Coronavirus-related Closures and Lockdown - Three Courts, Two Opinions!

Due to the COVID-19 pandemic numerous official orders for closure were issued, and commercial tenants suspended their rent payments. If tenant and landlord cannot reach an agreement, they often resort to legal action.

In our post dated 21 October 2020, we reported on the decision of the 15th Chamber of the Regional Court of Frankfurt am Main (judgment of 2 October 2020 - 2-15 O 23/20). In this decision, the Regional Court of Frankfurt am Main confirmed with ref-erence to the Regional Court of Heidelberg (judgement of 30 July 2020 - 5 O 66/20) that official closure orders due to the COVID-19 pandemic do not in principle lead to the cancellation of the duty to pay rent, nor to impossibility, interference with the basis of transaction, or a reduction in rent. These decisions are in accordance with previous jurisdiction and the prevailing opinion in literature: The entire risk of use is borne by the tenant! Until now, usually the rights of the landlord have been protected.

With judgement from 22 September 2020, file ref 3 O 4495/20 the Regional Court of Munich I decided however surprisingly different. In the opinion of the Regional Court of Munich I, the rent must be reduced due to the varying severity of the impair-ment caused by the lockdown. Now, the court has decided in favour of the tenant. In this post we present the current decision of the Regional Court of Munich I:

1. Decision of the Regional Court of Munich I, Judgement of 22 September 2020 - 3 O 4495/20

The tenant - a furniture store with home accessories - leases business premises for a branch for use as sales and storage space in Munich. After the tenant received a coronavirus-related closure order, she stopped paying rent for April to June 2020. The landlord asserted the rent in court but without success.

With the "unusability" of the rented property due to the coronavirus-related closure, the Regional Court of Munich I not only assumed a rental defect, but also recognized in it an interference with the basis of the transaction according to Section 313 (1) and (2) of the German Civil Code (BGB).

The Regional Court of Munich I essentially draws its decision upon four judgments of the Supreme Court of the German Reich from the time of the First World War: (JW 1913, p. 596, no. 10; decision of 09 November 1915, Rep. III.145/15; decision of 15 February 1916, Rep. III.333/15; judgment of 26 October 1917, Rep. III 212/17). The court explained, drawing on the aforementioned rulings by the Court of the German Reich, that the prohibition of opening sales points for retail or hospitality purposes generally constitutes a defect in terms of Section 536 (1) sentence 1 German Civil Code (BGB), since the suitability of the leased property is removed or reduced during the closure and due to the unusability for the contractually agreed use.

2. Evaluation of the Decision of the Regional Court of Munich I

The Regional Court's decision disregards the jurisdiction of the Federal Court of Jus-tice (BGH) of the last decades. The Federal Court of Justice clarified that obstacles or restrictions of use issued under public law which oppose the contractual use of a leased object, according to the jurisdiction of the BGH, only constitute a material de-fect in terms of Sections 536 et seq. BGB if they are based on the specific nature of the leased object and are not caused by personal or operational circumstances of the lessee (BGH, NJW 2011, 3151 marginal no. 8 with reference to BGH, NJW 2009, 664; BGH, WM 1994, 1136; BGH, NJW 1992, 3226; BGH, NJW-RR 1992, 267; BGH, NJW 1988, 2664). In the case at hand, the operational closure is not based on a defect resulting from the specific nature of the leased property, but on the operational circumstances of the tenant and the relationship to the environment and the corona-virus situation. This is one of the tenant's risks. The leased property as such is there-fore still suitable for use. It is only the tenant's business success that is damaged.

The decision regarding an interference of the basis of the transaction in accordance with Section 313 BGB is also not understandable. Although it is true that the closure of a branch could well lead to an interference of the basis of the transaction of the concerned commercial lease agreement. However, according to Section 313 (1) BGB, the contractual distribution of risk must be taken into account when weighing up all circumstances of the individual case. The court did not comment on the distribution of risk. It only ruled that an interference of the transaction basis existed because the parties had not considered the coronavirus pandemic when concluding the lease agreement, and would then not have concluded the agreement. Contrary to the opin-ion of the Regional Court of Munich I, the tenant had to bear the risk of use of the leased property. A corresponding contractual assumption of risk by the tenant regu-larly excludes apart from extreme exceptional cases the possibility of invoking an interference of the transaction basis when realizing the risk. Extreme exceptions are not apparent in this case.

The decision of the Regional Court of Munich I cannot keep up with the judgement of the Regional Court of Frankfurt a. M. and the Regional Court of Heidelberg regarding the argumentation level. It even leaves the arguments which the Regional Court of Frankfurt a. M. presented and justified in detail largely unnoticed.

3. Outlook

The decision of the Regional Court of Munich I opposes, as explained above, the cur-rent decisions of the German Supreme Court and prevailing opinions in literature. It remains to be seen whether this decision kindles a change of thinking, and whether there will be a distribution of risk between landlord and tenant in the future in the case of coronavirus-related closures or restrictions.

Klaus Beine / Dr Angela Kogan