Termination of tenancies due to late payment between 1 April and 30 June 2020 is not permitted until June 2022

In the Federal Government's proposed wording for a law to mitigate the consequences of the Covid 19 pandemic, published on 23 March 2020, the passage on tenancy agreements (§ 2 to Art. 240 EGBGB) is the only passage on the BGB Law of Obligations that would have a direct effect not only on consumer contracts but also on legal relationships between companies or between companies and the public sector.

The provision should read as follows:

§ 2 Restriction on the termination of rental and lease agreements

  1. The landlord may not terminate a rent contract of land or premises solely on the grounds that the tenant fails to pay the rent in the period from 1 April 2020 to 30 June 2020 despite the fact that it is due, if the failure to pay 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. From paragraph 1 cannot be deviated to the detriment of the tenant.
  3. Paragraphs 1 and 2 shall apply mutatis mutandis to leases.
  4. Paragraphs 1 to 3 shall apply only until 30 June 2022.

That means:

Tenants (also applies accordingly to tenants under lease agreements) do not have to fear extraordinary termination by the landlord due to late payment if they withhold due rent payments because they incapable of paying in consequence of the effects of the COVID 19 pandemic. However, there are important restrictions on and prerequisites for the exclusion of the landlord’s right of termination:

  1. The temporary protection against termination only concerns the important reason for extraordinary termination without notice due to default of payment from § 543 para. 2 no. 3 BGB as well as the in this case legitimate interest for ordinary termination from § 573 BGB. Other reasons for termination remain in force.
  2. The exclusion of termination only applies to rents due between 1 April 2020 and 30 June 2020. (An extension of the regulation until 30 September is already included in the draft. However, it would require a separate regulation by the Federal Government). Termination due to earlier arrears of rent remains possible.
  3. The lack of performance of the tenant must be due to the COVID 19 pandemic, i.e. it must have been caused by it. It is not enough that the tenant would still be able to perform, but that he wants to retain existing liquidity as a precautionary measure in view of the uncertain future development. The situation might be different if the funds would still be sufficient to pay rent, but the liquidity level of a company has fallen so much due to the lack of income as a result of the pandemic that other payment obligations could no longer be met if rent were to be paid.
  4. That the COVID 19 pandemic has caused the inability of the tenant to perform must be made credible. In terms of civil procedure credible evidence is less than a (strict) proof and requires the tenant to demonstrate that there is a prevailing probability that the facts presented are correct. Thus, the tenant must at least present facts which, when viewed objectively, make it appear predominantly likely that the non-performance is due to the Covid 19 pandemic. The classic means of providing credible evidence is the affidavit: Due to the consequences under criminal law of a false affidavit with a prison sentence of up to three years, case law regularly attaches great importance to these statements. On the other hand, caution is required when drawing up affidavits; in order to avoid criminal consequences, they should not be made without legal advice. Other suitable means of providing credible evidence can be confirmations by a tax advisor on the current income statement, certificates or applications for the granting of crisis-related state subsidies or auxiliary loans or other reliable written evidence of loss of turnover, cancellation of orders or similar.
  5. The exclusion of the landlord's right to terminate the contract does not imply any deferral of payment. The rent is not deferred. The tenant is still in default. Any claims for damages of the landlord resulting from the default, including claims for default interest (usually 9% above the base interest rate in commercial leases), shall continue to exist. The landlord is not prevented from asserting these payment claims in court.
  6. The protection against dismissal is limited until 30 June 2022. The rent arrears for the months of April, May and June 2020 must be paid at the latest by then.
  7. If tenants not only want to prevent possible cancellations but also temporarily change payment obligations, contractual deferral agreements remain indispensable. For this purpose, the landlord should be contacted in order to offer a temporary reduction or suspension of the rent, e.g. in return for an extension of fixed rental periods or a rent increase after the end of the crisis. It is often attractive for institutional landlords to extend fixed lease terms or to increase the total contractual rent of a property because it increases the value of the property.

Dr Lorenz Czajka