1.       What is the potential impact on lease agreements?

The starting point of all considerations is first of all the landlord's main obligation under a lease to make the leased premises available to the tenant for its use in accordance with the contract, Sec. 535 para. 1 sentence 1 of the German Civil Code (Bürgerliches Gesetzbuch, “BGB”). This obligation may be impaired in several respects, in particular by the failure to hand over the leased premises on time for lack of timely completion of construction or, in the case of completed premises already delivered to the tenant, by an official order prohibiting their use.

It should be noted that at present the outcome of any potential legal proceedings regarding disruptions in a lease relationship in connection with the COVID-19 pandemic cannot be predicted with certainty in view of the unprecedented novel situation. There are no comparable precedents under the applicable law as amended, and there may also be legal changes as a result of future new legislation. Furthermore, each analysis must be tailored to the individual case and take into account the distribution of opportunities and risks between the parties to the specific lease in accordance with the provisions of the lease agreement.

In the area of logistics properties, we are not aware of any official closure orders or prohibitions of use as a result of the COVID-19 pandemic so far, unlike properties open to the public such as retail stores (see above). However, here again, it cannot be ruled out that this may still change.

(a)    How does delayed handover/delivery of the leased premises affect the parties?

As far as the pertinent lease agreement contains provisions stipulating the time of performance (e.g. detailed handover regime in the case of “letting from the drawing board”), these provisions must be given priority as far as the timeliness of performance is concerned.

(i)      Can tenants terminate their leases?

If ‑ in the case of lease agreements concluded in the past ‑ the landlord can prove that the delayed completion and handover of the leased premises is exclusively connected with the COVID-19 pandemic – and is not partly due to a circumstance for which the landlord is responsible, e.g. insufficient pursuit of the building permit procedure – it may be arguable that that this will be regarded as a case of force majeure and, thus, as temporary impossibility of performance.

According to the definition of the case law of Germany’s highest courts, an event is regarded as force majeure if it is an external event which has no operational connection and cannot be averted even by the utmost reasonably expected care, and which is neither to be imputed to nor has to be anticipated by the debtor because of its frequency.

While this should protect the landlord against lawful damage claims for the benefit of the tenant, the tenant is not obliged to pay rent prior to handover. As to an extraordinary termination right of the tenant based on Sec. 543 para. 2 sentence 1 no. 1 of the BGB, it needs to be noted that the handover at a contractually agreed time is not conditional upon an element of the landlord’s fault, so that ‑ depending on the circumstances of the individual case ‑ there may be good reasons for and against an extraordinary termination right for the benefit of the tenant.

(ii)     Are tenants entitled to demand rent holidays/reductions?

As long as the leased premises have not been handed over to the tenant, pursuant to Sec. 320 of the BGB the tenant is not obliged to pay rent. As the statutory notion of rent includes service charges and ancillary costs, this applies to these costs as well.

(b)    Does German law acknowledge the principle of rebus sic stantibus and, if so, what role does it play here?

The concept of rebus sic stantibus is underlying Sec. 313 et seq. of the BGB. However, in principle, the special regulations of lease law take precedence over these provisions, i.e. Sec. 543 of the BGB supersedes Sec. 314, 313 of the BGB to the extent that extraordinary termination of a lease agreement is concerned.

Notwithstanding the above, Sec. 313 para. 1 of the BGB can also justify a claim to amend a contract. What is required first is a serious change in the circumstances that have become the basis of the contract. An amendment is serious if it is not seriously doubtful that at least one of the parties would not have concluded the contract or would have concluded it only with a different content if they had known about the amendment.

The allocation of risk and what is reasonable for the parties to the contract also play a decisive role in the amendment of a given lease agreement. The benchmark for the amendment is the “fair”" distribution of the new risk between the two contracting parties with a view to finding the agreement which the parties would have agreed upon when the contract was concluded in order to take into consideration the new risk if they had anticipated it. The possibilities for adaptation are manifold. Among other things, both an adjustment of the rent and a reduction of the lease term can be considered. The extent to which a corresponding amendment is reasonable for the parties depends on the respective individual case.

The following factors may play a role:

·         Length of the pandemic-related measures

·         Lease term

·         Agreed rent

Finally, there is also the possibility that one party offers to assume the risks of the changed circumstances. In such a case, it would be contrary to good faith for the other party to reject an adjustment to the contract that would only be advantageous for the said party.

2.       Are the parties to a lease covered by their insurance?

Possibly. The parties’ business insurance policies may include insurance cover for damage and loss of earnings related to the protection against infections. In the event of official site closures and other orders in connection with COVID-19, property insurance (including multi-risk and all-risk insurance) is of particular interest, although insurance components relating to the protection against infections may also be included in liability insurances. Insurance policies need to be checked in each individual case, and particular attention should be paid to the usual responsibilities of notifications to the insurer, cooperation and minimising damage.