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Covid 19 Lockdown Impact: "Commercial rents do not have to be paid"

2021-06-14 Official shop closure orders have caused severe financial losses for many businesses. Nevertheless, lease and rent still had to be paid. "Unjustly so," says Dr. Alexander Schall. The professor of German, European, and International Private and Corporate Law presents his line of argument in the German Law Journal (Juristenzeitung).

Prof. Dr. Alexander Schall ©Leuphana/Brinkhoff/Mögenburg
"The responsibility always lies with the landlord. For the shopkeepers, the shop closures threaten their existence, while the landlords retain possession."
Professor Schall, when Adidas stopped paying rent at the beginning of the first lockdown, the Ministry of Justice intervened and demanded continued payment. Rightly so?
No, because the obligation to grant use lies with the landlord. It does not end when the keys are handed over at the beginning of the tenancy, but lasts for the entire tenancy. If authorities order shop closures, landlords can no longer grant use - and the tenant no longer has to pay. Only if the reason lies in the person of the tenant - for example, they can no longer use the shop because they are in hospital or in prison – the obligation to pay rent does not cease.
But landlords can't be held responsible for the official shop closures, can they? 
Correct, it is a case of force majeure. It has become impossible to grant use. However, if one can't deliver, the other doesn't have to pay either. Imagine you order an antique vase from a retailer. It breaks in transit. The retailer cannot deliver a replacement because it is a unique piece. The buyer does not have to pay anything, while the burden is on the seller. Or take the so-called carnival procession case: someone rents out a window seat in Cologne with a good view of the Rose Monday parade. Because of a storm, the parade is cancelled. The service - i.e. the window seat with a good view of the street - can still be provided, but it has become pointless. No one will enjoy watching the rainy-day rush-hour traffic instead of the carnival parade. The tenant of the window seat does not have to pay anything. Courts have so far overlooked this evaluation in the case of commercial rents during the official shop closures in the Corona crisis. 
During the Corona crisis, businesses receive government financial assistance. Do they have to use it for paying rent?
That is the logic behind it: Whoever receives state aid must also use it to pay the rent. That's why they can't cut the rent. I take a completely different view, however, from a legal perspective. When impossibility applies, state aid does not have to be used to pay the rent. Some people also argue that businesses have to use up their reserves. We jeopardise the existence of shops when we apply such opinions. At some point we might end up with nothing but one-euro shops in the city centres. The Dresden Higher Regional Court, at least, has ruled that tenants and landlords have to share the costs. But these individual case decisions are actually not right. The responsibility always lies with the landlord. For the shopkeepers, the shop closures threaten their existence, while the landlords retain possession. 
Presently, the Federal Court of Justice is addressing the issue of the obligation to continue rent payments for commercial tenants. What happens if it decides in favour of your reasoning?
In that case, rents will have to be paid back. There are many hundreds of millions of euros at stake, which are either owed or not. Then there is also the issue of partial impossibility: walk-in customers were forbidden, but many businesses used the premises for online trading, click & collect, for renovation work, or as storage. If so, rent must also be paid on a pro rata basis. The procedure is similar to that for rent reduction. 
Thank you very much for the interview! 

Reform of the law on partnership enterprises

The German Federal Parliament (Bundestag) currently plans to modernise the law on partnership enterprises. For instance, the civil law partnership is to be redesigned. The current legal situation essentially dates back to the 19th century and no longer corresponds to legal reality. Hence, the law is to be adapted to current practice. Alexander Schall serves as an advisor to the Bundestag on this matter. "I would prefer the reform not to take this form. There are unresolved tax issues and immense adjustment burdens for legal practice for what is a modest gain," says the lawyer.

Contaact

  • Prof. Dr. Alexander Schall, M.Jur. (Oxford)