Summary of Legislation
Enacted COVID-19 legislation
Against the background of the current impact of the COVID-19 pandemic, a law to mitigate the consequences of civil, insolvency and criminal proceedings law has been enacted by the German legislator on 27 March 2020.
Restrictions of the right to terminate leases
As of 1 April 2020, for tenants of business premises and land, the right of the landlord to terminate lease and rental agreements has become restricted. This applies to both residential and commercial leases. Landlords are now disallowed to terminate a lease due to rent debts resulting from the period from 1 April 2020 to 30 June 2020, if the debts are due to the effects of the COVID-19 pandemic. However, the obligation of tenants to pay rent remains in principle.
No certain time limitation
As it is currently not possible to predict when the pandemic will peak and when economic life will subsequently stabilise to such an extent that the economic situation of the affected debtors can return to normal, a potential prolongation of the measures is possible. If it should turn out that the period from April to June 2020 is not sufficient to cushion the economic consequences of the crisis because the social life and employment of a large number of people will continue to be significantly affected by the COVID-19 pandemic, the Federal Government is given the opportunity to extend the time period for rent debts until 30 September 2020 by way of an ordinance.
Loans
At this point of time, only with regard to consumer loan agreements, a legal deferral rule and an adjustment of the agreement after the expiry of the deferral period is in place, with the possibility for the contracting parties to find a different contractual solution. This is accompanied by a statutory protection against termination. The Federal Government with the consent of the German parliament (Bundestag) is given the option to extend the provisions to further groups of borrowers by way of an ordinance.
Insolvency law
The obligation to file for insolvency and the payment prohibitions are suspended until 30 September 2020, unless the insolvency is not due to the effects of the COVID-19 pandemic or there is no prospect of eliminating a payment default that has occurred. For a three-month transition period, the right of creditors to apply for the opening of insolvency proceedings is suspended also. The suspension of the obligation to file for insolvency and the regulation on the reason for opening insolvency proceedings in the case of creditors' insolvency applications may be extended by ordinance until 31 March 2021 at the latest.
Leases
Regular civil law provisions (suspended)
Regular German civil law provisions of the German Civil Code (Bürgerliches Gesetzbuch – BGB) allow for the termination of leases and tenancies for good cause without notice if the tenant is in default of payment of the lease or rent or a substantial part thereof for two consecutive due dates or, in a period extending over more than two due dates, is in default of payment of the rent in an amount equal to the rent for two months.
Interim crisis provisions
Leases and rents
In the Introductory Act to the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuche – “EGBGB”), special provisions have been introduced for a limited period of time in Article 240, inter alia, in relation to rental and lease agreements in Section 2:
- Exemption of the right to terminate: The landlord may not terminate a lease of land or premises solely on the ground 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 by the tenant. Other termination rights remain unaffected.
- The prohibition of termination in favour of the tenant cannot be waived by a deviating individual contractual regulation.
These provisions cease to be effective by the end of 30 June 2022.
Other areas
Even further reaching regulations have been enacted for the benefit of consumers and micro-enterprises outside the area of lease and rental agreements. For example, in certain cases related to the COVID-19 pandemic, the right is granted to refuse until 30 June 2020 to satisfy a claim related to a contract that is a continuing obligation and was concluded before 8 March 2020. This does not apply in relation to rental and lease agreements, and the payment of the rent may not be refused, as only termination of these agreements is excluded.
Duration
The Federal Government is authorised, by statutory instrument (ordinance) to
- extend the restriction on termination to arrears of payment which have arisen in the period from 1 July 2020 until 30 September 2020 at the latest, where it is expected that social life, the economic activity of a large number of companies or the employment of a large number of people will continue to be significantly affected by the COVID-19 pandemic,
- extend, with the consent of the German parliament (Bundestag), the deadlines even further beyond 30 September 2020 if the impairments continue to exist.
Only the duration of the entire interim provisions in the EGBGB is limited to 30 September 2022.
Background
Intention of the law
The aim of the legislation is to prevent tenants of residential premises, land and premises other than residential premises, as well as lessees, from losing the rented or leased property due to accumulated arrears in payments during the period when, according to current expectations, the COVID 19 pandemic will lead to significant economic losses. Should there still be payment arrears from this time after the interim provisions have expired, the general regulations of the German Civil Code would again be applicable.
Substantiation of COVID-19 relevance
- It is the responsibility of the tenant to prove the connection between the COVID-19 pandemic and non-payment of the rent in case of dispute. The tenant then has to present facts from which an overwhelming probability results that its non-payment is based on the COVID-19 pandemic. To substantiate this, the tenant may use appropriate evidence, an affidavit in lieu of an oath or other suitable means. Appropriate means may include, in particular, proof of the application or certificate of the granting of state benefits, certificates from the employer or other proof of income or loss of earnings.
- In addition, tenants of commercial properties can regularly provide credible evidence of the connection between the COVID-19 pandemic and non-performance, for example by regularly making it clear that the operation of their business has been prohibited or significantly restricted by legal ordinance or official order in the context of combating COVID-19. This currently affects restaurants or hotels, for example, whose operation is prohibited in many German states, at least for tourism purposes.
Civil law applicable aside from the exclusion of termination
The general civil law regulations of the German Civil Code on maturity and default remain unaffected, which continue to apply to the claims for lease and rent during the validity of the interim provisions.
- As a result, tenants and lessees must continue to pay their claims on time and may be in default if they do not pay on time.
- Furthermore, termination of the tenancy or lease for other reasons (e.g. other important reasons based on serious misconduct of the tenant towards the landlord) remains possible.
- As far as the law allows the termination of a lease without reasons – for example in the case of unlimited leases of land and of rooms that are not residential premises – this possibility of termination also remains unaffected.
Loan Agreements
Key provisions
Payment deferral
For consumer loan agreements concluded before 15 March 2020, the lender's claims for repayment, interest or amortisation due between 1 April 2020 and 30 June 2020 are deferred for a period of three months from the due date if the consumer suffers a loss of income due to the exceptional circumstances caused by the spread of the COVID-19 pandemic which make it unreasonable to expect the lender to perform the service owed. In particular, it is not reasonable to expect the consumer to provide the service if the consumer’s reasonable livelihood or the reasonable livelihood of the consumer’s dependants is at risk. The parties to the contract may make deviating agreements, in particular with regard to possible partial payments, adjustments of interest and repayment of principal or debt rescheduling.
Exclusion of the right to terminate
Terminations by the lender due to default in payment, due to a significant deterioration in the financial circumstances of the consumer or the value of a security provided for the loan, are excluded until the expiry of the deferral.
Mutual amendment of the loan agreement, extension of duration
The lender shall offer the consumer a discussion on the possibility of an amicable arrangement and on possible support measures. In the absence of a mutually agreed arrangement for the period after 30 June 2020, the duration of the loan agreement shall be extended by three months.
Duration and extension of scope
Further to a prolongation of the payment deferrals up to 30 September 2020 and of the loan agreement’s term by 12 months in total, the Federal Government with the consent of the German parliament (Bundestag) is given the option to extend the provisions to further groups of borrowers, in particular to micro enterprises.
Insolvency law
Key provisions
The obligation to file for insolvency is suspended until 30 September 2020. This does not apply if the insolvency maturity is not due to the consequences of the COVID-19 pandemic or if there is no prospect of eliminating an existing insolvency. If the debtor was not insolvent on 31 December 2019, it is assumed that the insolvency maturity is due to the effects of the COVID-19 pandemic and there are prospects of eliminating an existing insolvency.
Duration
The Federal Ministry of Justice and Consumer Protection is authorised to extend by ordinance the suspension of the obligation to file for insolvency up to 31 March 2021 if this appears to be necessary due to continuing demand for available public assistance, ongoing financing difficulties or other circumstances.
