COVID-19 as cessation of the basis of the contract

On the COVID-19 resolution dated 13 December 2020

On 13 December 2020, the Federal Chancellor and the heads of the federal states decided, among others, that for commercial tenancies and leases affected by government COVID-19 measures, it should be legally presumed that significant (use) restrictions as a result of the COVID-19 pandemic may constitute a serious change in the basis of the contract within the meaning of section 313 of the German Civil Code (BGB). This is intended to simplify negotiations between commercial tenants or leaseholders and owners (cf. paragraph 15 of the resolution).

We assess the resolution as follows:

  • No immediate change of the legal situation: The resolution does not yet entail a change of the legal situation. Therefore, it has no legal binding force itself. However, according to our knowledge, the Ministry of Justice is already working on a corresponding proposal to amend section 313 of the German Civil Code, which would then be applicable to commercial rent and leases.
  • Strengthening the negotiating position of tenants: Should the Bundestag actually pass a corresponding amendment to the law, this should strengthen the negotiating position of affected tenants with regard to a (temporary) adjustment of their lease agreements. For example, in order to counter tenant-side demands for a tenant decree, landlords would have to be able to justify that (i) the prerequisites of the presumption rule do not exist (i.e. no affectedness by government COVID-19 measures) or (ii) exceptional circumstances exist that contradict the presumption effect.
  • No statement on the content of the contract adjustment: Nothing would be said on the question of how affected tenancies are to be adjusted by the mere introduction of a legal presumption for the cessation of the basis of the contract. However, a claim by the tenant to reduce the rent or even to suspend the rent payment would have a good chance of success with reference to the statutory presumption. A right to terminate affected tenancies would still only exist if an adjustment of the contract was not possible or could not reasonably be expected of the tenant.
  • Possibly far-reaching consequential effects: In our view, the introduction of the planned statutory presumption could trigger an avalanche: Tenants do not pay rent or give extraordinary notice of termination, landlords can no longer service their financing, real estate prices for commercial real estate fall massively, banks increasingly default on payments, valuations of real estate financing have to be adjusted downwards, pension schemes with a real estate connection (especially pension funds, funds, private investors) come under pressure.

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