In our interconnected business world, the fallout from the COVID-19 coronavirus crisis will be felt in numerous areas. Difficulty in repaying real estate loans for companies and individuals is just one of these areas. The German state has taken some action in order to mitigate the difficulties which will unfold due to the crisis as we will outline later. In particular it involves provisions in the so-called “Corona Act” (the “Act on Mitigating the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Procedure Law”). However, for landlords in this situation this scenario will cause great challenges.
In this article we will examine a number of aspects relating to this issue and provide some insight as to how to proceed. The information provided here will give the reader a generalised overview of actions they can take; however, for more specialised assistance on the topic of real estate loans make sure to contact our firm directly using our contact details below this article.
If you have a particular issue or legal question concerning events related to the COVID-19 coronavirus, please contact our law office directly. Our lawyers can be reached by phone, email and also provide video conferencing options. For more legal information on the Corona crisis, please visit our Crisis Dashboard.
The Coronavirus-Act mentioned above is just one legislative step which the German government has taken to mitigate against the consequences of the fallout of this crisis. This legislation is part of a number of steps taken with the aim of easing the pressures on businesses who are facing difficulties of an unprecedented nature. These steps include allowing for the suspension of rent payments by tenants until June without having the landlord terminate their lease. This is of particular importance to those commercial tenants (see our article on “Commercial Leases and COVID-19 Coronavirus” for more information on this topic) who face major difficulties in the months to come.
The deferral of such rent payments does of course mean that they will eventually have to be paid. Difficulties making these payments may result in interest placed upon them. Tenants may have to resort to taking our loans from state-owned banks or other sources (see our article “Short-term Financial Assistance and COVID-19 Coronavirus” for greater insight).
The Coronavirus-Act does not permit the right for tenants to withdraw from or amend their agreements. This can only be arranged between the parties or through application for so by § 313 BGB. Such a decision before a court would be decided on a case-by-case basis and thus not one which tenants can easily rely on. How this provision will be ruled on following the current crisis remains to be seen. It is not inconceivable that some action will be taken concerning rent adjustments in the future.
Challenges Facing Landlords
For the owners of the real estate, this suspension of payments may prove challenging. Such income from commercial leases provides landlords with a major source of income. For real estate companies such income is vital for their cash flow. Even with the suspension of rent payments available to commercial tenants, in many cases it will be difficult for businesses to survive. The measures taken against COVID-19 coronavirus may be in the process of loosening but this will be a lengthy process. As well as that following the official loosening of measures it may take time for customers to return to these commercial enterprises in the same numbers they did prior to the crisis.
There is also no corresponding right for landlords to delay their re-payments to finance real estate loans. Even without the income arriving from their tenants, landlords do not have state protection from servicing their own loans. Therefore, landlords in this situation would be advised to meet with their creditors to keep them updated on the situation. Consulting with a commercial lawyer prior will be the best way to devise strategy when it comes to dealing with the matter. Working with a commercial lawyer may also allow for closer examination of the provisions within the current real estate loan agreements.
The borrower also runs the risk of having their contract terminated by the lender should they find themselves in arrears with the loan repayments. This can arise according to § 490(1) BGB:
“If there is or threatens to be a substantial deterioration in the financial circumstances of the borrower or in the value of a security given for the loan as a result of which the repayment of the loan is jeopardised even if the security is realised, the lender may give notice of termination of the loan agreement with immediate effect…”
In practice the lender must provide a warning before terminating and the borrower should be given the possibility to resolve the matter before such a step is taken. This step must also not be taken in bad faith.
Our Services: Real Estate Loans
At Schlun & Elseven Attorneys, our lawyers will support you through this crisis. We will provide comprehensive advice and assistance in preventing you from becoming over-indebted and in dealing with the fallout when it comes to financing real estate loans in the current crisis. Here are some of the services our lawyers can provide:
- Assistance with negotiations re. lease and financing agreements,
- Analysis of contracts in place concerning real estate loans,
- Legal advice regarding available governmental supports,
- Coordination of repayments,
- Negotiations with tenants relating to rent payments,
- Seeking of suspension / deferment of payment until income from rent can be legally sought.
For more specialised assistance with the specifics of your case make sure to contact our firm directly. Once our legal professionals have the circumstances of your situation made available to them they will be able to work in tandem with you to resolve the issue.
At Schlun & Elseven Attorneys, our corporate 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.
For updates on the COVID-19 coronavirus crisis in Germany as they occur please visit the Robert Koch-Institut website. Updates here can be found in English as well as German.
If you need further assistance with real estate loans due to this crisis then please contact our lawyers. We operate in a number of 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.