Commercial rent payments in Germany

Whether tenants are entitled to claims against their landlord in the event of pandemic-induced losses always depends on the individual case, also under German law. In particular, a distinction must be made according to the type and cause of the impact on the tenant and also according to the type of the respective rented property. Where, for example, shops, restaurants and hotels have had to close due to specific statutory or official decrees/orders (Schließungsanordnungen), must accordingly be treated differently from cases where tenants – despite having been able to keep their business open – have suffered a decline in customers or other losses as a general consequence of a lockdown etc.. Different again are cases where a tenant only claims losses due to the pandemic in general, without specific government measures having had any effect at all on the income of that tenant's business or whether the rented property could actually be used.

In any event, to date, any claims of the tenant's against the landlord are only conceivable in the first groups of cases mentioned, specifically if the rented property had to be closed due to COVID-19 as a result of government measures or if its use was restricted due to official decrees/orders. For these scenarios, a decision from the German Federal Court of Justice (Bundesgerichtshof – hereinafter "BGH") is now available.

The case before the BGH (case reference XII ZR 8/21) concerned a branch of a fashion discounter which had to close from 19 March to 19 April 2020 on the orders of the authorities. Due to this closure, the tenant did not pay any rent for the month of April. The landlord sued for payment of the full rent for the period during which the business was closed.

The BGH has rejected a simple 50/50 solution in this case. While both parties had been impacted by government action in the fight against the Covid-19 pandemic, neither side bore sole responsibility, the court said. However, splitting the rent in half was deemed too unspecific; the court felt that such a solution did not meet the normative requirement of section 313 (1) of the BGB, i.e. the reasonableness criterion.

As in other situations, determining whether it is unreasonable to hold the tenant to the original contract requires a comprehensive assessment in the event of a Covid-related business closure; all the circumstances of the specific case must be taken into account, the court stated.

It said that the detrimental effect on the tenant as a result of the business closure and the duration of the closure were key factors. The court concluded that, in the case of a commercial tenant, this negative impact would primarily consist of a measurable drop in sales during the closure. In favour of tenants, the BGH found that only the specific rental property needs to be considered, not any group sales, when looking at the decline. This means that any online sales should be ignored. With hospitality businesses, for example, on the other hand, off-site sales will be a factor. According to the BGH, the measures a tenant took, or was able to take, to reduce the anticipated losses during closure of the business may also be taken into account.

The financial advantages that the tenant gained through state payments to compensate for the impact of the pandemic must also be considered when assessing unreasonableness. Any payments made under a business insurance policy held by the tenant must likewise be taken into account, the court ruled. However, state support in the form of a loan should be disregarded when carrying out the required assessment, since this does not ultimately result in compensation for the tenant. The tenant’s economic survival or livelihood does not need to be at risk, the court added.

Lastly, the landlord’s interests must also be considered in the assessment.

Following the BGH’s judgment, it is clear that there is no simple solution to this problem. At all events, the risk of a business being closed for pandemic-related reasons cannot be transferred to the tenant alone by citing the risk associated with using the premises. The court case also clarified that when assessing the detrimental effect on the tenant, the decline in sales at the specific rental property is the crucial factor. It also established that the tenant’s economic survival or livelihood does not need to be at risk in order to be entitled to a rent adjustment. Nevertheless, it is now also clear that the tenant cannot simply claim a 50% reduction in rent due to being required to close by the authorities.