Germany

Updated on 31.03.2020

1. Is a lessee eligible for rent reduction due to a significant decline in footfall and consequently its turnover as a result of COVID-19?

Generally, a lessee is not entitled to do this unless explicitly agreed otherwise in the lease.

2. Is a lessee eligible to temporarily close its leased space - on its own initiative – and opt for rent reduction as a result of COVID-19?

A lessee may close the premises unless a duty to operate is agreed in the lease. However, a lessee is not entitled to reduce the rent if he decides to close.

3. Is a lessee eligible for rent reduction in the event its leased space is closed following an order by the Government as a result of COVID-19?

According to German case law, risks that are not linked to the leased premises usually must be borne by the lessees meaning that they may not abate the rent. However, it is hard to predict whether courts will stick to this view in those cases where the authorities have imposed bans preventing lessees to run their premises in line with the purpose agreed in the respective leases considering that neither the lessees nor the lessors are responsible for the underlying grounds of such bans.

4. What kind of security is generally provided by a tenant in connection with a lease, a bank guarantee, a deposit or otherwise?

Usually, a lessee may freely decide whether he wants to provide his lessor with a bank guarantee or cash deposit. The affiliates of major companies often push through guarantees or comfort letters of their parent companies or sign only leases without an obligation to deliver rent securities.

According to German case-law, risks that are not linked to the leased premises usually must be borne by the lessees meaning that they have no rights, including no termination rights, in principle. In the light of the severe economic consequences of the COVID-19 crisis, we cannot rule out that the courts will create such rights in those cases where the authorities have imposed bans preventing lessees to run their premises in line with the purpose agreed in the respective leases. In order to protect lessees against the risk of early termination for default of rent payment, a COVID-19 emergency law has been enacted on 27 March 2020 according to which a lessor is not allowed to extraordinarily terminate a lease only for the reason that a lessee fails to pay  the rent within the period from 1 April 2020 until 30 June 2020 and the non-payment is rooted in the Covid-19 pandemic; a lessor may only terminate for arrears piled up in this period if a lessee protected under the emergency law fails to settle the rent arrears by 30 June 2022.

Authors

Sebastian Orthmann
Dr. Sebastian Orthmann, EMBA
Rechtsanwalt | Fachanwalt für Handels- und Gesellschaftsrecht (Certified lawyer for commercial and corporate law) | Head of Real Estate & Public Group, CMS Germany
Andreas Otto
Dr. Andreas Otto
Rechtsanwalt, Notary Public | Global Co-Head of Real Estate & Construction Group, CMS