Payment of rent in times of the COVID-19 Pandemic
The COVID-19 Pandemic poses particular challenges for the parties to existing leases - as well as numerous other parties involved in long-term contractual arrangements. The following article examines the question of temporary suspension or reduction of rent payments in commercial leases in times of the Pandemic.
On April 15, 2020, the German government decided to relax some of the restrictions imposed to combat infection. Further relaxation followed with the decisions of 6 May 2020. As a result of the agreed relaxation, not only health care facilities, supermarkets, pharmacies, drugstores, banks and other key facilities (e.g. post offices), but also other retailers, bicycle dealers and bookstores could be reopened to the public for the first time - albeit subject to federal state-specific regulations. Further loosening of restrictions concerned the reopening of museums, exhibitions and memorials as well as zoos and botanical gardens. In the meantime, limited catering operations have also been restored in some federal states.
However, for a large number of commercial enterprises - such as hotels, bars, discotheques, cinemas, theatres, fitness studios and other leisure facilities - the restrictions will remain in force for the time being, while for others - such as cafés and restaurants - they have been relaxed but do not yet allow normal operation.
This has an impact not least on existing tenancies. While tenants are often unable to generate any income from their activities, or can only generate significantly reduced income due to closure, payment obligations generally continue to exist as considerable elements of fixed costs. The challenges this poses continue to affect those commercial enterprises that benefit from the first easing measures. In many cases, the loss of sales resulting from the closure measures ordered by the authorities is final. For others, the losses in turnover persist because the businesses were or are only allowed to be opened to the public to a limited extent (e.g. to prescribed opening hours and/or a prescribed maximum number of customers present at the same time).
With the outbreak of the COVID-19 Pandemic in Germany and the enactment of infection control measures, some large commercial tenants, especially corporations and large non-food retailers, announced their intention to (completely) discontinue rental payments for the months of April, May and June 2020 - regardless of the availability of liquid funds and/or existing reserves. However, many smaller commercial tenants also attempted to pay no or only reduced rent for these months. This in turn presented the landlords concerned, at least in part, with liquidity bottlenecks, at least in part, and challenges in meeting ongoing obligations arising from financing and management agreements concluded by them, liabilities or obligations towards shareholders , etc.
Following on from our article published on March 24, 2020 on the effects of the COVID-19 Pandemic on existing tenancies, the article (download) examines further details of how to deal with commercial leases against the background of the pandemic:
- Legal model of risk distribution in commercial tenancy law
- Possible deviations from the legal risk distribution with regard to the rent payment obligation
Experience the future of law, today
Effects of the COVID-19 pandemic on existing tenancies