ProMach is a leading international platform in the field of packaging and processing technologies.

DFT is an established provider of innovative solutions in the field of sterilization, pasteurization and other thermal processes for the food and beverage industry. With the acquisition of DFT, ProMach is continuing its growth strategy in Europe.

The international cooperation within the ADVANT alliance played a central role in this transaction: our Italian alliance partner ADVANT Nctm has been advising ProMach in Italy for many years.

ADVANT Beiten entered into the mandate in close coordination with the US law firm Thompson Hine, which regularly advises ProMach on legal matters in the United States.

Advisors to ProMach:
ADVANT Beiten: Prof Dr Hans-Josef Vogel (Dusseldorf), Roy Naor (Frankfurt, both Corporate/M&A, lead partners), Dr Andreas Imping, Anna Kubitz (both Labour Law), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT), Sarah Peters, Simon Litterst (both Corporate/M&A, all Dusseldorf), Christopher Harten (Dispute Resolution, Hamburg), Marcus Mische, Markus Linnartz (both Tax), Thomas Herten (Real Estate, all Dusseldorf), Katrin Lüdtke (Public Sector, Munich).

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

The Büter Group comprises German and Dutch (production) companies and is one of Europe's leading companies in the hydraulics industry. Founded in 1965, the family-owned company is headquartered in Emmen (NL) and has production facilities in Haren and Meppen (DE). It employs around 550 people. Over the past six decades, the family-owned company has developed numerous patents and utility models in cylinder and lifting technology and is now one of the technological market leaders in the industry.

NPM Capital, part of the family-owned SHV Group, is an investment partner based in the Benelux countries that focuses on long-term partnerships with family-owned and entrepreneurially managed companies. As part of the transaction, NPM Capital is acquiring the entire group of companies, including the two German subsidiaries Büter Hebetechnik GmbH and Büter Maschinenfabrik GmbH.

By joining forces with NPM Capital, Büter Group is well positioned to accelerate its growth strategy and continue to invest in technological innovation and international expansion. Under the new ownership, Büter Group will continue to operate independently.

Regarding the sale of the Dutch entities, the international law firm Houthoff acted on ADVANT Beiten's recommendation. Taurus Corporate was involved as an M&A advisor. The acquisition is still subject to the usual regulatory and antitrust approvals. The parties have agreed not to disclose the transaction volume. 

Advisors to the shareholders of Büter Group:
ADVANT Beiten: Dr Guido Krüger (Corporate Succession/Taxes), Prof Dr Hans-Josef Vogel (M&A, both lead partners), Julian Krause (Corporate Succession/M&A), Dr Magdalena Rindermann-Haugwitz (Corporate/M&A), Volker Küpper (Taxes), Thomas Herten (Real Estate), Dr Andreas Imping, Anna Kubitz (both Labour Law, all Dusseldorf), Christoph Heinrich (Antitrust Law, Munich) and Maximilian Steffen (Taxes, Hamburg).

PR
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

ADVANT Beiten's interdisciplinary team supported Zoot throughout the entire acquisition process - from the legal and tax due diligence to the structuring and negotiation of the transaction agreements through to the successful closing.

Zoot Sports was founded in 1983 in Kona, Hawaii - the birthplace of the Iron Man triathlon. The company specializes in innovative clothing, shoes and equipment for triathletes and endurance athletes and is one of the world's leading brands in this segment. Zoot stands for technical precision, high quality and athlete orientation and sells its products in over 25 countries. Since 2023, Zoot has been part of the Italian MVC Group, an international sporting goods company based in Italy.

Tailwind Brands is a company based in Bönen, which specializes in the distribution and brand management of premium sports and lifestyle brands. The company has an established distribution network in the DACH region as well as long-standing partnerships with leading sports retailers and online platforms. Tailwind has made a name for itself as a competent partner for the development and expansion of international brands in the European market.

With the acquisition of Tailwind Brands, Zoot Sports is laying the foundation for accelerated expansion in Europe. The combination of Zoot's international brand strength with Tailwind's regional market and sales expertise offers considerable growth potential in the coming years.

Advisor Zoot Sports:
ADVANT Beiten: Dr Markus Ley (Corporate/M&A, Munich), Dr. Erik Schmid, Virginia Mäurer (both Employment Law, Munich), Susanne Klein, Jason Komninos (both IP/IT, Frankfurt), Markus Linnartz (Tax, Dusseldorf), Petra Fendt (Banking & Finance, Munich), Anja Fischer (Real Estate, Munich).

Public Relations
Frauke Reuther
Communications Manager
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

In addition, six colleagues were elected Local Partners and nine colleagues were elected Salary Partners. The newly elected partners are from all six German offices of the law firm, working in seven different areas of competence.

Dr Florian Weichselgärtner handles a large number of liability cases every year, both in the area of manager liability and the liability of lawyers, tax advisors, insolvency administrators, corporate and restructuring advisors and auditors. His area of activity further comprises advice to companies on the processing of liability cases and compliance violations. The interdisciplinary advisory service of ADVANT Beiten enables Dr Florian Weichselgärtner to comprehensively handle the often complex liability cases across all legal areas (tax law, criminal law, labour law, capital market law, insolvency law, etc.). Due to his many years of advisory practice, he has proven experience both in conducting and defending actions for damages as well as in out-of-court dispute resolution.

These are our new Local Partners in alphabetical order:

• Sascha Opheys (Public Sector, Dusseldorf)
• Max Stanko (Public Sector, Berlin)
• Dr Philipp Sahm (Corporate/M&A, Frankfurt)
• Haide Spanier (Banking, Finance & Restructuring, Frankfurt)
• Mark Thönißen (Corporate/M&A, Frankfurt)
• Dr Mark Zimmer (Labour Law, Munich)

Our newly elected Salary Partners are listed in alphabetical order:

• Regina Dietel (Labour Law, Munich)
• Gamze Dogan (Tax Law, Dusseldorf)
• Verena Nader (Real Estate, Munich)
• Dr Christian Osbahr (Corporate/M&A, Freiburg)
• Robert Schmid (Corporate/M&A, Berlin)
• Simon Schuler (Corporate/M&A, Freiburg)
• Etienne Sprösser (Corporate/M&A, Freiburg)
• Maximilian Steffen (Tax Law, Hamburg)
• Ulrike Stöhr (Tax Law, Munich)

"The appointment of our new partners shows how closely we work together across offices and between our practice groups - supported by diverse industry expertise," explains Dr Guido Krüger, Managing Partner of ADVANT Beiten, adding: "The fact that we have had successful elections at all three seniority levels underlines the continuous development of outstanding talent in our firm. Accompanying our colleagues on their path to partnership is one of our central tasks."

ADVANT Beiten also continues to follow its strategy of targeted growth by lateral hires in selected areas. The following Local and Salary Partners reinforced the firm last year:

• Tanja Ehls (SP, Public Sector, Frankfurt)
• Julian Gruß (SP, Real Estate, Dusseldorf)
• Peter Meisenbacher (SP, Public Sector, Freiburg)
• Ansgar Messow (LP, Real Estate, Dusseldorf)
• Johannes Voß-Lünemann (SP, Public Sector, Berlin)

PR
Frauke Reuther
Manager Communication
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Yancoal International Holding Co., Ltd. acquires 51 percent of the shares in CFH GmbH within the scope of the transaction. The parties have agreed not to disclose the transaction volume.

The globally operating CFH Group of Companies bundles under its umbrella a number of subsidiaries and holding companies, all specialising in engineering services enabling innovative solutions related to the topic of air at the workplace. 

Yancoal International Holding Co., Ltd. brings comprehensive experience in global resource allocation and industrial cooperation. The stake of Yancoal International Holding Co., Ltd. represents an important milestone in the international growth strategy of CFH Group of Companies. The partnership opens up new opportunities for technological innovation, global market presence and sustainable development. New standards in developing intelligent ventilation and environmental technologies are defined together - in particular for applications in mining, tunnelling and industry. 

The international team of ADVANT Beiten headed by Dr Martin Rappert (Dusseldorf) and Susanne Rademacher (Beijing) regularly advises companies on investments and business activities in Europe and the People's Republic of China.

Advisors to CFH GmbH: 
ADVANT Beiten: Dr Martin Rappert, Nico Frielinghaus, Prof Dr Hans-Josef Vogel, Dr Winfried Richardt, Sarah Heinrichs, Simon Litterst (all Dusseldorf), Susanne Rademacher (Beijing, all Corporate/M&A), Christian Döpke, Mathias Zimmer-Goertz (Data Protection/IP, Dusseldorf), Christoph Heinrich (Antitrust, Munich), Dr Christian von Wistinghausen (Foreign Trade Law, Berlin), Thomas Herten (Real Estate, Dusseldorf), Vasily Ermolin (Sanctions, Moscow).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr Philipp Pröbsting is a licensed building and architects' law specialist and, together with his team, specialises in advising on major projects in the fields of building construction, infrastructure and industry construction (nationally and internationally). He has been advising on project developments (including land issues and asset management), complex industrial construction projects and infrastructure measures for more than 16 years.

The team is committed to an integrated and comprehensive advisory approach with interdisciplinary teams that think through and support the project from the early initiation phase to the operational or production phase. The team provides support in the initiation of projects, contracts and legal project management. Its clients include companies from the industrial sector, energy suppliers, construction companies and the public sector.

"With Dr Philipp Pröbsting's team, we are significantly strengthening our expertise in the real estate and construction sector and further expanding important interfaces, among others the public sector and regulated industries," comments Dr Guido Krüger, Managing Partner of ADVANT Beiten, adding: “We are delighted to have gained an excellent expert with proven industry expertise in Philipp Pröbsting.”

Dr Philipp Pröbsting comments: "We are very much looking forward to the new challenges at ADVANT Beiten. We are convinced that our advisory approach fits perfectly with the existing competencies, structures and advisors and that together we will boost the Real Estate practice and sector group in Dusseldorf, throughout Germany and internationally."
ADVANT Beiten's Real Estate team of more than 50 advises on all planning and construction law issues across all offices. Clients include federal, state and local authorities, private investors and property developers, building owners and architects as well as banks and investment companies in all phases of their projects. The team combines real estate core competencies with broad legal, commercial and tax law expertise.

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Amphenol is one of the world’s largest designers, manufacturers and marketers of connectors and interconnect systems, antennas solutions, sensors and high-speed cable.

Luetze International Group is active worldwide and consists of various companies in a holding structure. The group of companies has a tradition of over 60 years in automation and is one of the leading companies in the industry today. Luetze Group offers innovative solutions in the areas of highly flexible cables, cable assemblies, interfaces, power supply and monitoring as well as control cabinet wiring.

Luetze Group's range of services complements Amphenol's portfolio in various segments of the fast-growing electronics market and underlines Amphenol's future-oriented, cross-border positioning.

In this transaction, ADVANT partner firm ADVANT Altana advised on French law, Fox Williams advised on UK law, Havel & Partners advised on Czech law, Kellerhals Carrard advised on Swiss law and E+H advised on Austrian law.

ADVANT regularly advises Amphenol on European M&A projects, most recently ADVANT Altana and ADVANT Beiten jointly advised Amphenol on the acquisition of the CMR Group based in France.

Advisor Amphenol Corporation: ADVANT Beiten: Dr Christian von Wistinghausen, Tassilo Klesen (both lead partners in charge), Olga Prokopyeva (all Corporate/M&A, Berlin), Susanne Rademacher, Lelu Li, Kelly Tang, Dr Jenna Wang-Metzner (all Corporate/M&A, Beijing), Michael Riedel (Labour & Employment, Berlin), Carsten Pütger, Danah El-Ismail (both Real Estate, Berlin), Mathias Zimmer-Goertz, Christian Döpke (both IP/IT/Media, Dusseldorf), Uwe Wellmann (Antitrust Law, Berlin), Christoph Heinrich (Antitrust Law, Munich), Dr Marion Frotscher and Simon Bauer (both Tax, Hamburg).

Advisor Sellers of Luetze Group: Heuking Kühn Lüer Wojtek: Dr. Rainer Herschlein, LL.M., Dr. Emanuel Teichmann (both Corporate/M&A, Stuttgart), Dr. Stefan Bretthauer, Jia-Xi Liu (both Antitrust Law, Hamburg).

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dusseldorf-based Flamonitec is a global leader in the development, manufacture and sale of flame monitoring systems and other combustion technology components as well as the development and marketing of environmental technology and processes, particularly in the fields of control, regulation, sensor technology and image processing. The company has an international customer base. The solutions developed by Flamonitec in more than fifty years in the business are protected by numerous patents.

Alder is an investment fund based in Stockholm, Sweden, aiming to ensure the sustainable, long-term development of technology and service companies. Flamonitec is the first acquisition in a consolidation initiative by Alder within advanced measurement and monitoring technology, especially for the combustion industry.

The sales process was structured and organised by the M&A consulting firm Mayland AG of Dusseldorf.

Advisor to Flamonitec | BFI Automation Mindermann GmbH:
ADVANT Beiten: Dr Christof Aha, Maik Merkens (both Lead Partners), Mark Thönißen, Felix Busold (all Corporate/M&A, Frankfurt), Leopold Linden (Real Estate, Frankfurt), Christian Hipp (Public Law, Berlin). 
CMS Wistrand: Sascha Schäferdiek, Louise Berlin

Advisor to Alder AB:
White & Case: Dr Matthias Kiesewetter, Dr Maximilian Eichhorn, Isak Brunecevic, Andreas Lexhag, Dr Nico Frehse

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr Christof Aha
Rechtsanwalt
ADVANT Beiten
+49 (69) 756095 - 451

The i8, with its timber hybrid construction and LEED Platinum certification, PV system and façade made from recycled aluminium, and more such features, has been designed with sustainable construction in mind.

Advisor to the Interhyp Group:
ADVANT Beiten: Anja Fischer (Real Estate, Munich), Dr Christoph Schmitt (Banking & Finance) and Volker Szpak (Tax, both Frankfurt):

Advisor to R&S Immobilienmanagement:
Noerr: Annette Pospich, Dr Antonio DiMieri (both Real Estate) and Steffen Arlich (Tax, all Munich).

The deal was arranged by BNP Paribas Real Estate GmbH, Christoph Bayreuther.

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

TETEC AG, which specialises in regenerative medicine, had been integrated into the international medical technology group B. Braun through the surgical division Aesculap, based in Tuttlingen, Germany. In future, Aesculap will strategically focus even more strongly on innovative medical technology relating to surgical processes in the operating room, which means that the regenerative medicine business segment no longer fits into the medical technology group's portfolio.

In the United States, B. Braun has partnered with Octane Medical for more than ten years. With the completion of the transaction, the Canadian specialist for regenerative medicine has taken over TETEC completely, including the approximately 160 highly specialised employees at the site in Reutlingen, Germany.

Octane is a global group of companies headquartered in Ontario, Canada, with subsidiaries in the United States and Europe, specialising in innovative processes, biomaterials and bioreactors for regenerative medicine. Part of the group are Octane Clinical Systems, Octane Orthobiologics, Octane Exo, Octane Biotech and Octane Biotherapeutics (BioTx).

B. Braun is one of the world's leading medical technology companies. With over 60,000 employees, B. Braun is a reliable partner that develops intelligent solutions and sets pioneering standards to accelerate progress in healthcare.

Advisors to Aesculap AG:
ADVANT Beiten: Dr Sebastian Weller (lead partner), Nico Frielinghaus, Dr Winfried Richardt, Markus Schönherr, Sarah Heinrichs, Simon Litterst (all Corporate/M&A), Christian Schenk, Markus Linnartz (both Tax), Thomas Herten (Real Estate), Christian Döpke (Data Protection Law, all Dusseldorf), Dr Erik Schmid (Labour Law), Christoph Heinrich (Antitrust Law, both Munich), Rainer Süßmann (Banking & Finance, Frankfurt), Dr Christian von Wistinghausen, Lelu Li (both Foreign Trade Law, Berlin).

Advisor to Octane Medical:
Osborne Clarke

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr Sebastian Weller
Rechtsanwalt
ADVANT Beiten
+49 (211) 51 89 89 - 134
sebastian.weller@advant-beiten.com

More flexible use of battery storage

The German coalition government enacted various amendments to the Renewable Energy Act (EEG) to provide a more flexible option for the use of power stores:

Until now, subsidies have been available for electricity from renewable energy sources (RE electricity) fed into the grid from battery storage, provided that only RE electricity was used to charge the battery for the whole year. The Solar I Package inserts a new § 19 (3a) into the EEG, which allows RE electricity to be subsidised even where the feeding battery was not charged solely with RE electricity for a whole year. The operator of the battery may now switch the operating mode of the battery five times within a year, providing there is at least two months between each switch. For those periods in which the battery is charged solely with RE electricity, the battery will be considered a RE facility and entitled to subsidies under the EEG.

Tenders for larger facilities

The Package increases the maximum tender size for solar installations in the first segment from 20 to 50 MWp. This welcome change allows project developers to receive subsidies for facilities with economies of scale, making them more cost-effective.

Opt-out rule for disadvantaged regions

Electricity from solar power can be subsidised, for example, when the facility is in a so-called “disadvantaged region”. Until now, the German Länder could open up their disadvantaged regions for RE electricity generation but were not required to do so (so-called “opt-in rule”).

This rule has been reversed and is now an opt-out rule: disadvantaged regions are legally considered open (without requiring the approval of the Länder). Each Land must open up at least one per cent of its agricultural areas by the end of 2030. This minimum share will then increase to 1.5%. Once these thresholds are exceeded, the Land can again close certain disadvantaged regions to the production of electricity from renewable energy sources.

In addition, disadvantaged regions are now open to solar farms that cannot participate in tenders. Accordingly, project developers can establish smaller photovoltaic systems (rated output under 750 kWp) in disadvantaged areas.

Tolerance obligation for the expansion of the grid and power lines

The Solar I Package allows developers of photovoltaic systems to demand that the legal users of public properties tolerate the installation of power lines. This is designed to significantly speed up renewable energy projects and the expansion of the grid. The adopted law does not go as far as the draft bill, which subjected all property owners, including private owners, to this tolerance obligation.

Similarly, new § 11b of the EEG provides a right of way over publicly-owned property during the construction and dismantling of wind farms.

New tender procedure for special systems

Special systems (agricultural photovoltaic systems, systems on parking lots, etc.) were previously at a disadvantage when tendering output capacity as the basic costs of such projects were typically higher than those of systems built in open spaces where construction is easier. To counteract this effect, the entry into force of the Solar I Package will make it possible to tender special systems separately in the first segment.

As developers of special systems no longer need to compete against conventional plants built in open spaces, new open spaces will become viable in agricultural areas, on parking lots, in grasslands, and on moors.

Summary

The Solar I Package contains key changes, which will facilitate the construction and expansion of photovoltaic plants.

Again: after the Solar I Package comes Solar II. Various issues still need deregulating and numerous legal incentives are still needed if the full potential of the expansion necessary to reach national and European climate goals is to be achieved.

Dr Christof Aha
Dr Malaika Ahlers
Anton Buro
Leopold Linden

The law (still) focuses on improving tenant electricity supply, the introduction of “shared building supply” as a new model for the supply of electricity from photovoltaic systems (“PV systems”) in buildings, as well as “subsidy-free supply” as a new form of marketing. These changes establish the legal cornerstones for the comprehensive autonomous supply of electricity from PV systems mounted on the rooves of apartment and industrial buildings. This generates new opportunities for decentralised supply models for utility companies, but also for the original partners in the real estate sector. Landlords can tap into the economic potential of their buildings by either establishing and operating PV systems or leasing roof space.

Specifically:

Simplified landlord-to-tenant electricity

Under the current law, landlord-to-tenant electricity supply may only utilise solar panels mounted on residential properties (§ 21 (3) of the Renewable Energy Sources Act (EEG) and § 42 of the Energy Industry Act (EnWG)). In the future, panels may also be mounted on industrial and auxiliary buildings (such as garages). Tenant electricity also no longer needs to be used within residential buildings.

The Solar Package extends the maximum permissible duration of landlord-to-tenant electricity supply contracts to two years.
Additionally, this maximum only applies where the customer is a consumer.

The downside to deregulation is that the operator of the PV system and the end customer may no longer belong to a corporate group (PV system operators must provide a declaration to this end). This is designed to prevent the misuse of subsidies.

Regulatory hurdles often dissuaded operators of landlord-to-tenant electricity systems from claiming subsidies where industrial and residential leases were involved. The low level of subsidies rarely justified the administrative and advisory costs. Liberalisation makes the landlord-to-tenant model more attractive.

Energy sharing

The Solar Package introduces a new supply model: the “shared building supply” model (§ 42b (1) of the EnWG). This model is independent of and parallel to the landlord-to-tenant supply model and releases users of the model from numerous supply obligations to enable the supply of solar energy within a building without the normal level of bureaucracy. In particular, operators of energy-sharing systems (PV systems) are not required to supply the residual electricity that the PV system cannot cover.
Complex questions of implementation arise with respect to the measurement every quarter of an hour (end customer energy reference quantities must be measured every quarter of an hour), the determination of the allocation key, and the assignment of quantities to individual customers.

Landlord-to-tenant electricity model or energy-sharing model?

Energy sharing (§ 42b EnWG) and landlord-to-tenant electricity (§ 42a EnWG) should form distinct models for the consumption of electricity from PV systems close to where it is generated. ;In contrast to landlord-to-tenant models, suppliers in energy-sharing models do not have to offer full supply. Accordingly, the law removes the obligations on suppliers to conclude a contract to supply residual energy and to use a mixed calculation. The Package does not foresee any additional funding for the quantity of electricity supplied through energy-sharing models – as distinct from landlord-to-tenant systems – because the full supply obligation and certain other supplier obligations have been removed. Compensation will still be available as usual under the EEG for electricity fed into the grid unless the PV system operator has selected to feed electricity into the grid without receiving payment of the EEG subsidy (unentgeltliche Abnahme).

Energy sharing could therefore become an uncomplicated alternative form of supply, especially in residentiary or mixed-use buildings.

Direct marketing and sale of energy without EEG subsidies

Many project developers deliberately kept facilities small to avoid the direct marketing obligation for excess energy. This obligation now only applies to facilities with an installed capacity of 200 kilowatts or more.

Photovoltaic systems with an installed capacity of between 100 and 200 KW can now be earmarked as free-of-subsidy installations. While system operators will not receive any additional payment of EEG subsidies for electricity that is fed into the grid, they also do not need to undertake any direct marketing. Obviously, this form of marketing will only make sense when it is foreseen that solar energy consumption will be highly decentralised.

Summary

The potential of large rooves of industrial properties for mounting PV systems is far from exhausted. The Solar I Package implements important improvements for the decentralisation of energy supply within buildings. It reduces red tape, opens up roof space potential, and facilitates participation by expanding supply options for project developers.

However, this potential can still be utilised more fully: associations involved in the most recent hearing of the Committee for Climate Protection and Energy of 22 April 2024 called for various outstanding guidelines to be provided. These include legal frameworks for energy sharing and measuring the direct marketing limit by the amount of electricity fed into the grid, as well as specific conditions related to the commercial tax privilege.

After the Solar I Package comes Solar II!

Find out more about the improvements introduced for solar power systems here.

Dr Christof Aha
Dr Malaika Ahlers
Anton Buro
Leopold Linden

The property at Thomas-Wimmer-Ring is located in the heart of Munich, a stone's throw away from the Viktualienmarkt, directly on Isartor-Platz. The Optima-Aegidius group of companies, a family business, refurbished the building from the 1980s after acquiring it together with a Munich family office, while retaining its striking design.

Advisor to Consulate General of the Republic of Lithuania:
ADVANT Beiten: Anja Fischer (Real Estate, Munich), Dr. Dietmar O. Reich (Corporate law, international public law and consular relations, Hamburg/Brussels), Volker Szpak (Tax, Frankfurt).

Public Relations
Frauke Reuther
Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Anja Fischer
Rechtsanwältin
ADVANT Beiten
+49 (89) 35065 – 1205
Anja.Fischer@advant-beiten.com

The portfolio consists of five operational wind farms with a total of 38.4 MW (in Oedelum, Quelkhorn, Mariengarten, Münster and Frielendorf Süd) as well as a wind project with a planned commissioning in the third quarter of next year with 18 MW (Feldatal).

In the context of the transaction, Verbund AG was advised by an M&A team from ADVANT Beiten specialising in renewable energies. The transaction experts led by partner Dr Christof Aha had already advised Verbund AG on the acquisition of an 86 MW wind portfolio in Rhineland-Palatinate. 

ADVANT Beiten's M&A Renewable team advises national and international investors on the development, operation, acquisition and sale of large wind farms, solar parks and geothermal projects. To this end, the team works across borders with the law firms of the European ADVANT network.

Advisors to VERBUND AG: 
ADVANT Beiten: Dr Christoph Aha (Lead Partner in charge), Mark Thönißen, Felix Busold, Maik Benedikt Merkens (all Corporate/M&A, Frankfurt), Dr Jochen Reuter, Leopold Linden (both Real Estate, Frankfurt), Katrin Lüdtke (Public Law, Munich)

Inhouse: Dr Patrick Prusa (Verbund AG, Vienna)

Advisor to IMPAX: Taylor Wessing

Public Relations
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr Christof Aha
Lawyer 
ADVANT Beiten
+49 (69) 756095 - 451
Christof.Aha@advant-beiten.com

The railway depot is centrally located in the Ruhr metropolis, is developed with listed buildings and has two sidings to the network of Deutsche Bahn. It is therefore attractive for commercial development and the RVR had several direct enquiries. The sale was concluded in a competition-like, transparent selection procedure which had been advertised EU-wide. Award criteria were defined in the course of the tender.

The multinational group CAF is a leading provider in the railway sector and has acquired the property in its entirety in order to develop it for its own purposes as of 2023. At the site in Gelsenkirchen, CAF will be servicing in the near future its modern, battery-powered regional train sets for local transport in the region for the first time which will replace old diesel vehicles.

ADVANT Beiten designed and advised on the state aid and real estate law part of the transaction and the Europe-wide selection procedure and conducted the sales negotiations with the bidders.

Advisor to RVR:
ADVANT Beiten: Dr Dietmar O. Reich (Hamburg/Brussels), Christian Hipp (Berlin, both State Aid Law), Dr Klaus Kemen (Berlin, Real Estate).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Dr Klaus Kemen
Rechtsanwalt
ADVANT Beiten
+49 (30) 26 471 - 133
klaus.kemen@advant-beiten.com

The Terreal businesses to be acquired by Wienerberger are expected to generate revenues of EUR 740 million and a run-rate EBITDA of approx. EUR 100 million in 2022. The enterprise value of the respective Terreal businesses amounts to EUR 600 million, subject to customary adjustments. The acquisition agreement was signed at the end of December, marking the start of the exclusive negotiation phase. The closing is expected to occur in the course of 2023.

The merger control part of the transaction is led by ADVANT Beiten partners Uwe Wellmann and Christoph Heinrich who are jointly responsible for German merger control and coordinate a team of law firms in various jurisdictions. Cross-border merger control advice is provided in cooperation with, inter alia, ADVANT Altana in France, Binder Grösswang in Austria, Woźniak Legal in Poland and Radovanović Stojanović & Partners in Southeastern Europe.

The M&A work stream was led by E+H (Vienna, Graz). ADVANT Beiten partner Dr. Mario Weichel took over its German part and together with a multidisciplinary team performed the legal due diligence on the Creaton business. ADVANT Altana was responsible for the French due diligence.

Advisers to Wienerberger:
ADVANT Beiten: Uwe Wellmann (Berlin) and Christoph Heinrich (both lead partners, both Competition law), Dr Mario Weichel, Maximilian Matusewicz (both Corporate/M&A), Cathleen Laitenberger (Competition Law), Anja Fischer (Real Estate), Katrin Lüdtke and Philipp Früh (both Public Law), Christian Hess (IP), Michael Ziegler and Petra Fendt (Finance), Chiara Peterhammer (Commercial, all Munich), Nima Valadkhani (Commercial), Wolf J. Reuter (Employment Law) and Dr Ariane Loof (Data Protection, all Berlin).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Uwe Wellmann
Lawyer
ADVANT Beiten
+49 30 26471-243
uwe.wellmann@advant-beiten.com

Dr Kathrin Bürger, Dr Silke Dulle, Christina Kamppeter, Susanne Klein, Dr Ralf Hafner, Dr Georg Tolksdorf and Dr Sebastian Weller represent five different legal areas and are spread across five locations.

• Dr Kathrin Bürger (Labour Law, Frankfurt and München), Licensed Specialist for Labour Law, advises particularly on collective labour law issues. She assists companies with collective bargaining changes and (in-house) collective bargaining negotiations as well as strike preparation measures. Beyond that, Dr Bürger advises companies on the negotiation with works councils, also as a part of conciliation boards, as well as on all kinds of individual labour law issues.
• Dr Silke Dulle (Corporate/M&A, Berlin), Licensed Specialist for Medical Law, provides legal advice to clients of the healthcare sector, especially in the area of hospitals and health insurance companies. Her legal consultancy covers hospital law, social security and pharmaceutical law, procurement law and corporate law.
• Christina Kamppeter (Labour Law, Munich), Licensed Specialist for Labour Law, advises national and international companies on all aspects of individual and collective labour law, in particular regarding negotiations with works councils and trade unions. One focus of her work is on providing labour law advice on restructurings.
• Susanne Klein (IP/IT/Media, Frankfurt), Licensed Specialist for Information Technology Law, is a renowned expert in data protection law. In addition, she advises her national and international clients in IT and copyright law.
• Dr Ralf Hafner (Litigation & Dispute Resolution, Munich), advises his national and international clients in complex international disputes on dispute resolution out of court and represents them in arbitration and state court proceedings.
• Dr Georg Tolksdorf (Assets/Succession/Foundations, Hamburg) provides legal advice in the area of inheritance and foundation law as well as (tax-optimized) succession planning for private individuals and (family-owned) companies. Another focus of his work is on the execution of (corporate) wills.
• Dr Sebastian Weller (Corporate/M&A, Dusseldorf) focuses on Corporate/M&A as well as Private Equity/Venture Capital, particularly providing legal advice for take-overs, participations and restructuring projects. He provides support on all issues relating to corporate and transformation law as well as corporate compliance.

In addition to the seven new Equity Partners, the following Salary Partners have been appointed Local Partners:

• Dr Anne Dziuba, Labour Law, Munich
• Dr Daniel Fischer, Real Estate, Frankfurt
• Dr Christina Hackbarth, IP/IT/Media, Munich
• Christian Hipp, Antitrust Law, Berlin
• Tanja Hogh Holub, IP/IT/Media, Munich
• Sylvia Jenoh, Tax, Frankfurt
• Dr Klaus Kemen, Real Estate, Berlin
• Dr Markus Ley, Corporate/M&A, Berlin
• Jörn Manhart, Labour Law, Dusseldorf
• Carsten Pütger, Corporate/M&A, Dusseldorf
• Dr Jochen Reuter, Real Estate, Frankfurt
• Dr Winfried Richardt, Corporate/M&A, Dusseldorf
• Dr Florian Weichselgärtner, Dispute Resolution, Munich
• Mathias Zimmer-Goertz, IP/IT/Media, Dusseldorf

Furthermore, the following colleagues successfully continue their career path and have been appointed from  Senior Associates to Salary Partners:

• Annalena Benz, Real Estate, Munich
• Jens Ledermann, Tax, Frankfurt
• Dr Martina Schlamp, Labour Law, Munich

Beyond growth from its own ranks, ADVANT Beiten also continues its course of targeted growth with lateral hires in selected areas and confirms the salary partnership of the following colleagues:

• Christian Burmeister, Corporate/M&A, Freiburg/Berlin
• Dr Moritz Jenne, Corporate/M&A, Freiburg
• Dr Sebastian Kroll, Labour Law, Munich
• Markus P. Linnartz, Tax, Dusseldorf
• Dr Ariane Loof, Labour Law, Berlin
• Dr Michael Matthiessen, Labour Law, Berlin
• Dr Birgit Münchbach, Corporate/M&A, Freiburg
• Kristin Müller-Nedebock, Tax, Hamburg

"All seniority levels are of central importance for the future of our law firm. We are therefore all the more pleased to be able to accompany so many colleagues of different seniority levels, legal areas and locations on their career paths, comments Philipp Cotta, Managing Partner of ADVANT Beiten, and adds: Our modified career track offers all colleagues even more flexibility in their individual career planning and allows us to emphasise our professional expertise across the different levels even more clearly to our clients."

Congratulations to all elected and confirmed partners.

The transaction is structured as a share deal whereby Aurelius will acquire the specific legal entities, i.e. Sappi Stockstadt GmbH, Sappi Maastricht Real Estate B.V. (including its subsidiary Sappi Maastricht B.V.), Sappi Finland I Oy and Sappi Finland Operations Oy, which own and control the assets and liabilities of the individual mills.

The enterprise value of the transaction amounts to approximately EUR 272 million and the consideration consists of cash proceeds and retained receivables as well as retained liabilities. The transaction is expected to close in Q1 2023, subject to various standard suspensive conditions.

Sappi is a global leader in dissolving pulp and paper-based solutions, headquartered in Johannesburg, South Africa. It has over 12,000 employees, manufacturing facilities in ten countries spanning over three continents and customers in over 150 countries worldwide.

Advisors to Sappi Limited:

Advant Beiten: Dr Christoph Schmitt (Lead Partner; Banking & Finance) and Dr Markus Ley (Lead Partner, Corporate Law); Dr Mario Weichel and Maximilian Matusewicz (both Corporate Law); Dr Gerald Müller-Machwirth and Maike Pflästerer (both Employment Law); Katrin Lüdtke and Philipp Früh (both Public Law); Anja Fischer (Real Estate); Susanne Klein (IT Law and Data Protection) as well as Christoph Heinrich, Dr Christian Heinichen and Cathleen Laitenberger (all Antitrust and Competition Law).

Stibbe is advising on the Dutch law aspects and Fondia is advising on the Finnish law aspects of the transaction.

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
Frauke.Reuther@advant-beiten.com

Markus Ley
Rechtsanwalt
ADVANT Beiten
+49 (89) 35 0 65 - 1211
Markus.Ley@advant-beiten.com

• Kamil Karibov (Group III, Land Law/Commercial Real Estate/Construction)
• Bilgeis Mamedova (Group III, Land Law/Commercial Real Estate/Construction)
• Falk Tischendorf (Group III, Land Law/Commercial Real Estate/Construction; Group IV, Corporate Law/Mergers & Acquisitions (Mid Market))

For reference: The Pravo.ru-300 rating has been studying the Russian legal services market for 12 years. It is an acknowledged reference point for the level and professionalism of the legal services market. The basis for the research are, first and foremost, projects implemented in the years under consideration, client feedback, and the value for money ratio

More detailed information can be found by clicking here.

Our partners Dr Andreas Lober (Media/Entertainment), Dr Wolfgang Lipinski (Labour Law) and Dr Gerrit Ponath (Private Clients and Nonprofit Sector) are listed as leading names in their respective legal areas. Wojtek Ropel (Media/Entertainment) and Katharina Fink (Private Clients and Nonprofit Sector) are among the names of the next generation. In addition, numerous lawyers are on the list of recommendations for the various legal areas.

Legal areas/practice areas in the ranking:

Labour Law, Corporate Law and M&A (medium-sized deals), Industrial Property (Trademark Law and Competition Law), Real Estate and Building Law (Real Estate Law and Project Development), Information Technology (Data Protection and IT/Digitalisation), Media (Gaming, Entertainment, Press Law and Publication Law), Private Clients and Nonprofit Sector, Public Law (Planning and Environmental Law, Public Procurement Law, State Aid Law).

Congratulations to the practice groups and industry groups and to our recommended lawyers.

Background:
The Legal 500 has been published for 35 years and is an independent guidebook. Law firms and lawyers are recommended exclusively on the basis of their performance. In-house lawyers are given a comprehensive overview of around 400 commercial law firms and 2700 lawyers in Germany. The analysis covers 23 practice areas and 90 rankings. As part of the research of The Legal 500 Deutschland, hundreds of interviews are conducted with lawyers and more than 23,000 clients are surveyed.

Advisors to PL-Immo-Verwaltungs GmbH: 
ADVANT Beiten: Florian Baumann (in charge, Real Estate), Katrin Lüdtke (Public Sector, both Munich).

Media Contact
Frauke Reuther
Manager Kommunikation
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Florian Baumann
Lawyer
ADVANT Beiten
+49 89 35065 - 1436
Florian.Baumann@advant-beiten.com

ADVANT Beiten has originally advised Paca Puratos on the acquisition of shares and on a planned investment of/in frizle fresh foods beraten. In the course of the transaction, however, frizle fresh foods AG, which specialises in innovative food products, had to file for insolvency. The ADVANT Beiten team around lead partner Prof. Dr. Hans-Josef Vogel subsequently changed strategy and advised their client on the acquisition of the full business operations from the insolvency administrator.

Fresh spaetzle dough in a bag - the founders of frizle fresh foods launched this business idea in 2015. Even though it failed to land a deal in the well-known TV series "Die Höhle der Löwen", the start-up received a lot of media attention and was quickly representedin many retail chains with its product. This was followed by a number of other fresh, liquid doughs and products that were not yet established in the German market.

PACA, founded in 1934, is leading the Israeli fresh yeast market for more than 40 years. Owner of “Shimrit” a famous Israeli baking goods brand, well known for successful commercial products such as fresh yeast, yeast flours, margarine, naturina, fresh pastry dough bases and fresh batters. PACA is co-owned by Puratos and the Sommerfeld Family. With the acquisition of frizle fresh foods, the company expands its product portfolio of innovative food products and continues their business operations.

Advisors to Paca Puratos:
ADVANT Beiten: Prof. Dr Hans-Josef Vogel (Head, Corporate/M&A), Wilken Beckering (Insolvenzy Law), Dr Winfried Richardt (Corporate/M&A), Mathias Zimmer-Goertz, Christian Döpke (both IP), Thomas Herten (Real Estate), Doreen Methfessel and PeterWeck (both Labour Law, all Dusseldorf).

Insolvency Administrator frizle fresh foods:
Law Firm Rochade Anwälte (Mannheim)

Media Contact
Frauke Reuther
Manager Communications
ADVANT Beiten
+49 (69) 75 60 95 - 570
frauke.reuther@advant-beiten.com

Prof. Dr Hans-Josef Vogel 
Lawyer
ADVANT Beiten
+49 (211) 51 89 89 - 0
Hans-Josef.Vogel@advant-beiten.com

In this article Ekaterina Sidenko researches the legal specifics of coworking, the risks inherent in respective lease agreements, the role of confidentiality in coworking, compliance with the provisions of employment law and occupational health and safety, and other contested issues.

The article “Coworking: Legal Guide”, published in the journal Commercial Real Estate, September 2021 issue, is available in Russian in the materials below for downloading.

Ferronordic intends to expand its service network in Germany and has been continuously advised by ADVANT Beiten on German M&A transactions since entering the German market (2019/2020), most recently on the acquisition of Thomas Nutzfahrzeuge GmbH in Limburg a.d. Lahn and TCR Truck Center Rhön GmbH in Künzell (Fulda). With the acquisition of Truckservice Bergstraße, Ferronordic gains another strategic position in an important part of Hesse.

Truckservice Bergstraße GmbH & Co KG operates a workshop for service and repairs of Volvo and Renault trucks. In addition, the company also operates a smaller business for truck rental and the sale of used trucks. Truckservice Bergstraße is also a service partner for Volvo Penta. The workshop is conveniently located in Lorsch, Hesse, 60 km south of Frankfurt.

Advisor Ferronordic:

ADVANT Beiten: Tassilo Klesen (in charge), Dr Patrick Alois Hübner, Lelu Li (all Corporate/M&A), Robin Maletz (Real Estate, all Berlin).

Contact

Tassilo Klesen
Rechtsanwalt
ADVANT Beiten
Tel.: +49 (30) 26471-351
E-Mail: Tassilo.Klesen@advant-beiten.com

Foreign propcos holding a property in Germany and renting it out generally try to avoid founding a permanent establishment for income tax purposes in order to avoid becoming liable for trade tax. In this respect the definition of a permanent establishment as per § 12 of the German Fiscal Code applies. However, a permanent establishment for VAT purposes does not have to be in line with a permanent establishment for income tax purposes. In case of a permanent establishment for VAT purposes the definition of a “fix establishment” of the superior ranking EU law applies (Art. 44 and 45 of MwStystRL as well as Art 11 MwStVO).

For foreign propcos the situs principle applies for the definition of the place of the letting activity independent from the question if a permanent establishment is in place. Thus, the services of letting a property located in Germany are taxable for VAT purposes in Germany and – in case of an admissible option for VAT- also subject to VAT. However, the existence of a permanent establishment for VAT purposes has a significant impact on the VAT procedure. So, without a permanent establishment for VAT purposes the reverse charge mechanism needs to be applied for the vatable rents and the input VAT needs to be reclaimed in the special VAT reclaim procedure. The general taxation procedure for VAT is not applicable anymore.

Sofar the tax authorities generally assumed the existence of a permanent establishment for VAT purposes in case of a property rented out. Section 13b.11 (2) clause 2 and 3 of the German VAT guidelines (UStAE) says: "Entrepreneurs owing a plot located inland and renting it out subject to VAT are to be treated in this respect as domestically resident. They have to disclose this turnover in the course of the general taxation procedure."

Furthermore, it says in section 18.10 clause 4 UStAE:

"Entrepreneurs which own a plot located inland and which rent or intent to rent this plot are to be considered as residents."

Hence, a foreign property company with turnover from letting subject to VAT has to file for a VAT registration in Germany and to file preliminary VAT returns and annual VAT returns. The tax authorities assume in this case that a propco is to be considered as resident in Germany and consequently founds a permanent establishment for VAT purposes.

Now ECJ has decided in a current verdict very clearly that the letting of a property without own personnel “on site” does not represent a fix establishment and consequently does not cause a permanent establishment for VAT purposes (ECJ dated 03 June 2021, C-931/19).

Consequently, this means that foreign propcos with properties located inland are not to be treated as domestic residents if no own personnel is established “on site”. Hence a registration for VAT purposes in the country where the respective property is located would not be possible. This would consequently mean that foreign propcos need to apply for the reverse charge mechanism towards the vatable tenant. However, if the propcos erroneously still charge VAT on their invoices to the tenant it would have to be considered as unjustified disclosure of VAT (in Germany as per § 14c (1) UStG). Hence, the VAT would be owed by the propco but the tenant would not be entitled to input VAT deduction.

A further consequence would be that for the propco an input tax deduction would no longer be possible in the country in which the property is located and that only the complicated special VAT reclaim procedure (“Vorsteuervergütungsverfahren”) would be applicable .

It is not clear yet if the German tax authorities will, based on the ECJ decision, examine and adjust the aforementioned passages of the German VAT guidelines. In any case a protection of trust for the taxation periods until the respective adjustment of the guidelines is required. If such an adjustment is carried out, the foreign propcos need to significantly adapt their processes for the letting of properties subject to VAT.

Jens Müller

1. COVID-19 Pandemic in the Federal Republic of Germany

The "coronavirus" or "COVID-19 pandemic" issue (hereinafter "Covid-19 Pandemic") has been given considerable attention in real estate law in recent months.

Due to the Covid-19 Pandemic and its consequences, Germany first imposed a coronavirus lockdown, to be followed by the so-called "federal emergency brake". The federal emergency brake which came into force on 23 April 2021 amended the Infection Protection Act (IfSG) in Germany. The regulation of the federal emergency brake stipulates that as soon as a district or municipality in Germany exceeds an incidence rate of 100 for three consecutive days, additional, uniform federal measures will apply in these districts as of two days later. The restrictions of the coronavirus lockdown and the federal emergency brake include, among others, the closure of restaurants, the hospitality industry, leisure and cultural centres and retail outlets, with the exception of stores for daily needs, such as supermarkets, drugstores or pharmacies.

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 (hereinafter "coronavirus-related closure orders"). This is because nearly all commercial leases are affected by the impact of the Covid-19 Pandemic. In view of the increasing number of coronavirus-related closure orders, there is uncertainty due to claims arising as a result of non-compliance with contractually agreed obligations, such as the reduction or suspension of rent payments.

By now, a number of rulings have been issued in connection with coronavirus-related closure orders in the Covid-19 Pandemic, so that some case law could be established. However, the Federal Supreme Court (BGH) has not yet made a decision. This memorandum contains an overview of the main regulations on commercial leases (see item 3), current case law on commercial leases during the Covid-19 Pandemic (see item 4) and our legal advisory services (see item 5).

2. Summary

The Covid-19 Pandemic poses major challenges, particularly for commercial lessees who have had to close or limit their business operations due to a coronavirus-related closure order, at the latest since the lockdown. According to prevailing judicial decisions until now, commercial lessees have neither a right to reduce rent under section 536 of the German Civil Code (BGB) nor a right to reduce rent due to an impossibility under section 275 BGB. With Article 240 section 7 Introductory Act to the German Civil Code (EGBGB) in connection with section 313 BGB on the interference with the basis of the transaction of lease agreements, however, the instrument of the interference with the basis of the transaction facilitates a contractual adjustment. The new regulation establishes a presumption that the Covid-19 Pandemic and coronavirus-related measures lead to a serious interference with the basis of the transaction. However, this does not say anything about whether the other requirements of section 313 BGB are met. The commercial lessee must also demonstrate and, in the event of a dispute, prove that the requirements of section 313 BGB are met and that there is a right to adjustment of the agreement. The decisive factor for an adjustment of the agreement is the reasonableness. In order to determine how reasonable such an adjustment would be, all interests must be weighed extensively. According to the jurisdiction of the highest courts, the aim is to achieve an optimum balance of interests with the smallest possible reduction or increase in a liability.

Since there has not yet been any supreme court ruling on this subject by the Federal Court of Justice and the courts to date have ruled inconsistently, commercial lessees who withhold rent during coronavirus-related closure orders continue to run the risk of being sued for payment and, in the case of lessor-friendly rulings, of being ordered to pay. Likewise, lessors face the risk of losing an action for payment in the event of lessee-friendly judgments. In this case, we advise our clients primarily to find an amicable solution and to conclude supplements, deferral agreements or instalment payment agreements.

3. The Covid-19 Pandemic and its consequences for commercial leases

An increasing number of commercial property lessors are being faced with requests from commercial lessees for rent reductions due to coronavirus-related closure orders, who are struggling with drops in sales due to the Covid-19 Pandemic. There is legal uncertainty among many commercial lessees despite legal regulations and obligations to pay rent. Here, many commercial lessees assume that they have the right to reduce or even completely withhold rent for the period of the coronavirus-related closure order.

Still, a rent reduction in the case of coronavirus-related closure orders is neither regulated by law nor have German court decided them to date. The majority of German courts dealing with coronavirus cases have ruled that ‑ in accordance with the general and real estate law warranty rights and rights to influence a legal relationship ‑ there is not generally a right of commercial lessees to a rent reduction under section 536 BGB (cf. item 3.1), or impossibility under section 275 BGB (cf. item 3.2) during the coronavirus lockdown. Instead, case law revealed that commercial lessees can only demand an adjustment of the lease agreement ("Adjustment of the Agreement") pursuant to section 313 (1) BGB in exceptional cases due to coronavirus-related closure orders. In addition, a new statutory provision (Article 240 section 7 EGBGB in conjunction with section 313 BGB) was issued which contains a statutory presumption that the coronavirus lockdown and the coronavirus-related closure orders constitute an interference with the basis of the transaction pursuant to section 313 BGB (cf. item 3.3). This memorandum presents the respective court decisions in item 4. In detail:

3.1 Rent Reduction Right, Section 536 BGB

The right to rent reduction is regulated in section 536 BGB. According to section 536 (1) BGB, rent may generally be reduced if the leased property has a defect which restricts significantly or removes its suitability for the contractually agreed use. According to the prevailing opinion of German courts, however, the coronavirus-related closure order does not represent a defect of the leased object entitling to a rent reduction and does not justify a right to rent reduction.

In this regard, it is explained that although impediments to use and restrictions - such as the coronavirus-related closure order - can lead to a defect. According to judgments of the Federal Court of Justice (cf. BGH, decision of 13 July 2011 - XII ZR 189/09), a requirement is, however, that the restrictions of the leased 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 statutory intervention or prohibition does not generally restrict the use of the leased property, its location or condition but rather the type of business operations of the commercial lessee. Therefore, according to case law, the commercial property as leased object is also suitable for use during the coronavirus-related closure. Also, in the opinion of the Federal Court of Justice, the commercial lessee bears the risk of use. The lessee must take into account the fact that subsequent legislative or official measures may have an adverse effect on commercial operations and that profit expectations may, as a result, not be fulfilled (cf. BGH, decision of 13 July 2011 - XII ZR 189/09).

3.2 Impossibility, Section 275 BGB

As a reason for rent reduction, several commercial lessees also argued that the coronavirus-related closure orders established an impossibility in terms of section 275 BGB.

Section 275 BGB regulates the impossibility. However, impossibility does not occur as soon as the performance of the service is impeded, but only when it becomes impossible for the lessor to perform the service. Against this background, the owed assignment of use of the leased object for the contractually agreed rental purpose would have to be completely or partially impossible. If one were to assume that the coronavirus-related closure orders lead to an objective legal impossibility of using the commercial property pursuant to section 275 (1) BGB, then the lessee of that commercial property would consequently no longer be obliged to pay rent by way of the conditional synallagma from section 326 (1) sentence 1 half sentence 1 BGB.

According to the prevailing opinion of the German courts, an impossibility under section 275 BGB was however rejected. The courts argued that a coronavirus-related closure of the business premises exclusively affects the lessee's use of the commercial property but does not change the lessor's obligation to provide use of the premises. By making the leased property available to the lessee of the commercial property in a condition suitable for use, the lessor fulfils the main obligation. The circumstance that the lessee of the commercial property may not use it as intended by the lessee is not due to the commercial property itself. The obligation in return to pay rent is thus not waived due to an impossibility under section 275 BGB.

3.3 Interference with the Basis of the Transaction, Section 313 BGB, New Regulation Article 240 Section 7 EGBGB

Finally, the German courts increasingly often deal with "interference with the basis of the transaction" under section 313 BGB. Until today, judgements on the adjustment of the rent payment obligation in accordance with the principles of interference with the basis of the transaction in case of coronavirus-related closure orders and sales losses have not been uniform, as is the literature published on the subject.

While individual lessor-friendly rulings of regional courts which rejected a claim of the commercial lessee to rent adjustment were issued at the beginning of 2020, since then several regional courts and higher regional courts have affirmed a claim of commercial lessees to rent adjustment according to the principles of interference with the basis of the transaction at the end of 2020 and the beginning of 2021.

Due to a new regulation of Article 240 section 7 EGBGB in conjunction with section 313 BGB, a legal presumption was established to the effect that coronavirus-related closure orders lead to a serious change in the contractual basis between the parties to the lease and thus open up the scope of application for a "contractual adjustment" Nevertheless, it is still necessary to balance interests for a possible adjustment of contract. It depends on the individual case whether the requirements for a reduction of rent are met. There is no automatic rent reduction. In detail:

a) Section 313 BGB

A provision deviating from the principle pacta sunt servanda is the principle of interference with the basis of the transaction pursuant to section 313 BGB. Interference is provisional upon:

• Circumstances which became the basis of a contract have significantly changed since the contract was entered into (real element),
• The parties would not have entered into the contract or would have entered into it with different contents if they had foreseen this change (hypothetical element), and
• Taking account of all the circumstances of the specific case, in particular the contractual or statutory distribution of risk, one of the parties cannot reasonably be expected to uphold the contract without alteration (normative element).

The aforementioned circumstances must therefore have changed seriously after the conclusion of the contract. These must be circumstances that constitute the basis of the contract but have not become contents of the contract. The legal consequence of section 313 BGB is, at first, an adjustment of the contract insofar as, taking account of all the circumstances of the specific case, in particular the contractual or statutory distribution of risk, one of the parties cannot reasonably be expected to uphold the contract without alteration. If adaptation of the contract is not possible or one party cannot reasonably be expected to accept it, the disadvantaged party may revoke the contract. (cf. Item. 3.4).

b) Article 240 Section 7 EGBGB – Statutory presumption

Before the new regulation of Article 240 section 7 EGBGB came into force, the courts had differing opinions as to whether the Covid-19 Pandemic and its consequences - in particular the official closure orders and the loss of sales - were to be regarded as an interference with the basis of the transaction. The new regulation then established a so-called "presumption rule" regarding the real element. In detail:

(i) The new regulation

In December 2020, the legislator introduced the new regulation of Article 240 section 7 EGBGB on the handling of commercial leases in the event of coronavirus-related closure orders. The applicability of the new regulation is limited to lessees of land or premises that are not residential premises but are/were not usable for the lessee's business or were usable only with significant restrictions as a result of government measures to combat the Covid-19 Pandemic. The new regulation of Article 240 section 7 EGBGB now stipulates that the provisions on an interference with the basis of the transaction are applicable in the special situation of the Covid-19 Pandemic.

(ii) Presumption rule

This is based on the "presumption rule". The presumption only applies to the real element from section 313 BGB and is rebuttable. Specifically, it is now presumed that a circumstance in terms of section 313 (1) BGB which has become the basis of the lease agreement has changed significantly after conclusion of the agreement.

However, this does not result in an automatic rent reduction or an automatic right of the lessee to withhold rent. In addition, the presumption does not apply in cases where the lease was concluded at a time when the spread of the Covid-19 Pandemic had already been foreseeable. The idea of the new regulation is to simplify negotiations between commercial lessees and owners.

However, the presumption only applies to the so-called real element and not to the other elements of section 313 (1) BGB. If the requirements for the presumption rule are met, it can be assumed that the real basis of the lease agreement has changed seriously. Nevertheless, the lessee must fulfil the other requirements of section 313 (1) BGB, as these remain unaffected by the new regulation. The commercial lessee must still present the hypothetical and normative elements and, in the event of a dispute, prove them.

As to the normative element, it must therefore also be examined in the future ‑ in each specific individual case ‑ whether it is economically reasonable for the lessee to maintain the unchanged contract and pay rent in full. The lessee bears the burden of presentation and proof. Thus, interests must be weighed, taking into account all circumstances, in particular the advantages and disadvantages. Relevant factors may be how long the lease agreement has already existed and whether it has been possible to create reserves in recent years. In addition, possible public or other grants have to be taken into account as well as saved expenses, such as short-time allowance or compensations, such as through online trading.

c) Consideration of the circumstances in the individual case

An automatism that commercial lessees may demand a reduction of rent or any other adjustment of the agreement in case of coronavirus-related measures, however, is not implied by the new regulation. Since, in principle, only those legal consequences can be sought which bring the interests of both contracting parties worthy of protection into an appropriate balance. Consequently, an overcompensation is not granted. For instance deferral agreements, agreements on instalment payments, termination agreements as well as the reductions of leased areas etc. are also possible.

In the course of a comprehensive consideration of the circumstances of the individual case it then has to be decided whether the rent payment has to be adjusted in the specific case. Factors relevant to the consideration include:

• the reasonableness of the full rent payment for the commercial lessee in consideration of the lessee's reserves,
• the reasonableness of the reduction of rent for the lessor,
• amount of the rent in relation to the comparable rent customary at that location,
• the specific economic situation of both parties,
• the extent of the loss of sales suffered by the commercial lessee,
• as well as the amount and the time of state financial aid.

d) Threat to the existence and obligation to present the case in court of the commercial lessee

An unreasonableness within the meaning of section 313 (1) BGB has to be assumed in the course of the above-mentioned balancing of interests if the full payment either destroyed the existence of the commercial lessee or impaired it so seriously that an adjustment of the agreement was required even taking into account the legitimate interests of the lessor.

The commercial lessee then has to provide a detailed justification of the threat to the existence - for instance, in the opinion of the Higher Regional Court of Karlsruhe (OLG Karlsruhe, decision of 24 February 2011, 7 U 109/20). For this purpose, it is relevant:

• to what extent revenues have declined,
• which commercial compensations have been possible for the lessee e.g. through online trading,
• to what extent the commercial lessee has obtained state aid,
• which expenses were saved through short-term work or through a reduced purchase of goods as well as,
• whether reserves were built up.

In addition, the lessee also has to submit relevant documents. In particular, they include:

• (monthly) economic analyses,
• balance sheets,
• turnover sheets,
• tax returns,
• tax statements,
• profit and loss statements,
• purchase books,
• documents concerning the application for and granting of state aid (grants).

Pursuant to the decision of another court, such as the Higher Regional Court of Berlin  (KG Berlin, decision of 1 April 2021, 8 U 1099/20) a concrete threat to the existence for the lessee, however, does not have to be positively determined on the basis of his business data. Rather, the threat to the existence already has to be assumed if an ordered closure lasts for one month or longer.

3.4 Termination

If an adjustment of the agreement is not possible, section 313 BGB additionally provides for the (unilateral) termination of the agreement as a further consequence. The prerequisite is that the termination of the lease agreement is the only option to avert the threat to the lessee's existence. However, alternative measures previously have to be taken in order to improve the economic situation of the lessee. The following measures may be considered:

• the waiver of individual elements of the rent (e.g. administrative expenses),
• the reduction of (total) rent by a certain percentage, whereby in this case a provision should be made for the accounting of operating costs due by the end of the year because of the reduced advance payments.
• maintaining the advance payments for operating costs and reduction of base rent.

4. Case law on the commercial lease law in the Covid-19 Pandemic

There are nearly 25 current decisions of the regional courts and higher regional courts which have dealt with coronavirus-related closure orders during the Covid-19 Pandemic and the interests of the commercial leasing parties. After coming into force of the new regulation of Article 240 section 7 EGBGB, however, there were only six crucial decisions of the German courts which carried out a different application of section 313 BGB as well as consideration in the individual case. Five of the six courts decided in favour of the lessor and refused an adjustment of the agreement. As justification of the decisions favourable to lessors, the five courts essentially stated that it was only unreasonable for the commercial lessees on the basis of frustration of purpose to pay full rent if their claims destroyed their existence or at least seriously impaired their economic progress, and also the interests of the lessor allowed an adjustment of the agreement. For this purpose, the circumstances would have to be examined in detail. For the balancing of interests in the individual case, it had to be taken into account whether a decrease in sales, possible compensations through online trading or through public benefits, saved expenses, e.g. through short-term work as well as persistent assets through goods available for sale further on had taken place.

In all five of the proceedings, this has no been demonstrated and proven by the lessee.

A fundamental decision by the Federal Supreme Court (BGH) would be desirable in view of the extremely opposing arguments of the higher courts concerning the application of the legal concept of frustration of purpose in the course of coronavirus-related closures of operations. It is not yet possible to forecast whether and when such a fundamental decision will come.

5. Our approach

The parties of commercial leases have to live with a legal uncertainty with respect to the assessment of the amount of rent after coronavirus-related closures of operations until a decision has been made by the Federal Supreme Court. In any case, we advise the parties to cooperate with each other at first and to find an amicable solution. In this context, we advise and assist the parties with the preparation of supplements, deferral agreements or instalment payment agreements.

If the parties agree on a reduction of rent, this has to meet the written form requirement pursuant to section 550 BGB and has to be documented in a respective supplement if the term of the adjustment of the agreement shall last longer than one year, or if other obligations or changes to the lease agreement are regulated which should continue to exist for the duration of more than a year. In case of supplements and new lease agreements, it is advisable for the lessor to include a standard "coronavirus clause" in the agreements. This clause can ensure the necessary flexibility in case of dispute.

6. Conclusion

The new regulation of Article 240 section 7 EGBGB quickly reveals, as a result, that furthermore many questions remain unanswered since it has to be clarified in each individual case whether all factual requirements of section 313 BGB are met for an adjustment of the agreement pursuant to the principles of the interference with the basis of the transaction.

Furthermore, we advise all lessors - in particular such lessors with current debt financing of the commercial properties concerned - not to prematurely agree to a request for a rent reduction of their commercial lessees, especially since the coronavirus-related economic disadvantages are often not substantiated in sufficient detail by the lessees. Nevertheless, we also recognise that the case law is not consistent and that legal disputes may entail risks for our clients, since some regional courts and higher regional courts also have rendered judgments in favour of lessees. To date, there is also no high court decision of the Federal Supreme Court on this matter. (31 May 2021)

Klaus Beine
Dr Angela Kogan

In the context of Section 313 BGB, the Regional Court emphasised the principle of contractual fidelity. Even in the event that event facilities cannot be used as a result of pandemic-related contact restrictions, an interference with the basis of a transaction can generally be assumed. However, it was initially up to the lessor and the lessee to find a solution in line with their interests, such as agreeing on an alternative date, within the framework of the adjustment of the contract according to Section 313 BGB. A lessee's right to withdraw from the contract and consequently the non-payment of the contractually agreed rent is given only in exceptional cases in which a lessee cannot reasonably be expected to adhere to the contract.

Facts

The lessees, a wedding couple, had booked premises in the lessor's castle to hold their wedding reception, which was to take place in June 2020. Due to the official corona measures, in particular the imposed contact restrictions, the wedding celebration could not take place as planned. The lessor therefore offered the couple several alternative dates in the run-up to the wedding date, all of which the lessees refused. After the lessor demanded payment of the rent from the couple, the couple claimed that the lessor had not fulfilled his obligation to perform. The purpose of the contract had not been achieved, as it had been about celebrating a wedding in the rooms. Alternatively, the lessees declared their withdrawal from the contract. The lessor then made a claim for payment against the lessees. With success!

Decision

The Regional Court Munich I ordered the lessees to pay the rent in the full amount.

The Regional Court explained that the lessor's performance had neither become impossible nor did the couple have a right to withdraw from the contract. Since the lessor's main obligation to perform had not been to organise the wedding, but to provide the facilities, and since this in itself had not become impossible due to the contact restrictions, there was no case of impossibility pursuant to Section 275 BGB. In the court's view, it is hence irrelevant which specific use the couple had intended to make of the premises. The risk that the success intended by the rental would be realised lay with the lessee.

The court also denied the lessees' right to withdraw from the contract. It did indeed assume a serious change of circumstances after the conclusion of the contract and thus an interference with the basis of the transaction within the meaning of Section 313 BGB. Nevertheless, the Regional Court emphasised that at first the principle of contractual fidelity applied. Thus, an interference with the basis of the transaction always leads first to a claim for adjustment of the contract and, if this is unreasonable, only second to a right to withdraw from the contract.

The fact that the lessor had sought contact at an early stage and had offered the lessees several alternative dates did not speak in favour of an unreasonable adjustment of the contract in the present case. Rather, the lessees had refused to find a solution that was in line with their interests and had unilaterally pursued the goal of terminating the contract.

Outlook

The decision of the Munich Regional Court I strengthens the position of commercial lessors. The fact that the Regional Court sets high hurdles for the lessee's withdrawal and affirms the lessee's obligation to pay, not only in the case of continuing obligations, but also in the case of one-time events and functions (in this case a wedding), should make things easier for lessors. Here, too, however, the circumstances of the individual case are always decisive for the adjustment of the contract according to Section 313 BGB. In any case, commercial lessors of event facilities are advised to contact the lessees in good time and seek an amicable solution, ideally combined with the offer of alternative dates.

Lena Cebulla

Dr. Angela Kogan

The article is available on Russian in the area below.

Only yesterday we gave you an update on the current decisions in our blog post in our blog post "One Year of Commercial Lease Law in the Pandemic - an Overview". For the first time, we were also able to report on two decisions of the courts of instance, namely the Higher Regional Courts of Karlsruhe and Dresden, which, however, ruled with different results.

In the meantime, the Munich Higher Regional Court has also given its opinion, although not with a judgement, but with a reference order (Hinweisbeschluss), which means that a corresponding judgment with the same wording can be expected soon, at least if the proceedings are continued. The Munich Higher Regional Court - in conclusion, following the case law of the Karlsruhe Higher Regional Court - is of the opinion that a pandemic-related operating ban neither constitutes a defect of the rental object nor, in the specific case, a claim to a reduction of the rent or deferment. The reference decision is astounding and noteworthy because of the detailed reasoning, which thoroughly and convincingly addresses the arguments previously discussed in case law and literature.

In essence, the Munich Higher Regional Court substantiates its reference decision as follows:

1. No defect of the leased property and thus no rent reduction according to Section 536 of the German Civil Code (BGB)

• Although restrictions on use imposed by the authorities can also constitute a defect within the meaning of Section 536 BGB, the prerequisite for this is that the restriction on use is directly related to the specific quality, condition or location of the leased property. The prohibition ordered by the authorities is not related in such a way, as the corresponding general order is not tied to the nature of one or certain leased properties or their condition. Since the general order applied to the whole of Bavaria, the location of the leased property is also of no relevance.
• And the agreed lease purpose is also irrelevant. In case of doubt, an honest lessee may not understand his lessor's promise of performance in relation to the agreed purpose of the lease as meaning that the lessor intends to guarantee the lessee the agreed use under all conceivable circumstances. Thus, in the present case, the lessee could not understand the agreement of the purpose of the lease "for use as sales and storage premises of a retail shop" as meaning that the lessor had intended to assume an unconditional obligation to indemnify in the event of a pandemic-related prohibition of opening.

2. No impossibility of the transfer of use and no lapse of the obligation to pay rent pursuant to Sections 275, 326 BGB

• A lessee cannot take the agreement of a specific lease purpose to mean that the lessor assumes the procurement risk for the upkeep of a general legal situation which has no connection with the nature of the leased property.
• Moreover, the lease agreement does not create a duty on the part of the lessor to prevent or remove a pandemic-related ban on opening in order to enable the lessee to operate business. The lessor only assumes the risk of changes in the legal conditions affecting the specific nature of the leased property.

3. No claim for adjustment pursuant to Section 313 BGB in the specific individual case at hand here

• After preliminary deliberation, the OLG Munich tends to hold that the scope of application of Section 313 BGB can in principle be applied. This is substantiated by the fact that the risk of being able to operate a business in the leased property with the rental purpose agreed in the rental agreement at all, does not fall exclusively within the lessee's sphere of risk, since the prohibition of opening, which deprives the lessee of the possibility of making profits for a limited period of time, is in no way related to entrepreneurial decisions of the lessee.
• According to the Munich Higher Regional Court, the pandemic-related opening prohibitions have substantially changed circumstances within the meaning of Section 313 (1) BGB, which have become the basis of the lease. The parties would have concluded the agreement with a different content if they had foreseen this change. As a rule, the remaining use of the leased property (e.g. use as storage space and in certain individual cases as advertising with the brand) in no way justifies the agreed rent. If the closure lasts 5 weeks, this change of circumstances is substantial. Furthermore, the factual presumption in Article 240 Section 7 (1) German Introductory Act to the Civil Code (EGBGB) also speaks in favour of the assumption of a substantial change.
• In the specific case, however, it is not unreasonable for the lessee to adhere to the unchanged agreement for the following reasons:

(i) The mere fact that the basis of the transaction has ceased to exist does not entitle the parties to adjust the agreement pursuant to Section 313 (1) BGB. The application must be limited to exceptional cases in which adherence to the agreed provision would lead to an intolerable result that is simply incompatible with law and justice.

(ii) What is required is a comprehensive balancing of interests, taking into account all circumstances, in particular also the advantages that have been gained by the affected party in addition to the disadvantages resulting from the changes that have occurred.

(iii) A reduction of the rent cannot be made according to an objective scheme such as, for instance, a half reduction taking into account auxiliary services that have actually been rendered or were only possible. Rather, a consideration of all concrete circumstances of the individual case also requires the consideration of the economic situation of the lessee and also of the lessor. In this context, it may be relevant to consider the turnover and profit of the last few years and whether there was a way to set aside reserves. Since the economic situation of the lessee has to be taken into account, in the case of a group of companies it may even depend on the parent company of the group.

(iii) Ascertaining unreasonableness does not necessarily lead to a claim for a reduction of the rent. Rather, the claim can also be directed targeted at a deferral of the rent.

(iv) According to the Munich Higher Regional Court, a claim for a reduction of the rent cannot depend solely on the decline in turnover - contrary to what is sometimes asserted in literature. Applicability is limited to the exceptional cases in which the rent payment is unbearable for the lessee for economic reasons.

(v) In conclusion, the OLG Munich states that the legislator has in principle created the framework for support payments also for companies such as that of the lessee (around 2600 branches in Germany and 26,000 employees; the parent company also operates supermarkets and DIY stores). Hence, it is not evident that the obligation to pay the rent for April 2020 would lead to an intolerable result that is simply incompatible with law and justice. The lessee has not claimed that its case is an exception and that the special economic situation of the lessee makes it necessary to adjust or defer the rent despite the fact that a framework for assistance is available in principle.

According to the rulings of the Higher Regional Courts issued so far, taking into account the reference decision of the OLG Munich and thus also taking into account the argument that a schematic view is prohibited, the tendency utlined in our blog post of 5 February 2021 remains. In cases of pandemic-related restrictions, there is no defect in the leased property, a reduction in rent is thus ruled out; furthermore, a claim for adjustment of the agreement pursuant to Section 313 BGB will only be given in exceptional cases. In addition, there is the realisation that a claim for adjustment of the agreement in exceptional cases can "only" justify a deferral of the rent; the reduction of the rent is consequently not automatic under Section 313 BGB. However, it remains the understanding that the last word will not be spoken until the Federal Supreme Court has ruled on this. We will of course keep you updated on this.

Florian Baumann

Annalena Benz

+++++++++++++++++++++++++++++++++++++++++++++

Since the question arose as to whether commercial lessees are also obliged to pay rent during the pandemic, from a lawyer's point of view - regardless of one's own legal opinion - it has always remained that only time will tell which path case law will take. Now, eleven months later, the question of course slowly arises - which path has actually been taken?

A number of decisions now exist and one gets the impression that everyone can find a suitable case law citation for their "desired" legal outcome. However, a trend in case law is becoming apparent. In summary, the pivotal point in the presence of an officially ordered restriction is the question of the unreasonableness of keeping the unchanged contract, i.e. the question - is it unreasonable for the specific lessee to pay the full rent?

The courts agree that the question of unreasonableness depends on the economic situation of the lessee, with a certain tendency to the effect that the lessee must be in an economic emergency situation or threatened with existential consequences. In addition, the question is now also asked whether the lessee acted as a conscientious businessman in the previous business years and - as far as this would have been possible for him - formed reserves for bad times.

Of course, the last word on this legal question will not be spoken until the Federal Supreme Court has ruled on the matter. In the meantime, we will have to wait for further case law.

We will keep you informed and have summarised the previous decisions for you.

Annalena Benz

In summary:

The court denied the lessee's right to rent reduction on the grounds that there is no defect removing the suitability of the leased object for the contractually agreed use pursuant to section 536 (1) sentence 1 of the German Civil Code (BGB). A case of impossibility was also denied. Furthermore, the suitability of the leased object has not ceased to exist during the disputed period. The court also found that there is, in fact, an interference of the basis of the transaction according to section 313 BGB. Nevertheless, the court declares that the circumstances of this individual case result in a continued obligation to pay rent.

As in its ruling of 25 January 2021 - case 31 O 7743/20 (see our post of 4 February 2021), the Regional Court Munich I again justifies its decision also in its most recent ruling of 12 February 2021 with the lessee's obligation to create reserves to an appropriate and reasonable extent in order to be able to compensate for drops in sales.

With regard to branches, the court further stated that an examination of reasonableness within the meaning of section 313 (1) BGB must be directed at the specific branch. The turnover of other branches of the lessee is not relevant. In addition, state aid ‑ such as short-time allowance ‑ must be considered for the distribution of risk. The turnover from the online shop is also to be taken into account for the distribution of risk.

1. Facts

The fashion chain C&A (hereinafter referred to as "Lessee") operates several shops in Munich. When the retail chain had to close due to the lockdown in 2020 and the associated official restrictions (general order in the German State of Bavaria), C&A withheld rent for April 2020 in one of its Munich branches. C&A also did not pay rent for other branches. C&A argued that it had suffered a 30 percent turnover loss from the lockdown. The lessor demanded that C&A pay the full rent for the month of April 2020. The action was successful.

2. Decision

Again, the Regional Court Munich I ordered the Lessee to pay the rent in the full amount. The reasoning of the ruling of the Regional Court Munich I on department stores and retail establishments has many similarities to the one we already presented in our post of 4 February 2021 regarding the obligation to pay rent in hotel establishments during the coronavirus pandemic.

The court again established that section 313 BGB does apply. Article 240 section 7 Introductory Act to the German Civil Code (EGBGB) only has a clarifying function. Also, Article 240 section 2 EGBGB (moratorium) is not to be regarded as an exhaustive provision. Instead, the Lessee ‑ C&A ‑ is in principle entitled to amend the agreement pursuant to section 313 BGB. For such an amendment, a threat to the Lessee's existence is not mandatory. However, also in this decision, the court recognised an exceptional case due to the special circumstances of this individual case, which resulted in the consequence that C&A is obliged to pay rent in full. In the court's opinion, the figures submitted by C&A do not justify a reduction of the rent.

Innovations can be found in the most recent decision in the justification of the question of whether the distribution of risk should be limited to the specific department stores' branch or relate to the turnover of all branches. The court further discusses the limitation of the consideration of state benefits (here: short-time allowance).

2.1 Setting up reserves ‑ the Lessee's risk

In the court's opinion, the Lessee is generally liable for the Lessee's own solvency, irrespective of fault. It follows from this that the Lessee, as the debtor, must set up reserves to an appropriate and reasonable extent in order to be able to cushion a drop in turnover. The objection that reserves are quickly used up in a pandemic cannot be used to deny the obligation to build up reserves.

Many lessees often argue that they receive less or no state benefits because of their reserves. The court also discussed this circumstance, stating that the objection that enterprises with reserves receive less state benefits would still not explain why enterprises with sufficient reserves should be entitled to state benefits.

The objection that in times of negative interest rates reserves would lead to an uneconomic destruction of capital and that investments would be more profitable also ignores the fact that entrepreneurial decisions are solely within the entrepreneur's sphere of risk.

2.2 Distribution of risks in department stores ‑ Usability, turnover and online shops

Furthermore, with regard to the distribution of risks, the court again stated that in order to avoid overcompensation of the Lessee, a ratio of 50:50 is appropriate as a starting point because the economic risk of usability is borne by both parties (see our post of 4 February 2021). However, even if the 50:50 ratio established an appropriate starting point on the basis of the general valuations, the determination of the ratio had to be specifically justified on the basis of the circumstances of the individual case. It is necessary to balance the interests of both parties.

Applying these principles to the individual case at hand, the Regional Court Munich I ruled that C&A owed the full amount of rent for the month of April 2020. The court deducted 10 percent due to the Lessee's unrestricted usability and possession of the department stores' premises and limited the distribution of risk to the now remaining share of the monthly rent amounting to 90 percent.

Also the submitted details on the development of turnover led to a limitation of the distribution of risk. In this regard, the court explained that in the case of branches, first it must be determined whether the distribution of risk is to be limited to the specific branch, i.e. the department stores' at issue. The Lessee was not allowed to invoke losses from other branches against the lessor, and vice versa, the lessor may not invoke profits of the Lessee from other branches. It is further necessary to take into account that an overall consideration of the group result could lead to a significant disadvantage for one of the parties.

In April 2020, C&A had not achieved any turnover with the shop in dispute. Furthermore, C&A submitted that it had suffered a drop in turnover of between 30 percent and 100 percent. However, C&A was still able to operate an online shop. The court assumed a drop in turnover of 80 percent and stated that it seemed reasonable that one fifth of the turnover was generated by the online shop. The distribution of risk was therefore excluded in an amount of further 20 percent for the month of April 2020, and was now to be limited to 70 percent of the monthly rent.

2.3 Consideration of state benefits

Taking into account C&A's profits in the last three business years, which have not been published so far in the decision, C&A should, according to the court, have set up reserves in the amount of one month's rent. In addition, the short-time allowance paid to C&A is to be taken into account. The short-time allowance is to be deducted from the remaining distribution amount before the quota allocation. The subject of the distribution of risk in the present case is the rent for the month of April 2020 to an extent of 70 percent. The share of the short-time allowance to be taken into account must be deducted, resulting in an amount of 66.5 percent. Since the court had already declared at the beginning that it is reasonable to set up a reserve amounting to one month's rent, this applies "all the more" to setting up a reserve of two thirds of one month's rent. In the court's opinion, an amendment of the agreement in favour of C&A was therefore ruled out.

3. Legal Assessment

For section 313 BGB in conjunction with Article 240 section 7 EGBGB to apply, certain conditions must be met in an individual case, which the lessee must demonstrate and prove. The question of what an appropriate amendment of an agreement might look like in a specific case still requires balancing the mutual interests of the contractual parties.

The new regulation in Article 240 section 7 EGBGB in conjunction with section 313 BGB does not provide for an automatic amendment of the agreement. Also in this decision, the court states that "only that legal consequence can be sought which brings the interests of both contractual parties worthy of protection into an appropriate balance". Overcompensation is not granted.

The decision in dispute is interesting for department stores and retailers in that the court addresses the question of whether the distribution of risk must be limited to the specific shop, i.e. the department store in dispute, or to all of the Lessee's branches. The court explained that the Lessee may not invoke losses from other branches against the lessor, and vice versa, the lessor may not invoke profits of the Lessee from other branches. An examination of reasonableness within the meaning of section 313 (1) BGB must be directed at the specific branch. It is also a new development that the court takes into account state benefits, explaining that a crediting of the short-time allowance in the full amount is not justified, only up to a share corresponding to the quotient of rent and total liabilities. The short-time allowance is therefore to be deducted from the remaining distribution amount before the quota allocation.

It remains to be said that the ruling of the Regional Court Munich I provides initial guidance for a future handling of the rent of department stores and retail chains. In any case, it depends on the circumstances of the individual case with respect to an amendment of the agreement under section 313 BGB.

Klaus Beine

Dr. Angela Kogan

Now Federal Minister of Justice Christine Lambrecht announced that she intends to intervene specifically in German rental law by amending section 313 of the German Civil Code (BGB): "I would like to make it clear by law that this regularly means interference with the business basis for a rental relationship." State-imposed closure orders and restrictions are now to be understood as interference with the basis of the transaction. In concrete terms, this means that the lessee has a legal right to adjust the agreement or to withdraw from the contractual relationship. However, this would not automatically imply an entitlement to a rent reduction. "Of course, the individual case and the actual contractual agreements must always be examined," Lambrecht clarified. "If necessary, it must be determined by the courts whether an adjustment of the agreement can be demanded".

On the one hand, it seems surprising that the Federal Ministry of Justice, among other things, as the executive power, wishes to take on the task of determining legal terms or adapting the law. The Federal Ministry of Justice and Consumer Protection (BMJV) is in fact primarily a legislative ministry and it advises the other federal ministries in the preparation of their legislative projects. However, definitions of terms and judicial decisions are issued by the judicial power of the state. The judicial power has defined the concept of the basis of the transaction and the interference with the basis of the transaction as prerequisites of section 313 BGB over many years. Accordingly, the lessee has had to bear the risk of use. External influences on the lease were previously not a reason for a reduction in rent and did not constitute any interference with the business basis.

On the other hand, there are already several court decisions which - following the case law of the Federal Court of Justice - show that corona-based closures do not constitute a defect and therefore do not justify a right to a rent reduction and do not constitute an interference with the basis of the transaction. The decision of the Regional Court Munich I seems to be an anomaly in comparison to the current case law. In its decision, the court refers to outdated case law and clearly disregards the current case law of the Federal Court of Justice.

It remains to be seen how the case law develops and which legislative initiatives will be launched.

We will continue to report!

Klaus Beine

Dr Angela Kogan

With judgement from 22 September 2020, file ref 3 O 4495/20 the Regional Court of Munich I decided however surprisingly different. In the opinion of the Regional Court of Munich I, the rent must be reduced due to the varying severity of the impair-ment caused by the lockdown. Now, the court has decided in favour of the tenant. In this post we present the current decision of the Regional Court of Munich I:

1. Decision of the Regional Court of Munich I, Judgement of 22 September 2020 - 3 O 4495/20

The tenant - a furniture store with home accessories - leases business premises for a branch for use as sales and storage space in Munich. After the tenant received a coronavirus-related closure order, she stopped paying rent for April to June 2020. The landlord asserted the rent in court but without success.

With the "unusability" of the rented property due to the coronavirus-related closure, the Regional Court of Munich I not only assumed a rental defect, but also recognized in it an interference with the basis of the transaction according to Section 313 (1) and (2) of the German Civil Code (BGB).

The Regional Court of Munich I essentially draws its decision upon four judgments of the Supreme Court of the German Reich from the time of the First World War: (JW 1913, p. 596, no. 10; decision of 09 November 1915, Rep. III.145/15; decision of 15 February 1916, Rep. III.333/15; judgment of 26 October 1917, Rep. III 212/17). The court explained, drawing on the aforementioned rulings by the Court of the German Reich, that the prohibition of opening sales points for retail or hospitality purposes generally constitutes a defect in terms of Section 536 (1) sentence 1 German Civil Code (BGB), since the suitability of the leased property is removed or reduced during the closure and due to the unusability for the contractually agreed use.

2. Evaluation of the Decision of the Regional Court of Munich I

The Regional Court's decision disregards the jurisdiction of the Federal Court of Jus-tice (BGH) of the last decades. The Federal Court of Justice clarified that obstacles or restrictions of use issued under public law which oppose the contractual use of a leased object, according to the jurisdiction of the BGH, only constitute a material de-fect in terms of Sections 536 et seq. BGB if they are based on the specific nature of the leased object and are not caused by personal or operational circumstances of the lessee (BGH, NJW 2011, 3151 marginal no. 8 with reference to BGH, NJW 2009, 664; BGH, WM 1994, 1136; BGH, NJW 1992, 3226; BGH, NJW-RR 1992, 267; BGH, NJW 1988, 2664). In the case at hand, the operational closure is not based on a defect resulting from the specific nature of the leased property, but on the operational circumstances of the tenant and the relationship to the environment and the corona-virus situation. This is one of the tenant's risks. The leased property as such is there-fore still suitable for use. It is only the tenant's business success that is damaged.

The decision regarding an interference of the basis of the transaction in accordance with Section 313 BGB is also not understandable. Although it is true that the closure of a branch could well lead to an interference of the basis of the transaction of the concerned commercial lease agreement. However, according to Section 313 (1) BGB, the contractual distribution of risk must be taken into account when weighing up all circumstances of the individual case. The court did not comment on the distribution of risk. It only ruled that an interference of the transaction basis existed because the parties had not considered the coronavirus pandemic when concluding the lease agreement, and would then not have concluded the agreement. Contrary to the opin-ion of the Regional Court of Munich I, the tenant had to bear the risk of use of the leased property. A corresponding contractual assumption of risk by the tenant regu-larly excludes apart from extreme exceptional cases the possibility of invoking an interference of the transaction basis when realizing the risk. Extreme exceptions are not apparent in this case.

The decision of the Regional Court of Munich I cannot keep up with the judgement of the Regional Court of Frankfurt a. M. and the Regional Court of Heidelberg regarding the argumentation level. It even leaves the arguments which the Regional Court of Frankfurt a. M. presented and justified in detail largely unnoticed.

3. Outlook

The decision of the Regional Court of Munich I opposes, as explained above, the cur-rent decisions of the German Supreme Court and prevailing opinions in literature. It remains to be seen whether this decision kindles a change of thinking, and whether there will be a distribution of risk between landlord and tenant in the future in the case of coronavirus-related closures or restrictions.

Klaus Beine / Dr Angela Kogan

Overview

On 1 October 2020 the new regulation on reporting duties under the German Money Laundering Act - Real Estate (hereinafter the "Regulation") has come into force.

With the Regulation, the legislator seeks to extend the already existing duties to report suspicions of money laundering or terrorist financing in the area of real estate transactions to the Financial Intelligence Unit (FIU). The scope of application of the Regulation is the acquisition of domestic real estate effected or intended by means of an asset or share deal or other corporate transaction in which the domestic real estate is transferred to another legal entity, e.g. in the case of a merger (hereinafter "Acquisition Process").

From the legislator's point of view, the Regulation was needed because a national risk analysis conducted in 2019 identified the real estate sector as an area with increased money laundering risks.

The Regulation is directed, inter alia, at lawyers, notaries and tax advisors (hereinafter "Obliged Parties") who are subject to money laundering obligations under section 2 para. 1 no. 10 or 12 of the German Money Laundering Act(GwG) and who assist in Acquisition Processes.

Facts subject to reporting

The Regulation covers certain facts which, according to the risk analysis from the point of view of the Federal Ministry of Finance, typically occur in the course of money laundering or which give rise to such suspicion.

The facts triggering the duty to report can be roughly classified as follows:

• Reference to risk states or lists of sanctions
• Irregularities relating to the parties involved in the Acquisition Process or the beneficial owners
• Irregularities with regard to representation
• Irregularities relating to price, purchase or payment methods

Reporting duty when referring to risk states or lists of sanctions

A duty to report does exist if a participant in the Acquisition Process or a beneficial owner is resident in a risk country or has an equally close relationship with a risk country. Mere nationality or birth in a risk country will not trigger the reporting duty. A duty to report does also exist if the object of the transaction or a bank account used in the Acquisition Process has a close connection to a risk country.

Risk countries include those classified by the European Union (EU) as "third countries with a high risk of money laundering" and those classified by the Financial Action Task Force (FATF) as "countries with strategic deficiencies". To facilitate this, the FIU has made available on its website the two lists of countries classified as high-risk countries. According to the current assessment of the EU and the FATF, the countries classified as high-risk countries include, inter alia, Bahamas, Iraq, Jamaica, Yemen, Korea, Panama, Syria.

Acquisition Processes with participants or beneficial owners who are on so-called sanctions lists of the EU, among others, are also subject to reporting requirements. These sanctions lists can also be consulted on the above-mentioned FIU website.

Reporting duty with regard to irregularities relating to the parties involved in the Acquisition Process or the beneficial owners

A duty to report does also exist if the parties involved in the Acquisition Process do not comply with their obligations to provide information and evidence under the German Money Laundering Act or if they knowingly provide incorrect or incomplete information on the identity of the parties involved or beneficial owners.

Fiduciary relationships without an obvious economic or other lawful purpose shall also trigger the reporting duty. Furthermore, criminal investigations and criminal proceedings for money laundering against persons involved in the Acquisition Process or beneficial owners and their convictions are subject to the reporting duty.

A situation triggering the duty to report is also deemed to exist if the Acquisition Process is grossly disproportionate to the income and financial circumstances of the seller, purchaser or beneficial owner.

A reporting duty also exists if it is clear from the ownership/control structure that the chain leads to the beneficial owner via a company domiciled in a third country and the beneficial owner is not resident in this third country. A third country is a country that is neither a member state of the EU nor a contracting state to the Agreement on the European Economic Area. A third country is in particular also Switzerland. Exceptionally, the duty to report shall not apply if the intermediary of this company has an obvious economic or lawful purpose.

Cross-border tax arrangements are also subject to the reporting duty if the Obliged Party participates in such arrangements as an intermediary in accordance with section 138d para. 1 German Fiscal Code (AO). This reporting duty exists in addition to the obligation to notify the Federal Central Tax Office of the tax planning.

Irregularities with regard to representation

A duty to report does also exist in the event of irregularities with regard to a representation. Such irregularities are to be assumed if

• a written power of attorney is not subsequently submitted within two months, or
• a false or falsified power of attorney is presented, or
• the basic relationship of the power of attorney is not identifiable or
• the power of attorney has been authenticated by employees of the consular post of the Federal Republic of Germany in a third country.

Irregularities relating to price, purchase or payment methods

A duty to report does also exist if the purchase price is to be paid in full or in part with cash in excess of EUR 10,000 or with cryptographic values. A bank account in a third country shall also constitute an irregularity requiring notification unless the registered office, domicile or habitual residence of the contracting party using the bank account is located in this third country.

There is also a reporting duty if the purchase price differs significantly from the actual market value. In particular, a significant deviation shall be deemed to exist if the purchase price is at least 25% above the market value. However, there is no obligation to determine the market value so that the duty to notify only applies if the significant deviation is obvious.

Furthermore there are reporting duties for

• full or partial payment prior to the conclusion of the legal transaction, provided that the payment amount is more than EUR 10,000 and the selling person is not a legal entity under public law
• Payments from or to a third party not involved in the Acquisition Process (exceptions include parties by virtue of office, former or current spouses or life partners, first and second degree relatives and their spouses or life partners, affiliated companies, creditors entered in the land register, legal entities under public law, domestic banks providing financing (foreign banks, provided that banking supervision comparable to that in Germany exists).
• Resale within three years with a significant price deviation (at least 25%) without a comprehensible reason.
• Selling back within three years to previous owner without a comprehensible reason.
• Use of a discretionary account (not a notary trust account) without comprehensible reason.

As soon as an Obliged Party is or becomes aware of one or more of the above-mentioned risk-generating circumstances, it is as a matter of principle obliged to report. However, the Obliged Party has no obligation to investigate the circumstances giving rise to the risk.

Exemptions from the reporting duty

The Regulation provides that the reporting duty should exceptionally not apply if there are special circumstances/reasons in individual cases which rule out the suspicion of money laundering or terrorist financing. Such a comprehensible reason should, for instance, be assumed in the case of a resale within three years to the previous owner when exercising a right of pre-emption or a statutory provision (e.g. contestation, withdrawal).

The facts which may clear the suspicion of money laundering must be documented by the Obliged Parties in accordance with the recording and retention obligations under money laundering law.

Notifications of suspicion and their consequences

If there are no facts to dispel the identified typified suspicion of money laundering or if doubts remain, the Obliged Party must immediately submit a so-called Suspicious Activity Report (SAR). The report must be made in electronic form to the FIU, a central office for financial transaction investigations set up within the Customs Criminal Investigation Office in Cologne.

As a consequence of the reporting duty, the Obliged Party (with the exception of transactions which cannot be delayed) is obliged to carry out the transaction at the earliest when it has received the approval of the FIU or the public prosecutor's office, or when the third working day after the report was made has passed without the FIU or the public prosecutor's office having prohibited the execution of the transaction (so-called "duty to stop").

Furthermore, the Obliged Party is prohibited from passing on information on reports to the parties involved in the Acquisition Process.

Relevance in practice

Uo to now, due to the general duty to report under 43 para. 1 GWG, only few suspicious transaction reports have been made by the Obliged Parties. This is due to the professional confidentiality obligations of the Obliged Parties in the client relationship, on the basis of which the Obliged Parties are not entitled to make a report.

The Regulation now sets out more far-reaching substantive legal elements. If these are given, the Obliged Parties must now report any suspicions they may have, contrary to their obligation of confidentiality.

In the event of a breach of this reporting duty, the Obliged Parties will be subject to a substantial fine of up to EUR 150,000 for simple breaches and up to EUR 1 million for serious or repeated breaches, or up to twice the economic benefit derived from the breach.

With this in mind, a much higher number of reports is to be expected in the future, especially in the real estate sector.

As of 27 October 2020

Volker Szpak
Petra Bolle

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

The current case law sees the operating risk exlcusively on the part of the commercial lessee. Thus, for example, the commercial lessee bears the risk of vacancies in his neighbourhood, realignment of roads, wrong sales expectations and also the risk for official orders, which have consequences for the leased object. Case law does not give the commercial lessee the right of reduction and, at present, he is also not entitled to adjustment due to frustration of contract. Only a termination of the lease could be considered in the event of impossibility to let.

Due to the official closing order for shops some well-known major lessees of business premises in Germany publicly announced to suspend the payment of rent for closed-down shops now in whole or in part. The legal principle and doctrine of frustration of contract, which has been codified in section 313 German Civil Code (BGB) since 2002, is now regularly discussed with regard to the impact of the corona crisis on contracts between enterprises. Also upon announcing the suspension of rental payments the doctrine of frustration of contract was stated as legal reason in addition to force majeure. What is meant here is always the "small" transaction basis where the circumstances relating to the respective, i.e. singular contract, are concerned.

Upon the verification of rights arising under the legal principle of frustration of contract it is asked whether a circumstance has become a transaction basis and whether insofar a serious change did occur which justifies an adjustment of the contract. A change is serious if, at least, one party had not concluded this contract or had not concluded the contract with such contents if it had been aware of the change. If only a risk is realised which has to be borne by one party, then the application of section 313 BGB is excluded. This can be the case in the event of a contractual assumption of risk or in the event of a normative risk allocation. As a rule, the risk of usability of the purchased objects rests with the purchaser. As already described, the lessee of business premises regularly bears the operating risk. In principle, rights based on frustration of contract only exist if the unchanged performance of the contract is unreasonable and unacceptable for the other party. According to a common phrase of case law unreasonableness is given if adherence to the contract ensues intolerable results which cannot be reconciled with the idea of justice and law. This requires a comprehensive weighing of interests taking into account all circumstances, also advantages accruing to a party besides the disadvantages.

The question is whether the principle of the "small transaction basis" is appropriate to find legal consequences reasonable in the corona crisis for a great number of contracts between commercial lessors and lessees. If the parties had known that the corona crisis is coming and, along with it, numerous official shop and business closures (how long will they last?), what would have been agreed upon by the parties? This question can hardly be answered. Questions of general distress and hardship can hardly be answered properly by making reference to civil law and current case law. In view of the rapid development of the corona virus and the constantly new counter-measures of the legislator and the authorities and their unforeseeable duration, cascade effects may occur even at short notice, which are interrupting supply chains, triggering off a great number of insolvencies and incurring viability problems for the banks.

Therefore, the principle of the "major transaction basis" comes into consideration. This means the expectation that the fundamental political, economic and social framework conditions will not be changed by revolution, war, expulsion or a (natural) catastrophe and that the social existence and livelihood will not be weakened. However, such a natural catastrophe might be given with the corona crisis. The global spread of COVID-19 was declared a pandemic on 11 March 2020 by the WHO. The German legislator determined the existence of a pandemic with the Law on the Mitigation of the Consequences of the COVID-19-Pandemic passed on 27 March 2020. The official measures, such as the closure of shops, are aimed at averting the pandemic risks.

What applies in the case of frustration of the "major transaction basis" (frustration of contract)? Primarily, the law applies. In the post-war period the contract assistance law was enacted for the protection of debtors and for the avoidance of corporate collapses. Today, the Law on the Mitigation of the Consequences of the COVID-19-Pandemic is applicable. The suspension of rental payments without replacement cannot be justified by this Law, since, presently, it allows only the temporary respite of rental payments (Article 240, section 2 Introductory Law to German Civil Code (EGBGB); moratorium).

Thus, the "major transaction basis" becomes relevant. In the post-war period the courts had chosen a rather pragmatic approach for the settlement of legal disputes and, in so doing, had taken the circumstance into account that the risk of the occurrence of such events cannot be attributed to none of the parties. Thus, according to a judgment of the Federal Supreme Court of 26 February 1957 the lessor had no complete maintenance obligation in case of exorbitant war damages. Pursuant to a judgment of the Regional Appeal Court of Hamburg of 24 June 1947 each party had to bear half of the damages caused by a destruction of leased premises by an air raid although the lessee had to bear the risk of the loss of the object by contract. These case law examples show a way how the question of commercial rental payments in case of the officially ordered closure of shops due to the COVID-19-pandemic could be handled. If there are no special circumstances advocating a transfer of the risk to one part, the risk will, in principle, be shared.

Dr Thomas Jilg

The legislator has reacted to the fact that in many places no owners' meetings can take place due to the corona pandemic, and for the time being has suspended the current regulations in the German Condominium Act on the term of office of condominium owners and on the preparation and adoption of a business plan.

The property manager last appointed within the meaning of the German Condominium Act (WEG) now remains in office until his or her dismissal or until a new manager is appointed. Furthermore, the last adopted business plan remains in force until a new business plan is adopted.

The special regulations concerning the term of office of the property manager under the WEG and the continuation of the business plan are limited until 31 December 2021.

Anja Fischer

However, invoking Force Majeure is not that simple.

Example: A construction company has to allow for certain cases of illness, e.g. influenza during winter.

Force Majeure with regard to the absence of employees caused by the coronavirus crisis can only be assumed if it exceeds the usual level of absences. Scattered cases of coronavirus infections are therefore probably not sufficient.

The situation can be assessed differently in the case of extensive quarantine measures, extensive confinements or even shutdowns of companies.

Employees returning to their home countries as a precautionary measure for fear of infection, or border closures must again be assessed differently, they are most likely not considered consequences of Force Majeure.

Above all, a consideration under aspects of the coronavirus crisis becomes difficult if a construction company has already been in default before March 2020, i.e. before the Federal Government has initiated the measures, and the Force Majeure is not, or only partly, the cause.

A case-by-case consideration is therefore unavoidable.

Klaus Beine
(Lawyer)

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