Call-to-action: Retailers allowed to cut commercial rent in lockdown
Absolute right of a commercial tenant to demand a variation of the payment obligations in a commercial lease agreement following a serious event occurring after the formation of such contract which is both unexpected and beyond the control of the parties
The Federal Court of Justice (Bundesgerichtshof) held on 12 January 2022, case no. XII ZR 8/21, that in the event of a business closure caused by a government decision and restrictions imposed to counter the effects of the COVID 19 pandemic, the tenant’s demand for an adjustment of the rent pursuant to Section 313 (1) of the German Civil Code (Bürgerliches Gesetzbuch - BGB) may, as a matter of principle, be entertained by the courts.
Businesses are generally entitled to demand a variation of, and the reduction of the rent payable under a, commercial lease agreement if their business premises were closed down due to a COVID pandemic. This was held by the XII. Civil Senate of the Federal Court of Justice ("BGH"). However, any discount to be applied on the rental payments shall be determined on a case by case basis - there is no blanket rule.
The BGH found that the various measures taken to counter the COVID 19 pandemic, such as imposing business closures, contact and access restrictions and the associated substantial impact on social and economic life in Germany during the first lockdown in spring 2020 had to be construed as striking at the root of a contract and were entirely beyond what was contemplated by the parties when they entered the contract. The principle protects the expectations of the contracting parties that the fundamental political, economic and social framework conditions of a contract will not change and that the social existence will not be undermined. Those legitimate expectations were seriously impaired by the restrictions imposed by the government to counter the COVID 19 pandemic and which saw businesses closed in the period from 19 March 2020 to 19 April 2020.
This does not mean, however, that the tenant is always entitled to a variation of the contract and an adjustment of the rent for the time of the imposed closure. The BGH held that a case-by-case assessment is required here, which predominantly focuses on the actual burden and/or disadvantages the tenant suffered as a result of the business closure and its duration. Primarily, a decrease in turnover is decisive here. Any group turnover is not to be included in this calculation. Whether it is unreasonable to expect the tenant to continue with an unchanged contract also requires a comprehensive review which takes into account all the circumstances of the individual case (Section 313 (1) BGB).
When examining the commercial unreasonableness, any financial support the tenant might have received from the government as compensation for the loss caused by the pandemic is to be taken into account.
In this context, payments under a tenant's business insurance may also have to be taken into account. On the other hand, government relief granted as a loan only is not taken into account in the required balancing exercise because the tenant does not achieve any final compensation for the loss of turnover suffered.
In conclusion, it can be stated that following the BGH’s findings, businesses – and namely retailers and restaurants - may be entitled to a variation of a contract and any payment obligations thereunder in the event of a government imposed lockdown. Since Section 313 of the German Civil Code (BGB) does not know or impose any restrictions timewise for the exercising of such variation rights, the claim may also be asserted retroactively for the lockdown imposed back in 2020. Thus, in individual cases, there may be a cause of action to reclaim the rent paid to a landlord back then.
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