the law to mitigate the consequences of the COVID 19 pandemic

The German Bundestag today adopted the law to mitigate the consequences of the COVID 19 pandemic in civil, insolvency and criminal proceedings. The aid package provides for essential new regulations for commercial and private landlords as well as tenants and is scheduled to pass the Bundesrat on Friday. Here is an overview of the aid measures and some recommendations for action:

In tenancy law, a temporary restriction on terminations due to late payment will be introduced

personnel scope:
residential and commercial tenants, leaseholders
temporal scope:
Rent arrears arising between 01.04.2020 and 30.06.2020
Credibility of the causality between COVID-19 and non-performance
Agreements to the disadvantage of the tenant are not possible
Ordinance authorisation for the possible extension of the restriction on termination by a further three months until 30.09.2020.

According to Art. 240 § 1 (1) and (2), consumers have a right to refuse performance in the case of continuing obligations. This provision does not apply in tenancy law. Tenants therefore remain obliged to pay and may also be in default. The claims management for the pursuit and enforcement of payment claims (out-of-court dunning, judicial dunning proceedings with dunning notice and enforcement order, compulsory enforcement, default interest …) can be retained. Instead, the law only provides for a restriction of the landlord’s possibility of termination.

§ 2 (1) The landlord may not terminate a lease of land or premises solely on the grounds that the tenant does not pay the rent in the period from 1 April 2020 to 30 June 2020 despite being due, if the non-payment is due to the effects of the COVID 19 pandemic.
The connection between the COVID 19 pandemic and non-payment must be substantiated. Other termination rights remain unaffected.
(2) Paragraph 1 cannot be deviated from to the detriment of the lessee.
(3) Paragraphs 1 and 2 shall apply to leases accordingly.
(4) Paragraphs 1 to 3 shall only apply until 30 June 2022.

Explanation and recommendations for action

Legal target:

The new regulation is intended to protect tenants from the loss of residential or commercial premises.

Right to refuse performance

Tenants do not have the right to refuse performance. The right to refuse performance in Art. 240 § 1 only concerns continuing obligations whose services are necessary for the provision of services of general interest. These include compulsory insurance, contracts for the supply of electricity and gas or for telecommunications services and, where applicable, civil law contracts for water supply and disposal. The right to refuse performance expressly does not apply to rental and lease agreements (Art. 240 § 1 para. 4 no. 1.).

It has not yet been clarified whether tenants of commercial premises have the right to reduce the rent in accordance with § 313 BGB or even to terminate the lease agreement if they are legally obliged to close their business.

Scope of application:

According to the wording of § 2 para. 4 to Art. 240 EGBGB, the regulation on the restriction of termination is only applicable until June 30, 2022. Due to payment arrears that occurred between 1 April 2020 and 30 June 2020 and have not been settled by 30 June 2022, termination may be effected after this date.

However, it is still permissible to sue the tenant for payment for the arrears for this period in order to obtain an enforceable title. Orders to pay and enforcement orders are still permissible. It is certainly advisable to conclude a deferral agreement with an individual instalment payment plan.

Causality between Corona and non-payment of rent

If a tenant fails to pay all or part of the rent due in the period from 1 April 2020 to 30 June 2020, the landlord may not terminate the lease on account of these arrears if they are due to the effects of the COVID 19 pandemic. Termination is therefore only excluded in cases where the non-performance of the tenant is caused by the COVID 19 pandemic. If the tenant’s non-performance is due to other reasons, for example, because he or she is unwilling to pay, the termination is still possible. Cancellations for other reasons, e.g. for behaviour contrary to the rental agreement (noise, assault, vandalism…) are not excluded.

Credibility by the tenant

Even in times of the corona virus it is not automatically assumed that rent arrears are due to COVID-19. It is therefore the tenant’s responsibility to prove the connection between the COVID-19 pandemic and the non-payment of rent. If he wants to exclude a termination due to late payment, he has to present facts that show a predominant probability that his non-payment is due to the COVID-19 pandemic. To substantiate this, the tenant can, for example, use an affidavit in lieu of oath or other suitable means. Appropriate means may include, in particular, proof of submission of the application or certificate of entitlement to state benefits, employer’s certificates or other evidence of loss of earnings.

Special features of commercial tenancy law

In addition, tenants of commercial properties can also substantiate the connection between the COVID pandemic and non-performance by pointing out that the operation of their company in the context of combating the SARSCoV-2 virus has been prohibited or significantly restricted by legal ordinance or official order. At present, this mainly affects restaurants or hotels, the operation of which is prohibited in many federal states, at least for tourism purposes. Other commercial enterprises whose operations have not been restricted under public law should provide credible evidence that they have made efforts to obtain state aid and yet are still unable to prevent termination-related arrears between April and June 2020. Only then will the statutory restriction on termination of employment take effect for these commercial tenants.

Many landlords are already acting in partnership and are looking for solutions that are in line with their economic interests in order to survive the difficult times together with their tenants. Since the end of the pandemic is not foreseeable at present, rent reductions or payment deferrals should be agreed for a limited period of time, e.g. on a monthly basis, and continuously adjusted to the current situation. The thread of the conversation must not be allowed to break. It is important that tenants make use of the individual respite granted by the landlord for rent payments, in particular to take advantage of government assistance.

Residential tenancy law

In the case of residential tenancies, there is a risk that tenants could try to prevent termination for late payment by invoking Art. 240 § 2 EGBGB, although the arrears are in fact not based on “corona”. Due to media coverage, tenants may have the impression that they will not have to pay rent for the period from April to June 2020. To avoid such misunderstandings, the landlord should inform his tenants independently about the legal situation.

Landlords should make it clear that the tenant remains obliged to pay rent independently of Corona. To the extent that Corona and public-law orders based on it lead to loss of earnings for the tenant, this falls under the tenant’s sphere of risk. The statutory restriction on termination merely prevents the tenant from being able to terminate the lease due to rent arrears for the period from April to June 2020.

The tenant is initially required to assert housing benefit or other claims under social law in order to close the financial gap resulting from Corona. Only if these (credible) efforts cannot prevent a rent arrears relevant to termination (two monthly rents or more than one monthly rent for two consecutive dates), the tenant can invoke the new protection against termination.
In this connection, offers of talks to tenants (e.g. by telephone hotline) make it easier to agree individual solutions with tenants threatened by payment difficulties at an early stage.

Here is the link to the suggested wording for a letter to tenants.

A deferral agreement for residential and commercial use is available here.

Notes on the residential property law

Art.2
“Law on measures in company, cooperative, association, foundation and residential property law to combat the effects of the COVID 19 pandemic”.

§ 6 Condominium owners’ associations

(1) The last appointed administrator within the meaning of the German Condominium Act (Wohnungseigentumsgesetz) shall remain in office until his or her dismissal or until a new administrator is appointed.
(2) The business plan last adopted by the condominium owners continues to apply until a new business plan is adopted.

Explanation to § 6 paragraph 2:

It is already common practice in many cases to combine the resolution on a concrete business plan with the additional resolution that this business plan shall continue to apply until the resolution on a new business plan. Such a decision ensures that even if the decision on the next business plan is only taken in the course of the following year, each individual condominium owner is obliged to pay for the months that have expired up to that point. In this respect, time delays for the holding of the owners’ meetings in the following year are not relevant.

If no such resolution was passed in the previous year, the new legal regulation now clarifies that the old business plan remains valid until a resolution on the new business plan is passed. This creates planning security for WEG.

Deferral of tax

The law does not contain any regulations for tax law. In this respect, the letter of the Federal Ministry of Finance dated 19 March 2020 on income tax, value added tax and corporation tax and a corresponding letter from the federal states on trade tax apply. According to this letter, an entrepreneur who has corresponding losses of income can apply for a deferral of tax.