4 higher court decisions on the (non-)existence of Covid-19-related rent reduction claims of commercial tenants - 4 ways of solving the issue
News on Corona-related Rent Reductions
With the the introduction of the provision of Art. 240 § 7 EGBGB, the legislator intended to contribute to achieving clarity - however, the uncertainties with regard to rent reduction claims of commercial tenants against the background of the pandemic persist. The following article provides a brief overview of the current status of the case law of the higher regional courts.
At the end of 2020, the legislator introduced the provision of Art. 240 § 7 EGBGB (Introductory Act to the German Civil Code) on disturbances of the basis of tenancy and lease agreements. The declared aim of the legislator was to promote the willingness of the parties to tenancy agreements to negotiate and to create tailwind for negotiated solutions by creating a statutory presumption. At the same time, the new procedural acceleration requirement enshrined in Section 44 of the Introductory Act to the Code of Civil Procedure (EGZPO) is intended to give priority and accelerate proceedings on rent adjustments due to pandemic-related government restrictions. We had already reported on the new regulations (COVID 19 - Legislator decides in favor of commercial tenants/lessees and adopts statutory presumption).
Meanwhile, the question of the existence or non-existence of a commercial tenant's right to rent reduction during and in view of the Corona (SARS-CoV-2) pandemic-related lockdowns - pressing issue for commercial tenants and landlords alike - has reached the Higher Regional Courts.
In February and March 2021, several Higher Regional Court decisions were issued, namely decisions by the Higher Regional Courts of Munich, Dresden, Karlsruhe and Frankfurt. The courts dealt with cases in which landlords of retail stores (mostly from the textile trade) sued for payment of rent arrears. However, a uniform case law is not yet in sight, as the following brief overview of the relevant decisions OLG Dresden, judgment of February 24, 2021 - 5 U 1782/20 (not legally binding), OLG Munich, reference decision of February 17, 2021 - 32 U 6358/20, OLG Karlsruhe, judgment of February 24, 2020 - 7 U 109/20 (not legally binding) and OLG Frankfurt a. M., judgment of March 19, 2021 - 2 U 143/20 (not legally binding) shows. A clarification by the Federal Supreme Court remains to be seen.
I. No material defect of the rental object
Auf Mieterseite wurde zunächst damit argumentiert, dass die jeweilige gesetzlich angeordnete Schließung einen Mangel der Mietsache darstelle, weil der gewerbliche Mieter die MietsacOn the tenant's side, it was at first argued that the respective legally ordered closure constituted a defect of the leased property because the commercial tenant could not use the leased property as contractually agreed - e.g. as a salesroom - during the enforced closure. If a material defect existed, this would justify a reduction of the rent by up to 100%.
While district courts in part last year still assumed that the tenant could reduce the rent in accordance with Section 536 (1) of the German Civil Code (Bürgerliches Gesetzbuch - BGB) because in any case the Corona-related complete closure of stores constituted a defect in the leased business, the higher regional courts in the above-mentioned decisions conclude, at least in the final analysis, that the government-ordered closures do not lead to a defect in the leased property .
The Higher Regional Court of Karlsruhe and the Higher Regional Court of Munich essentially justify this - with reference to earlier BGH decisions - by stating that official impediments to use only justify the assumption of a defect if they are based on the specific nature of the rental object. However, this was not the case here, as the closure orders were not linked to the substance, condition or spatial location of the rented property, but affected a large number of differing trades throughout the country. The Frankfurt Higher Regional Court argued similarly. The rental object had not shown any defects entitling to a reduction. The rooms were still suitable for the contractually agreed use. The "restrictions ordered by the authorities did not have an object-related effect, but related in terms of content to the operation of the defendant as tenant".
The reasoning of the OLG Dresden appears somewhat contradictory on this point. The court essentially argues that the existence or non-existence of a defect depends on the condition of the rental object required to fulfill the contractual use. In this regard, the contracting parties had not made any express provision in the case decided. Since neither the tenant nor the landlord had to bear the risk of a state-ordered closure, it also did not follow from the general distribution of risk that the landlord or the tenant was responsible for a certain condition of the leased property (in this case the closure).
In the concrete cases, all courts in the result exclude the existence of a defect of the rental object due to a state closure order.
II. No Impossibility of Performance by the Landlord
Further, the respective tenants referred to the regulation of the § 326 Abs.1 BGB. According to this provision, a debtor is released from his obligation to perform if it is impossible for the creditor to provide the consideration. In short: If the landlord cannot provide the rental object, the tenant does not have to pay any rent.
The higher regional courts did not follow this line of argument either - albeit for divergent reasons.
The Dresden Higher Regional Court did not even deal with the impossibility rules in detail because it considered them inapplicable from the outset. In the opinion of the OLG Dresden, the more specific provisions of the rental agreement on the right to claim for defects (§§ 536 et seq. BGB) supersede the aforementioned § 326 BGB as of the handover of the rental object, so that the latter is irrelevant here.
The OLG Karlsruhe and the OLG Munich came to the conclusion that there was no case of impossibility of performance on the part of the landlord. In the opinion of the OLG Karlsruhe, the landlord had also made the rental object available during the period of closure. The fact that the tenant was unable to use the leased property fell within the tenant's risk of use. The OLG Munich argued in a very similar way, stating that the state closure order did not affect any performance owed by the landlord. The lease agreement does not create an obligation on the part of the landlord to prevent or eliminate a pandemic-related opening ban. The reasoning of the OLG Frankfurt cannot yet be fully reproduced, as the full text of the ruling is not yet available. According to the current state of knowledge, it can be assumed that the reasoning is comparable to that of the Karlsruhe and Munich Higher Regional Courts. According to this, the landlord owed "solely the possibility of conducting a business operation in the leased premises, but not in any way the surrender of the business itself".
Accordingly, the tenant's invocation of the impossibility of the landlord's performance was not successful in any of the constellations on which the decisions were based.
III. Disturbance of the Basis of the Contract
In all cases, the respective tenant finally argued that the rent had to be reduced in any case due to a disturbance of the basis of the contract within the meaning of Sec. 313 BGB.
The existence of a case of disturbance of the basis of the business if government measures to combat the Corona pandemic lead to a restricted usability of the tenant's business is legally presumed since 31.12.2020 in accordance with Art. 240 § 7 EGBGB. However, even before this date, it had been held in lower-court case law that closure orders under public law in connection with the Corona pandemic may give rise to a disturbance of the basis of the contract. However, the mere existence of a disturbance of the basis of the business (so-called real element) is not sufficient to justify a reduction of the rent. A further prerequisite is that the contracting parties would not have concluded the rental agreement or would have concluded it differently had they correctly foreseen the changed circumstances (so-called hypothetical element). In addition, adherence to the unchanged rental agreement must be unreasonable for the tenant (so-called normative element). This requires a consideration and weighing of all circumstances of the individual case.
The Higher Regional Courts of Munich, Dresden and Karlsruhe assume - without giving reasons in this respect - that the contracting parties would have included corresponding rent adjustment provisions had they anticipated the corona pandemic and its consequences, if they had taken a reasonable view when concluding the respective rental agreement.
However, the aforementioned Higher Regional Courts have different opinions on the question of which circumstances are relevant for the weighing of individual cases and on the question of whether it is unreasonable for the tenant to adhere to the contract in the respective case in concreto.
The OLG Karlsruhe assumes that, in principle, the tenant bears the risk of the usability of the rental object. From this, the court concludes that only if the so-called sacrifice limit is exceeded, i.e., for example, if there is a threat of destruction of livelihood or severe impairment of economic advancement, is it unreasonable for the tenant to adhere to the unchanged rental agreement. When weighing up the circumstances of the individual case, the interests of the landlord, and, on the part of the tenant, any compensation through online trading, state support, a catch-up effect, expenses saved through short-time working and remaining assets in the form of unsold goods, as well as, under certain circumstances, even the tenant's affiliation with a group of companies, are also important in addition to the decline in sales. On the basis of these standards, the Karlsruhe Higher Regional Court came to the conclusion in the case decided that the rent was not to be reduced. The court also points out that an adjustment to the contract does not necessarily have to consist of a reduction in rent, but could also involve a suspension of rent, for example.
The OLG Munich comes to the same conclusion, but with slightly different reasons. The court emphasizes that the applicability of the disturbance of contract principles does not depend on an endangerment of the tenant's (economic) survival. At the same time, the court clarifies that the application of § 313 BGB is limited to exceptional cases. Therefore, a decision based on a schematic approach is not possible. In the comprehensive weighing of interests to be carried out instead for the examination of the (un)reasonableness of the continuation of the unchanged rental agreement, the following circumstances were to be taken into account in any case: Possible advantages of the tenant due to (increased) online trade, short-time work and state aid, the legislative valuations with regard to the criteria for granting state aid, the economic situation of the tenant and the landlord, the duration of the rental agreement to date, the tenant's sales and profits in recent years and, in particular, its (abstract) possibility of forming reserves and, finally, its possible affiliation with a group of companies.
The Dresden Higher Regional Court, on the other hand, granted the tenant a rent reduction of 50% - with somewhat thin argumentation in terms of content compared to the decisions of the Munich Higher Regional Court and the Karlsruhe Higher Regional Court. The Higher Regional Court of Dresden also emphasized that whether the tenant's existence was at risk is not a decisive criterion. On the contrary, since the rental agreement is a continuing obligation, the threshold of unreasonableness of continuing the unchanged rental agreement is low. In weighing the circumstances of the individual case, the Dresden Higher Regional Court merely named the possibility of out-of-home sales, which did not exist in the specific case decided, and the non-granting of state aid, whereby the reason for non-granting (e.g. lack of application) did not appear to be relevant for the decision.
The decision of the Frankfurt Higher Regional Court is characterized by the procedural peculiarities existing there. The proceedings were based on documentary evidence, i.e. proceedings in which evidence can only be adduced by means of documentary proof. In fact, stated the Court, the business basis of the lease had been seriously changed by the "consequences of the natural disaster of the COVID 19 pandemic". The parties had assumed that the consequences of such a pandemic would not occur during the term of the contract. It can be assumed that if the parties had foreseen this change, they would have agreed on provisions for it. However, according to the Higher Regional Court, it could not be established in the proceedings for documentary evidence that the tenant could demand a reduction of the rent due to a "serious disturbance of the basis of the lease" - which, however, the Higher Regional Court expressly considers possible and refers to the subsequent proceedings in this respect.
The decisions show that there is still uncertainty, not only among the contracting parties but also among the courts, as to how to deal legally with the effects of the Corona pandemic on commercial leases. The rulings clearly show that the amendments made by the legislator do not constitute a conclusive or blanket regulation of the effects of the pandemic on commercial leases. Although the existence of one of the prerequisites for the existence of a case of disturbance of the basis of the contract is presumed on the basis of the new statutory regulation, the result of the individual case-related weighing of interests to be undertaken is regularly open.
It can therefore still only be recommended to seek mutually agreeable solutions that take into account the interests of both parties to the contract. This is particularly true in view of the fact that most commercial leases provide for a fixed term of at least ten years and that court proceedings only rarely lead to cooperative interaction between the contracting parties for the future.
If an amicable solution cannot be reached, the management bodies of the respective parties are likely to be advised to submit alleged claims to judicial clarification. Depending on the strategic decisions they have to make, tenants may be well advised to pay future rents only in part and/or only subject to recovery; if necessary, an announcement should also be made of the envisage recovery or offsetting of rent payments already made during the pandemic period.
The Dresden Higher Regional Court, the Karlsruhe Higher Regional Court, and the Frankfurt Higher Regional Court have each allowed an appeal to the Federal Court of Justice on the grounds of the fundamental importance of the case. It is not yet known whether the parties will take advantage of the opportunity granted to them to have the question of the existence or non-existence of a claim by the commercial tenant for Corona-related rent reduction clarified before the Federal Court of Justice. Should the Federal Court of Justice issue a decision, we will of course report on this.