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Impairment of contractual relationships in German commercial leases

17 December 2020

The German government is planning to restrict use of property due to COVID related measures, which could result in an obligation to adjust lease agreements. Our team in Germany take a look at this decision and what it means for landlords and tenants.

 

Reduction of lease payments?

The question of whether the COVID-19 pandemic can be seen as an impairment of the basis of the contract according to Section 313 of the German Civil Code (BGB) is much debated, especially in the area of German commercial leases.

Until now, the principles of Section 313 BGB have only been applicable to commercial leases in limited circumstances. Even in the current crisis the risk of proper use of the leased property is generally borne by the tenant.

The German government is now planning to qualify restrictions as to the use of the property, due to COVID related measures as an impairment of the lease agreement, which could result in an obligation to adjust the lease agreement.

However, a number of headlines and misunderstandings are now emerging.

  • In all likelihood, this is not a complete shift of risk to the landlords, because there always remains the case-by-case consideration and weighing of interests according to Section 313 BGB.
  • This is also correct and imperative, because the industry, regional differences, and the extent to which tenants and landlords are affected can vary greatly.
  • A "passing on" of contract adjustments resulting therefrom to lenders / banks is also being discussed but also in these relationships an individual consideration of each case is indicated.

The planned changes will undoubtedly force landlords and tenants to analyse their individual situation.

 

Please contact our team if you require any further information or advice.


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