BGH on rent adjustment in the event of pandemic-related business closures: Many questions remain unanswered

The Federal Court of Justice ruled in its judgment of 12 January 2022 – Az. XII ZR 8/21 (“Decision”) on whether tenants of commercial premises have a claim for rent adjustment in the event of pandemic-related business closures.

KFR – Kanzlei für Real Estate explains the decision and its practical consequences for landlords and tenants.

Background of the decision

The background to the decision was that the tenant KiK Textilien und Non-Food GmbH (“KiK”), which had rented premises in the Chemnitz area, did not want to pay rent for the period of a state-ordered business closure from 19 March to 19 April 2020 due to the COVID-19 pandemic. The landlord, however, insisted on payment of the full amount. The legal dispute ultimately reached the Federal Court of Justice, as both KiK and the landlord maintained their positions.

The BGH’s decision

The highest judges decided as follows:

• Commercial tenants may in principle have a claim for rent adjustment (§ 313 para. 1 BGB) in the event of a pandemic-related business closure.
• However, it always depends on the individual case, i.e. there is no universally applicable rule for the rent payment obligation in the event of a closure of commercial premises.
• State closure orders do not give rise to a right of the tenant to rent reduction (§ 536 BGB). The closure of a retail business due to the COVID-19 pandemic does not constitute a defect of the leased property. This does not make it wholly or partially impossible for the landlord to provide the contractually owed service of making the leased property available and maintaining it in a condition suitable for contractual use.
• The claim for rent adjustment requires, in addition to the frustration of the contractual basis, that adherence to the unchanged contract cannot reasonably be expected of the tenant. A blanket approach is not permissible here.
• The circumstances of the individual case are always decisive. The type of commercial tenant is irrelevant; what is decisive is solely the subject matter of the lease. When weighing up the circumstances, not only the disadvantages (loss of revenue) are to be taken into account, but also the financial benefits that the tenant has obtained through state payments to compensate for pandemic-related disadvantages.
• An actual threat to the tenant’s economic existence is not required for the claim for contract adjustment.

Our conclusion

While the decision is understandable, it will give rise to a series of further questions and variables when it comes to determining the amount or percentage by which the rent should be adjusted in individual cases.

Larger tenants with multiple branches throughout Germany and a functioning online retail operation (e.g. H&M) will be problematic, as they at least partially compensate for their losses through online retail, which cannot be attributed to the individual leased properties and therefore these advantages – according to the above decision – are not taken into account in the balancing exercise, since only the specific leased property is to be considered.

This does not appear correct, but was also not addressed in the decision. A further question is how the state aid granted is to be allocated to the individual leased properties.

Implications for smaller tenants

For smaller tenants (e.g. individual bookshops), the decision does not answer what measures – in addition to applying for state aid – must be taken to reduce impending losses or can be expected of tenants (e.g. setting up online shops, doorstep sales for pre-ordered items, as observed at some smaller businesses here in Germany) and what success they would have.

We therefore assume that in most cases the parties will need to reach an amicable settlement on the basis of losses and profits, which in many cases can only be estimated.