In Germany, the real estate market is since the real estate and housing crisis in 2007/2008 continuously on a very strong growth. Even the crisis did just dip the market for a few months for commercial real estate and has recovered quickly afterwards.
Germany is for many investors a fast growing and secure market. This is mainly due to a steady favourable political climate, a strong industry and businesses within the European Union and a growing immigration of high-qualified people. The latter for example was the decisive advantage, why Google, Apple and Microsoft moved their European headquarters or new offices to Munich also with consideration of a perfect infrastructure to the US.
This positive development was put on hold due to the COVID 19 crisis. Besides the effects investors and landlords feel on the European level, also the inner-German market is negatively affected. The German government and the federal states have put a wide range of measurements in place to flatten the economic impact of the crisis. Those legislative actions have worked well so far, helping many industry and business sectors, including the real estate market.
Are there any emergency and/or interim measure regarding Commercial Lease Agreements in Germany?
In Germany, the courts have been considering a solution that balances the parties’ interests, on the one hand reducing the fixed costs of companies in regards to their rent, on the other hand not burdening all the risks on the landlords or the public purse.
Regarding commercial and residential lease agreements, the new law regarding the COVID 19 crisis mainly shields the tenant from termination of the lease agreement due to non-payment of rent due to the pandemic. This was necessary, because in general the landlord can terminate a lease agreement if the tenant is in default with more than two months’ rent. Now, the tenant can withhold the rents of April, May and June 2020 until 30 June 2022 without risking that the landlord terminates the lease due to this reason, provided the tenant can – in case of a lawsuit – prove that his non-payment is due to the pandemic. The law is now only considering rents from April to June 2020, but, if the crisis continues, may be extended until September 2020.
Is it possible to cancel, suspend or modify the Lease Agreements conditions due to the COVID-19 crisis?
There are no further changes to German tenancy law exceeding the aforementioned termination cancellation. According to the explanatory memorandum to the new law, the obligation to pay rent itself remains unchanged and the rent becomes due. The government therefore also simultaneously rejected any change to the stipulated terms of the lease as for example based on “force majeure”. The legal consequence of non-payment of rent is therefore only a temporary suspension of the landlord’s right to terminate the lease. As the rent is still due, if the rent is not paid, the landlord could also claim interests on arrears for this period and related legal fees.
In case you are in the middle of a sales and purchase transaction - how can you handle this situation? Are there special urgent measures?
In daily life, many clients’ and law firms’ offices are either closed or only occupied in half. Most of the business is handled by working from home. Yet, if necessary, one may work from the office. This goes concretely for lawyers, as they are considered as part of the “essential workforce” that ensures maintaining the essential infrastructure (they are considered “system relevant”).
As before and now even more, we hold client’s meeting as video chats. The biggest challenge was how to handle signings for real estate or share purchase agreements as the law requires personal presence of the parties or their representatives in front of the notary while the notary reads the whole contract out loud. The notaries therefore provide different solutions: Either they undertake the signing in their offices, reducing the risk exposure by establishing shift schedules and wearing face masks. Or the signing is held at a law firm’s office – or even in the building of the object of purchase, maintaining the mandatory distance between all persons. All in all, we experience quite the usual business, in an admittedly unusual situation.
What is the legal situation regarding cancellations of rentals of tourist apartments, hotels or holiday homes?
Cancellations occur from hosts or guests due to the travel restrictions and the official travel warning issued by the German state as well as the closure of the border. Furthermore, touristic travels have been prohibited and are allowed again only as of 30 May 2020 in Germany.
For vacations booked through a tour operator, section 651h of the German Civil Code applies. It allows the guest to cancel and can claim his payments back. Most travel insurances are declining to step in exactly due to this reason.
For individually booked travels, cancellation is not so easy, except where the contract provides for respective cancellation rights (as often when booked online, directly or through portals). If due to curfews or other restrictions the provider of the accommodation cannot provide the services, the provider will cancel the booking and provide for refund. The most pragmatic approach is to communicate.
This of course only applies for contracts under German law.
What effects does the current situation have on ongoing construction projects and contracts?
Our clients’ mostly experience delays in construction projects due to the pandemic. However, clients should watch out to free riders which try to cover up delays occurred, using the pandemic as an excuse.
Concerning construction contracts, they mostly already have a “force majeure” provision included. This typically leads to a prolongation of the construction timeline with no negative effects for the contractor. Moreover, the laws on construction contracts already includes a “force majeure” with the effect of a prolongation of the timeline. Yet, this regulation is not applicable in any contract and has to be reviewed case-by-case.
Which courts have jurisdiction, what are the expected trial times and what are the costs?
Litigation concerning leases or construction contracts are held in front of the civil courts. If the lease or construction contract lacks a valid choice of court / arbitration, the courts where the premises / construction site is located generally have jurisdiction.
The average duration of proceedings related to simple lease cases is between 3 and 6 months. For construction litigation, we mostly experience a longer duration due to the consultation of experts for evidence purposes.
The costs vary as they depend on the scope and the amount in dispute.
What financial assistance packages or ways to mitigate the financial impact have been adopted?
On the German federal and state level, huge rescue packages have been introduced and have already been paid out to the applicants. Furthermore, the European Union tries to mitigate the impacts with credits. In Germany, the most prominent state aid is the take-over of 10 percent of the airline Lufthansa for around 300 million euros through the German state.
Moreover, loans of consumers affected by the pandemic are subject to a “moratorium”. Finally, consumers and small businesses may also defer other payment liabilities (except rents and salaries).
Apart from state aids, we also experience some landlords negotiating with their tenants to reach a balanced solution for the rents. Some even on their own abated the rents in the time of the pandemic.