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Coronavirus: Crisis-related amendments to delivery and payment obligations

In the current situation, saving lives is the highest priority. At the same time, however, our economic existence must be secured. The effects of the exceptional situation on delivery and payment obligations, among other things, are very important. Although the legislator acted in record time adopting a large number of support and financial packages in the German parliament session on 25 March 2020, also adapting insolvency and civil law to the crisis, there is still a large number of legal uncertainties due to the unprecedented situation in which our country finds itself in. We would like to try to shed some light on this:

1. The Corona crisis as a force majeure

In connection with the interpretation of the liability provision of § 651j BGB, the Federal Court of Justice (BGH) has defined “force majeure” as „ein von außen kommendes, keinen betrieblichen Zusammenhang aufweisendes, auch durch die äußerste vernünftigerweise zu erwartende Sorgfalt nicht abwendbares Ereignis“ (BGH, ruling of 12 March 1987, Ref.: VII ZR 172/86 with further references). The devastating effects of the virus on everyday and economic life are a perfect example of such a case. This is why many legal questions in connection with the crisis are based on this basic consideration.

International contracts generally contain a clause to the effect of discontinuation of the obligation to perform in the event of force majeure. For contracts that are subject to the UN Convention on Contracts for the International Sale of Goods, Art. 79 CISG provides that a contracting party is released from its obligation to perform to the extent that the performance of the contract is contrary to force majeure.

Even in the case of national transactions, corresponding provisions are often agreed in the contract itself or by way of general terms and conditions (GTC).

2. More specific legal provisions

Even without a contractual agreement, a contractual partner shall be released from its obligation to perform under German law if it is unable to do so due to force majeure. However, it is important to note that the use of this legal institution can only be considered if there is no provision in the governing contract between the parties and no more specific legal regulation that applies, which is only conceivable in extremely exceptional cases.

In § 275 the BGB provides a regulation that regularly covers these cases, according to which the debtor is released from their (primary) obligation to perform in the event of impossibility of performance, or if they have to perform the service in person and it cannot be expected of them after weighing the obstacle to their performance against the creditor’s interest in performance.

But beware: As a rule, this is usually not without consequences for the debtor. Not only does the debtor normally lose their claim to remuneration, but depending on the circumstances they may also be obliged to pay damages. The details are regulated in §§ 280, 283 to 285, 311a, and 326 BGB.

For cases in which this would lead to unreasonable results because the changes lie outside of what could be typically foreseen after the conclusion of the contract, § 313 BGB provides regulation for the subsequent adjustment of the content of the contract under the heading “Disruption of the basis of the contract”.

3. Tenancy law

Reports in the press highlighting Adidas and other retailers’ plans to suspend rent payments of their stores have raised questions of legality. In contrast to the impression created by numerous misleading comments, including from politicians, this has nothing to do with the possible misuse of the special pandemic regulations which are explained in more detail below. Rather, the question that arises is whether tenants, who due to pandemic-related bans are no longer able to maintain sales in the shops they have rented often for high rents in the city centre, must shoulder the resulting damages alone under existing civil law, or whether the property owners/landlords should also be held jointly and severally liable.

Reduction of the rent according to § 536 BGB

Section 536(1) of the BGB states: „Hat die Mietsache zur Zeit der Überlassung an den Mieter einen Mangel, der ihre Tauglichkeit zum vertragsgemäßen Gebrauch aufhebt, oder entsteht während der Mietzeit ein solcher Mangel, so ist der Mieter für die Zeit, in der die Tauglichkeit aufgehoben ist, von der Entrichtung der Miete befreit. Für die Zeit, während der die Tauglichkeit gemindert ist, hat er nur eine angemessen herabgesetzte Miete zu entrichten (…)“.

According to the relevant case law, a reduction can also be made based on a so-called “environmental defect” if the origin of the defect lies in the environment of the rented property and it is not only an indirect impairment. This is the case, for example, if construction work in a neighbouring building necessitates the closure of the business or severely impedes it. If an official measure is the cause, the rent can be reduced if the measure is directed against the business, but not against the specific tenant. All these conditions must be affirmed in the case of shop tenants who are affected by the ordered closure of their business due to the pandemic (see here: Drygalla, https://www.lto.de/recht/hintergruende/h/adidas-deichmann-corona-gewerbe-miete-april-aussetzung-vertrag/ with further details).

In our view, there can be no serious doubt that shop tenants who have the misfortune to belong to an industry affected by the ordered closures should at least be entitled to a rent reduction if their rental agreement expressly states that the premises are rented for the operation of any kind of shop. We cannot agree with the conclusion drawn by Drygalla as referenced above, that the explanatory memorandum to the legislative package on the pandemic, which is explained below, shows the legislator did not intend for a reduction in these circumstances. Although we must agree with him that in the course of the proceedings, which were conducted at top speed and only the tenants affected were considered, it cannot be assumed that the intention was to deprive all shop tenants who had been deprived of their business overnight of further rights under tenancy law. Very few tenants such businesses are financially strong corporations not worthy of protection, which appears doubtful anyway as a justification for unequal treatment in matters of tenancy law.

We assume that shop tenants affected by the closure obligation can reduce their rent, at least to the amount that would be appropriate considering the level it can still be used namely as a warehouse or office. In our opinion, the landlord is still entitled to this rent – but nothing more.

Appropriate risk-sharing between the parties is the imperative

This interpretation leads to the appropriate distribution of risk between the property owner/landlord and the shop tenant. If, on the other hand, only the special rules on the epidemic were to apply, the shop tenant alone would be left with all the pandemic damage, while the owner/landlord would not only retain the full amount of rent but would also benefit from the crisis by being able to claim excessive interest on arrears if the rent payment is delayed in the light of the disaster. This cannot – despite all subsequent ill-considered statements by individuals – really be what the legislator wanted.

It should also be considered in this context that the landlord, should it be a private person (consumer), benefits from the COVID-19 special regulations on loan law explained below or, should it be a company, can close the financing gap via the KfW loans etc. made available as a result of the crisis.

Adjustment of the rental agreement according to § 313 BGB

This interpretation is also in accordance with § 313 BGB. According to this provision, which is titled “disturbance of the basis of the transaction”, contracts must be adjusted if circumstances which have become the basis of the contract have changed substantially after the conclusion of the contract and the parties would not have concluded or would have concluded it differently had they foreseen this change.

An adjustment of the rent, be it supported by § 536 or § 313 BGB, in which for the duration of the closure due to a pandemic, for example, instead of the rent typically payable for a bookstore in the inner city area, rather only rent in the amount that would be appropriate for storage or office space is to be paid, creates a more appropriate distribution of risk between property owners/landlords and tenants. It also prevents both the insolvency of owners of rented shops, which would otherwise be feared on a massive scale and the subsequent insolvency of their suppliers, who have already suffered massive financial hardship as a result of the collapse in sales caused by the crisis.

4. COVID-19 Pandemic Law

The aforementioned regulations of the law adopted on 25 March 2020 to mitigate the consequences of the COVID 19 pandemic in civil, insolvency and criminal proceedings law are specifically geared to the consequences of the pandemic. These regulations have a deep impact on the relationship between creditor and debtor. The law consists of five articles, each of which specifies amendments to individual areas of law.

a) Article 5: Amendment of the Introductory Act to the Civil Code

Art. 5 contains special rules concerning provisions in the German Civil Code (BGB).

General moratorium for consumers and micro-enterprises

To secure their livelihoods, consumers are entitled to refuse to meet their obligations arising from material long-term obligations (necessary to cover them with services of general economic interest) which were concluded before 8 March 2020, initially until 30 June 2020, if otherwise their or their dependants’ reasonable livelihoods would be threatened by the crisis.

This applies accordingly to so-called micro-enterprises (up to 9 employees and an annual turnover or balance sheet total of 2 million euros) if their performance would not be possible without endangering the economic basis of the enterprise and if it is a matter of covering with benefits for the appropriate continuation of the operation.

This regulation does not apply to employment contracts meaning that employees retain their payment claim in full. Also in regards to rental, lease and loan agreements, only the special regulations explained below apply:

Restriction on termination of rental and lease agreements

Rental and lease agreements for land and premises may not be terminated with effect from 30 June 2022 for non-payment of rent in the period from 1 April to 30 June 2020 due to the crisis. The tenant must provide the landlord with credible evidence that the rent cannot be paid due to the crisis. The Corona special regulation does not contain any regulations on the amount of rent.

Regulations on the right to a loan

For consumer loan agreements concluded before 15 March 2020, deferral of interest and principal payments due in the period from 1 April to 30 June 2020 shall apply for three months if the consumer cannot reasonably be expected to pay the instalments as a result of the crisis. Nor can termination of the loan during this period be based on deterioration in the financial situation or the value of the collateral.

The consumer should be allowed to reach an amicable agreement on the deferred instalments. If this does not come about, the contract period is extended by three months.

Exceptions to these rules apply only in the case of total unreasonableness for the lender. At the same time, the law contains an authorisation that the group of beneficiaries can be changed by decree of the Federal Government with the consent of the German parliament, in particular, that the above-mentioned micro-enterprises can be included in the group of beneficiaries.

Further possibilities for additions by the Federal Government

To ensure the flexibility and speed in the implementation of changes required in the crisis, § 4 of article 5 still contains a comprehensive ordinance authorisation, which enables the Federal Government to extend the deadlines mentioned.

b) Article 1: COVID-19 Insolvency Suspension Act COVInsAG

Of enormous relevance for the contractual relationships between suppliers and their customers is also Art. 1 of the law. Art. 1 not only amends the obligation to file for insolvency due to the crisis but also – not least due to the intervention of several leading associations, in particular the DIHK, which consulted PASCHEN in this context – addresses the risk of rescission for creditors who support their customers in the crisis. Because of its special importance, we have dedicated a separate top topic to COVInsAG.

Conclusion

Civil law already provides solutions for the issues arising from the crisis. In addition, the legislator has acted at record speed to provide relief as quickly as possible for those most severely affected economically. Although it is, of course, unclear how the courts will ultimately decide any disputes against the background of this medical and economic catastrophe for our country, we are optimistic that in the end the interests of all parties involved will be adequately taken into account.

As already stated above, the speed of the legislator in the current crisis is impressive. We will, therefore, keep you updated about further developments. Please do not hesitate to contact us for further questions in this context. We wish for everyone that this current crisis can be overcome as quickly as possible and the most important thing: stay healthy!

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