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Lake Tekapo
12 January 20224 minute read

BGH requests second round regarding proceeding on obligation to pay rent in case of COVID-19-related business closure

The German Federal Court of Justice (Bundesgerichtshof BGH) dealt with the issue of contract adjustment in the event of COVID-19-related closure orders. Instead of a principal judgement, the BGH referred the case back to the Higher Regional Court (Oberlandesgericht – OLG), requesting a second round of proceedings.

For a long time, there was silence on the much-disputed issue of the obligation to pay rent in the event of COVID-19-related business closures. In the past, several courts of first and second instance dealt with the question of whether commercial landlords are entitled to receive the full amount of rent in the event of COVID-19-related official closure orders or on the contrary, the tenants should be granted a reduction in rent. In doing so, the courts reached different conclusions based on different arguments. Everything was represented, from a rent reduction in the full amount to an unabated obligation to pay rent.

The BGH now dealt with the case of the textile retailer Kik. Kik on the defendant's side was sued by their landlord for payment of the withheld rent for the lockdown month April 2020. In its ruling of 26 August 2020 (case no. 4 O 639/20), the Regional Court (Landgericht – LG) of Chemnitz held that the landlord's claim was justified in the full amount. On the tenant's appeal to the OLG Dresden, this court decided on 24 February 2021 (case no. 5 U 1782/20) in favor of a contractual adjustment in the amount of 50%. In its reasoning, the OLG Dresden stated that an equal distribution of risk between the parties was justified. A reduction of 50% in the basic rent for the duration of the ordered closures was appropriate, since neither party had caused or even foreseen the disruption of the basis of the contract. The landlord then appealed to the BGH.

In its ruling of 12 January 2022 (case no. XII ZR 8/21), the BGH overturned the decision of the OLG Dresden and referred the matter back to it. In its reasoning, the BGH made it clear that in times of COVID-19-related official closures, commercial tenants are in principle entitled to an adjustment of the rent due to disturbance of the basis of the contract pursuant to Section 313 (1) of the German Civil Code (Bürgerliches Gesetzbuch – BGB). The expectation of the contracting parties that the basic political, economic and social conditions of a contract would not change was seriously disturbed, according to the BGH.

However, no decision was made on the amount of the adjustment, because the ruling of the OLG Dresden had not been free of legal errors and therefore had to be decided again, taking the comments of the BGH into account. In particular, the OLG Dresden had not weighed up the circumstances of the individual case, but had given a blanket 50:50 assessment of the risk of closure. However, the weighing of individual cases is a decisive criterion for the risk assessment pursuant to Section 313 (1) BGB, which can lead to a claim for adjustment of the contract. A blanket risk assessment does not do justice to Section 313 BGB, according to the Federal Court of Justice. According to the BGH, the concrete disadvantages of the tenant caused by the closure of the business and its duration are to be considered in the weighing. Decisive for this are primarily the sales figures for the time of the closure. Here, the focus must always be on the specific rental property and not on a possible group turnover. The possible measures taken by the tenants to compensate for the impending losses must also be taken into account. Any advantages of the closure, such as state compensation payments or insurance benefits, must also be deducted. However, the BGH expressly does not require a threat to the existence of the company. Consequently, the OLG Dresden will now turn its attention to the evaluation of individual case criteria and carry out a new assessment on the basis of these.

Incidentally, state compensation payments (Corona Aid) can play an important argument in negotiations on rent adjustments. It is not uncommon for the rent payments to already be included in full as expenses of the tenant in the corresponding applications. In the event of a (subsequent retroactive) rent adjustment, the notices on Corona Aid must of course be amended and any Corona Aid accrued on them must be paid back. This can mean an immense administrative burden for the tenant, especially if it is not least a "zero-sum game" of subsequent rent reduction versus repayment of Corona Aid.