The measures associated with the outbreak of the COVID-19 disease caused by a new type of coronavirus have affected the vast majority of businesses. Businesses have been forced to reduce retail and service sales in their establishments or, in view of the emergency, various deliveries have been delayed. Businesses have thus found themselves in situations where their profits have fallen substantially or even dropped out altogether, while their statutory and contractual obligations have remained the same. These include the obligation to pay rent for the lease of business premises. Can a business affected in this way at least claim a discount on the rent? Or even suspend rent payments while the premises must remain closed?
Although the Civil Code does allow for a rent reduction, it is linked to the landlord’s failure to fulfil the obligation to deliver or maintain the object of the lease without defects or to ensure an undisturbed lease. The restriction on business at the establishment was not due to reasons on the landlord’s part, but due to a government resolution that the landlord could not have influenced or foreseen. There is certainly no defect in the object of the lease, nor is there any third-party interference with the lease which the landlord could prevent; the premises as such may continue to be used by the tenant. Thus, entrepreneurs affected by the government’s decision to prohibit sales are not entitled to a discount on rent unless they have agreed on it with the landlord.
Suspending rent payments without an agreement with the landlord is certainly not the solution to this difficult situation. The tenant is obliged to pay the rent under the respective lease agreement and must fulfil its obligations. If the tenant is in default, it is in breach of its contractual obligation and accrues default interest or contractual penalties. Normally, it is also possible to claim compensation for damage caused by delay which is not covered by default interest or contractual penalties. However, in that case, it cannot be ruled out that it may be possible to be relieved of the obligation to compensate for damage if the performance of the contractual obligation was prevented by an extraordinary unforeseeable and insurmountable obstacle arising independently of the tenant’s will. This obstacle is most often considered an event of force majeure, an event of force majeure, e.g. natural disasters or embargoes. The current COVID-19 pandemic, in conjunction with the related measures, could then also be considered as a force majeure event. However, it will always be necessary to assess, on a case-by-case basis, whether the tenant is actually unable to pay the rent for this reason – i.e. it has no profit or reserves with which to pay the rent. Stopping rent payments is therefore not an option.
Nevertheless, it is possible that as a result of the pandemic and related measures, there may have been a material change in circumstances that created a particularly gross disparity between the landlord and the tenant. The law also takes these situations into account and generally offers the disadvantaged party the option to seek a renegotiation of the agreement. However, even in this case, the tenant cannot defer the payment of the rent. In addition, the disadvantaged party must exercise this right within a reasonable time limit after it should have become aware of the change in circumstances (in this case, at least from the publication of the government’s decision to restrict the business), and the law considers two months to be reasonable. The tenant could then try to negotiate a lower rent, or the courts could be involved to determine the terms of the agreement, or the agreement could be cancelled.
Specific conclusions cannot be drawn without consulting the lease agreement in question. It may contain both a solution to such a situation and may exclude the use of any of the described procedures. Often the latter will be the case and, therefore, most tenants will be left to negotiate with the landlord. We recommend that tenants try to reach an agreement in any case; moreover, landlords themselves will usually have an interest in retaining their proven tenants.