Is a Tenant entitled to a Reduction in their Commercial Lease?
The tenant is generally obliged to pay the rent per § 535(2) BGB. However, in exceptional cases, the rent may be reduced, or the obligation to pay may be waived completely. Given business closures, a rent reduction can be considered under § 536 BGB.
The prerequisite for this is the existence of a “defect in the rented property” or the absence of a required characteristic. A defect describes the deviation of the actual condition of the leased property from the contractually owed condition. Such a deviation is disadvantageous for the tenant. In this case, both actual circumstances and legal relationships concerning the leased property may constitute a defect. Therefore, it is necessary that the defect of the leased property directly impairs or affects its usability. (BGH, judgement of 15.10.2008 – XII ZR 1/07)
In the case of closure by the lessee on his own responsibility due to a decline in the number of customers, no defect in the commercial lease is generally apparent, as the property’s condition is not impaired and its suitability continues to exist. The obligation to pay the rent thus generally remains in force.
An official prohibition of operation is a measure under public law that results in the tenant not using the rented property (or use it as intended). According to the case-law of the German Federal Court of Justice, if such public law obstacles or restrictions to use prevent the contractual use of a leased object, they only cause a material defect if they are related to the specific nature of the leased object. On the other hand, they may not be caused by the personal or operational circumstances of the lessee. (BGH, ruling of 13.07.2011 – XII ZR 189/09)
However, the cause of the operating ban in times of the COVID-19 coronavirus crisis is usually not the nature of the leased property, i.e. the decisive factor is not where the operation takes place. Rather, it depends on the nature of the business there. The order of closure is differentiated according to the type of business. For example, the operation of systemically important facilities such as grocery stores, pharmacies and post offices is excluded from the prohibition. On the other hand, establishments whose goods or services are not necessary must generally be temporarily closed. Thus, operational circumstances are causal.
In the case of an official quarantine order, the cause is personal circumstances, namely the infection of one or more persons in the establishment. Here, too, the specific nature of the leased property is irrelevant to the order.
Consequently, as a rule, in such cases, no defect of the rental property can be assumed, and a claim by the tenant for a reduction in the cost of the commercial lease is excluded.
Can the Obligation to pay the Rent be Temporarily Waived due to Impossibility?
According to § 535 (1) BGB, the landlord is obliged by the lease agreement to grant the tenant the use of the leased property and to leave the leased property in a condition suitable for contractual use and to maintain it in this condition.
Frequently, a concrete purpose of the lease is agreed in commercial leases, such as using the leased object as a restaurant, bar, beauty and hairdressing salon or as a clothing shop. If the tenant cannot use the leased property following the contractually agreed purpose due to an officially ordered prohibition of operation, the landlord’s obligation to perform per § 275 (1) BGB may be considered objectively impossible, at least temporarily.
As a result, the tenant would be released from his counter-performance obligation, namely the payment of the rent, according to § 326(1) BGB. However, the decisive factor is the agreement on a specific rental purpose. For example, if the lease agreement only contains the far-reaching wording “to operate a retail shop”, the landlord could continue to allow the contractual use for the operation of non-banned retail shops despite the current operating prohibitions.
Is there a claim to Rent Reduction within the Scope of a (temporary) Contract Adjustment?
A rent reduction could be achieved by adjusting the rental agreement due to a disturbance of the business basis according to § 313(1) BGB, whereby it should be noted that the scope of application is limited to special exceptional situations.
It is assumed that circumstances that form the basis of the affected lease agreement have changed so seriously after the agreement that the parties would not have concluded the agreement or concluded it with a different content if this change had been foreseeable. In addition, it must be unreasonable for a party to adhere to the unchanged contract taking into account all circumstances of the specific case. In this context, the decisive factor is, in particular, who bears the risk of the disruption.
In the context of the commercial leases, the economically profitable use of the leased property is basically within the tenant’s risk area (BGH, ruling of 03.03.2010 – XII ZR 131/08). However, in the case of an official operating ban as a measure to combat the spread of the coronavirus, it is not as clear when it comes to the allocation of risk. After all, the tenant is completely prevented from using the property under the contract due to the measures taken.
Due to the operating risk of the tenant, a rent reduction due to a disturbance of the business will usually be rejected in the cases of business closures. Opening a business involves a degree of risk, and the allocation of risk here is on the renting business, not the provider of the commercial lease. For this reason, the legal system has pursued a rather restrictive application of § 313 BGB. However, in times of the COVID-19 coronavirus crisis, there are good arguments for adjusting the contract.
Is there a Possibility of Termination by the Tenant?
The tenant can terminate an open-ended commercial lease contract at any time in an orderly manner, observing the notice period. However, an extraordinary termination without notice for a good cause, according to § 543 (1) BGB, is generally rejected by the courts. A good cause in this sense means that the terminating party cannot reasonably be expected to continue the lease relationship until the end of the contract or a notice period. This involves taking all circumstances into account when it comes to the specific case and weighing the interests of both parties to the contract.
As a rule, this can only be affirmed if the reasons for termination are within the risk area of the party opposing termination (OLG Dresden, decision dated 8 February 2017, 5 U 1669/16). The fact that the lessee’s business operations are temporarily restricted or prohibited by the authorities is not within the landlord’s sphere of risk but within that of the tenant.
However, if the landlord prohibits using the commercial premises without an underlying official order, extraordinary termination for a good cause shall be considered.
Conclusion: What legal effects does the COVID-19 have on Commercial Leases?
According to § 536 BGB, a claim for rent reduction does not normally exist due to the lack of a defect in the rental object. In the event of officially ordered closures of operations, the temporary suspension of the obligation to pay rent may be considered if it is impossible for the Lessor to grant the Lessee use of the commercial premises for the contractually agreed purpose.
Additionally, in exceptional cases, there may also be a claim for contract adjustment due to disruption of the basis of the business per § 313 BGB. Thus a rent reduction may be brought about. A claim for damages against the landlord does not usually exist due to the lack of fault on his part.
At Schlun & Elseven Rechtsanwälte, our commercial lawyers are committed to providing continuous support and counsel to our clients throughout this crisis. Our offices are located in Cologne, Aachen and Düsseldorf, and we have conference rooms in Berlin, Munich, Hamburg, Stuttgart and Frankfurt. However, at the moment, we would urge our clients to contact us remotely as we can provide our services by phone, through email and by video conferencing. Our page: COVID-19 Coronavirus Crisis Center will provide our updates on the German legal system as this crisis develops.
Please visit the Robert Koch-Institut website for more general updates on the COVID-19 coronavirus crisis in Germany as they occur. Updates here can be found in English as well as German.
If you need help with issues around commercial leases due to this crisis, please contact our lawyers. We operate in several languages, including English. We will remain active through this crisis to ensure that our clients receive the assistance they deserve. Contact us today for further counsel.