we examined the effects and consequences of the pandemic on the law governing lease agreements, property development agreements, contracts for work and services and sales contracts. We came to the conclusion that corona-related closures do not constitute force majeure, nor do they constitute impossibility according to section 275 German Civil Code (BGB) or a frustration of the basis of business according to section 313 BGB. We were also able to establish that lessees of commercial premises are not entitled to a reduction in rent, as there is no rental defect. Now the first court decisions so far - of the Regional Court of Heidelberg, judgement of 30 July 2020- 5 O 66/20 and of the Regional Court of Frankfurt a. M., judgement of 2 October 2020 -2-15 O 23/20 - on the duty to pay rent during the COVID-19 pandemic have been published. Both courts have come to the conclusion: Rent for commercial space remains due even during corona-related closure.

In this article we present the current decision of the 15th Chamber of the Regional Court of Frankfurt a. M., which refers in its judgement to the decision of the Regional Court of Heidelberg.

1. Facts

The lessee - a large chain of textile stores - leases business premises for a branch for use as sales and storage space for a retail shop in Frankfurt am Main. The lessee - a large chain of textile stores - leases business premises for a branch for use as sales and storage space for a retail shop in Frankfurt am Main. In the course of the COVID-19 pandemic, the State of Hesse ordered the closure of all retail outlets, including the lessee's shop, in the period from 18 March 2020 to 20 April 2020. During this period, the lessee did not pay the rent in full. During this period, the lessee did not pay the rent in full. After an unsuccessful out-of-court demand for payment, the lessor asserted the rent in court - with success.

2. Grounds for the Decision

The Regional Court of Frankfurt a. M. confirms that official closure orders due to the COVID-19 pandemic do not in principle lead to the cancellation of the duty to pay rent or to a reduction in rent. Nor does the order constitute part of the impossibility. Furthermore, as long as the lessee bears the risk of being able to make a profit with the leased property, temporary closures do not lead to a frustration of the business basis. In detail:

2.1 Rent reduction right

In its judgment of 2 October 2020 - 2-15 O 23/20, the 15th Chamber of the Regional Court of Frankfurt a. M. declared, with reference to the above-mentioned decision of the Regional Court of Heidelberg, that there was no rent reduction right at issue. Though impediments to use and restrictions under public law may also lead to a defect. It is, however, a prerequisite for this that the restrictions of the specifically rented object have their cause precisely in its condition and relationship to the environment and not in the personal or operational circumstances of the lessee. The commercial space as leased property was also suitable for use during the corona-related closure. The statutory intervention or prohibition did not restrict the use of the leased property, its location or condition but rather the type of business operations of the lessee. This is part of the lessee's sphere of risk, so that there was no rental defect.

2.2. Section 275 BGB – Impossibility

The 15th Chamber of the Regional Court of Frankfurt a. M. expressly declares that a closure of the business premises due to the coronavirus affects exclusively the lessee's usage activity but does not change the lessor's duty to provide for the use of the premises. Hence, there was also no impossibility within the meaning of section 275 BGB. On the contrary, the lessor had provided the leased property in a serviceable condition, as was its principal obligation. The fact that the use was not possible for the lessee as intended by it does not lie in the property itself. Thus, a lapse of the lessee's obligation to provide consideration and, consequently, to pay the rent was unjustified.

2.3 Section 313 BGB – Frustration of the Basis of Business

In the above-mentioned decision, the Chamber also commented on the frustration of the business basis pursuant to section 313 BGB. Admittedly, the closure of a branch could indeed lead to a "frustration of the business basis" of the commercial lease agreement in question. However, pursuant to section 313 (1) BGB, the contractual distribution of risk must be taken into account when weighing up all the circumstances of the individual case. In the present case, the lessee had to bear the risk of using the leased property (to be able to make a profit on the leased property). A corresponding contractual assumption of risk by the lessee would regularly rule out - apart from extremely exceptional cases - the possibility of invoking the frustration of the business basis when realising the risk. Extremely exceptional cases of closure are in principle the occurrence of existentially significant consequences for the lessee, such as a threat to its existence, or a comparable unacceptable economic impairment. If the relevant circumstances - as in the present case - are not given, it remains reasonable for the lessee to adhere to the unchanged contract. On these grounds, the court denied a frustration of the basis of business.

3. Outlook and Assessment

The decision of the Regional Court of Frankfurt a.M. shows that commercial lessees cannot at least generally claim rent reductions or the exclusion of the duty to pay rent due to official closure orders in connection with the COVID-19 pandemic. However, both courts point out that in the presence of exceptional circumstances, the possibility of adjusting the contract due to frustration of the basis of business is given. In this context, it remains to be seen in which direction the case law on corona measures in lease law will develop and in which cases extraordinary circumstances within the meaning of section 313 BGB will be deemed to exist.

In any case, an amicable solution between the parties to the lease agreement is recommended. In such a solution, the amount of the rent as well as any agreed deferrals, rent reductions, etc. can be agreed. Not only the lessee but also the lessor will be interested in an amicable solution. In particular will the lessor be interested in the long-term economic performance of the lessee. Agreements between the parties to the lease shall be recorded in a written addendum to the lease agreement.

We will be pleased to advise and support you in corresponding discussions and agreements. Please do not hesitate to contact us.

Klaus Beine

Dr Angela Kogan