Higher Regional Court judgement: risk-sharing between landlord and tenant as a result of the pandemic-related closures

Allen & Overy LLP

On 24 February 2021, the Higher Regional Court (Oberlandesgericht) of Dresden (judgment of 24 February 2021, case no. 5 U 1782/20) took a stand on risk-sharing between landlord and tenant as a result of the pandemic-related closures – this marks the first time a higher regional court has dealt with such a case.

The judgment concerned a situation that occurred during the first lockdown in spring 2020. The defendant, a fashion retailer, did not pay the rent in April 2020, stating that it was not able to open its store for a period of one month due to the general rulings of the Saxon State Ministry for Social Affairs and Social Cohesion. After the defendant had been sentenced by the first instance court to pay the full amount of the rent, its appeal before the Higher Regional Court of Dresden was partially successful.

The Higher Regional Court of Dresden assumed a 50/50 risk-sharing between the landlord and the tenant and sentenced the defendant to pay 50% of the base rent for the relevant period of time. The Court stated that it was not relevant whether there was any defect in the leased property and that the provisions relating to impossibility did not apply, either, but that the occurrence of the Corona pandemic and the official closure order issued by the State led to a frustration of contract (due to a fundamental change of circumstances) (Störung der (großen) Geschäftsgrundlage) within the meaning of section 313 (1) of the German Civil Code (Bürgerliches Gesetzbuch) relating to the lease agreement. The Court further stated that, as a legal consequence, this resulted in an adjustment of the agreement to the effect that the base rent for the duration of the ordered closure was to be reduced to one half and that such reduction of the base rent by 50% was justified because none of the parties had caused or foreseen the frustration of contract. The Court went on to state that thus it was ultimately reasonable to divide the associated burden in equal parts between the parties to the lease.

The detailed reasons and the basis of the result determined by the Court remain to be seen as the judgment by the Higher Regional Court of Dresden of 24 February 2021 was delivered directly after the oral hearing (so-called Stuhlurteil) and the grounds for the judgment have yet to be drawn up.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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