Munich Regional Court I, 22/09/2020, Ref.: 3 O 4495/20
In case law, there are considerable differences in how the individual courts categorise a government-ordered closure of a business under tenancy law. For example, the Regional Court of Frankfurt am Main ruled in its decision of 5 October 2020 (case reference: 2-15 O 23/20) that a rent reduction was not justified for this reason and that there was no disruption to the basis of the transaction. The Regional Court of Stuttgart ruled similarly on 19 November 2020 (case no.: 11 O 215/20) and the Regional Court of Wiesbaden on 5 October 2020 (case no.: 9 O 852/20).
The Munich Regional Court ruled differently in the case discussed here. The Munich Regional Court ruled that the state-ordered closure of a furniture shop would indeed constitute a rental defect and shifted the risk of utilisation to the landlord.
Facts of the Case:
The plaintiff in this case was the landlord and the defendant was the tenant of commercial premises in Munich city centre. The defendant landlord had not paid any rent in the months of April, May and June 2020 because, in her opinion, the rent was reduced by 100% due to the restrictions caused by the coronavirus pandemic.
The parties were bound by a rental agreement dated 10 October 2017 for the commercial premises. A total area of 2,929 square metres was leased (basement, ground floor, upper floor and storage space on the second basement floor). The agreed net monthly rent was EUR 52,668.25 and the monthly VAT was EUR 10,006.97 (section 4 4.1 of the rental agreement). The gross rent therefore totalled EUR 62,675.22. In addition, operating and ancillary costs (§ 4 4.2 rental agreement) were payable. The advance payments for operating costs amounted to EUR 11,200.00 plus VAT of EUR 2,128.00, i.e. a total of EUR 13,328.00, in accordance with § 4 4.5 of the rental agreement. A total of 76,003.22 euros was therefore payable per month under the rental agreement. According to § 7 a, clauses 7 a 1, 7 a 2, 7 a 3, claims for damages or rent reduction due to emissions or disturbances of the access to the building for which the landlord is not responsible or due to defects in the rented property were limited.
The subject matter of the rental agreement was stated in excerpts in clause 1 1:
"The space in the commercial building is leased for the operation and use as The lease is exclusively for the purpose of retail trade with - essentially - . The landlord declares that the use of the leased premises in their structural condition and for this purpose is permitted under building law on the day of handover; the landlord is only responsible for this under this contract...The tenant is further obliged to obtain and maintain all other official authorisations required for its operation at its own expense and risk. The Lessor shall ensure unhindered access to the rented premises, both for customers and for deliveries of goods, insofar as this is within its sphere of influence.
A change in the purpose of the lease requires the written consent of the landlord, which may only be refused on objective grounds..."
At the onset of the Covid-19 pandemic, the Free State of Bavaria responded with several measures under public law, such as general decrees and ordinances on infection control measures. As a result of the official restrictions imposed, the defendant was completely prohibited from opening its shop space in the period from 18 March 2020 to 26 April 2020.
From 27.4.2020 to 10.5.2020, the defendant was only allowed to operate on a limited area of 800 square metres on the ground floor and partly in the basement. Furthermore, the defendant had to comply with an extensive distancing and hygiene concept, whereby only a maximum of one customer per 20 square metres of sales area was permitted in the shop. This restriction on customer presence has continued to apply since 11 May 2020, while the restriction on sales area has been lifted.
In a letter dated 23 March 2020, the defendant announced that it would have to reduce the rent by 100% from April 2020 until further notice due to the coronavirus and in this letter invoked force majeure in the sense of an unforeseeable and unavoidable event.
The plaintiff, in turn, was of the opinion that the defendant should have made rent payments of EUR 76,137.76 for April 2020 and EUR 73,866.48 each for May and June 2020.
From the plaintiff's point of view, the defendant was still obliged to pay the rent in full. Despite the official closure orders, the rent was neither reduced nor was there a disturbance of the basis of the transaction. Official closure orders were directed as a general order against the operator as the addressee and not against the owner of the leased property. The leased property itself had been let by the landlord for the contractually agreed purpose of use throughout the entire period. Only the opening of retail shops of any kind had been prohibited. The premises could also have been used during the official closing times, e.g. to carry out maintenance work or for product storage. There was therefore no rental defect. This was also apparent from the distribution of risk in the tenancy, according to which the realisation of the operation of a furniture shop fell within the defendant's sphere of risk. The provisions on the frustration of contract were also not relevant. These could only be considered if the circumstances changed seriously after the conclusion of the contract and it would be unreasonable for the parties to adhere to the unchanged contract. In this case, the risk of use was borne exclusively by the tenant; a common basis for the transaction was also ruled out in this respect, as the parties had not had any ideas about a pandemic when the contract was concluded.
The defendant, in turn, was of the opinion that it was not obliged to pay rent, as the official prohibition of use of the rental property would constitute a rental defect and, moreover, the Covid-19-related prohibition of use also constituted a case of interference with the basis of the transaction. During the complete prohibition of use, it had not been able to generate any turnover from sales made in the rented space during this time because it had not been accessible to customers. The lack of usability or the subsequent limited usability constituted a rental defect; even if the cancellation of the suitability of the leased property for use for the contractually agreed rental purpose was not considered a rental defect, there would at least be a case of a disruption of the basis of the transaction. The opening of the defendant's shop to the public and the operation for the agreed rental purpose went hand in hand to the extent that without access to the shop there could be no business operations in accordance with the rental agreement. This was due to the central location of the rented property, which was orientated towards public traffic and was a decisive reason for renting it. The subsequent restriction of use therefore also had a very significant impact.
Judgement of the Munich Regional Court
The Munich Regional Court has now ruled that the admissible claim is only partially justified. The defendant tenant was entitled to reduce the rent in part and in increments of the respective months of rent claimed.
1. reduced rent payment claim
1 According to Section 535 (2) BGB, the tenant is obliged to pay the agreed rent to the landlord, while the landlord is obliged under Section 535 (1) BGB to grant the tenant the use of the rented property during the rental period.
This means that the landlord must leave the rented property to the tenant in a condition suitable for the contractual use and maintain it in this condition during the rental period. The current version thus largely corresponds to the original version of the BGB in the former Sections 535, 536 BGB, according to which the landlord must provide the leased property to the tenant in a condition suitable for the contractual use and must grant the tenant the use of the leased property during the rental period.
2. if the rented property has a defect at the time it is handed over to the tenant which cancels its suitability for contractual use, or if such a defect arises during the rental period, the tenant is exempt from paying the rent for the period during which the suitability is cancelled. For the period during which the suitability is reduced, the tenant only has to pay an appropriately reduced rent, whereby an insignificant reduction in suitability is not taken into account (see Section 536 (1) BGB).
Section 537 BGB was worded similarly in the original version: "If the leased property is defective at the time of transfer to the tenant, which cancels or reduces its suitability for the contractual use or if such a defect arises during the course of the lease, the tenant is exempt from paying the rent for the period during which the suitability is cancelled, for the period during which the suitability is reduced only to pay a part of the rent to be measured according to .... The same applies if a warranted characteristic is missing or is subsequently cancelled..."
a) Firstly, since the early days of the application of the German Civil Code, it has been recognised that the prohibition on opening retail outlets or restaurants can constitute a defect within the meaning of Section 536 (1) sentence 1 BGB because the suitability of the rented premises for the contractual use is suspended or reduced (see, for example, Bieber, Grundeigentum 2020, 657 to 658). As far as can be seen, the Reichsgericht has confirmed this in four stable decisions:
aa) The Reichsgericht (JW 1913, page 596, no. 10) stated that the unusability of the rented premises for the intended use based on a statutory prohibition constituted a defect within the meaning of §§ 537, 538 BGB old version. The case in question at the time concerned premises which were rented out for the operation of a factory, whereby this factory operation had been prohibited to the tenants by the local police authority. The Reichsgericht stated at the time that the concept of a material defect was generally "no different in the case of rent than in the case of purchase", even if a difference arose from the fact that only defects that "cancel or reduce the suitability of the object for the contractual use" came into consideration. The unsuitability of the object for the contractual use must therefore be regarded as a material defect in the case of rental as well as in the case of purchase, even if it is based on provisions of public law.
bb) In a further decision of 9 November 1915, Rep. III.145/15, the Reichsgericht made a statement with regard to a restaurant establishment that had been operated as a dance bar in a not insignificant way, whereby dances were very restricted by the police after the beginning of the First World War. Here, the Reichsgericht stated that "dancing was the actual source of income from the restaurant" at the time the contract was concluded, so that the plaintiffs' claim for a reduction was justified. A restrictive prohibition impaired the tenant's ability to derive benefit and deprived him of the opportunity to grant the contractual benefits. In this respect, the Reichsgericht even stated that it was irrelevant if the dance business was not mentioned in the written contract. An official ban on dancing thus affected "the leased property itself", the rooms that had been set up for dancing and had served it for many years; they were thereby deprived of the quality of a dance hall and were thus tainted with a defect that reduced their suitability for the contractual use.
cc) In a further decision of 15 February 1916, Rep. III.333/15, the Reichsgericht commented on the reduction of the rent of a wine bar operated as a nightclub if the police hour is generally redefined and night-time operation is thereby made largely impossible. At that time, the police hours were generally brought forward after the beginning of the First World War. Here, the Reichsgericht stated that the lessor was obliged to grant the lessee the use of the leased property and the enjoyment of the fruits during the lease period, stating in the case decided that "the business premises were intended for night-time operation and had been leased in accordance with the parties' consensual will, with the agreement of a high remuneration corresponding to this type of operation". By bringing forward the police hours, it was not possible to speak of night-time operation in the usual sense and also in the sense of the contract. Thus, the leased property itself was affected in its capacity as a night-time business and the contractual use was withdrawn in this respect.
dd) In a further decision, the Reichsgericht ruled in its judgement of 26 October 1917 Rep. III 212/17 on the lease of a shop in a seaside resort for business operations with bathers after the competent military authority had issued a ban on bathing operations, stating that this had caused "a defect, a deficiency" in the leased shop, which "nullified the suitability of the shop for the contractual use". The Reichsgericht further stated that the tenants of the shop did not have to allow themselves to be referred to the fact that they could continue to use the shop for sales purposes, namely for the purposes of good business due to the new strong war garrison in the town, as such a business operation would be completely different from that intended and desired by both parties at the time the contract was concluded.
In the decisions of the Imperial Court of Justice, it is obvious that the terms "defect" and "fault" are used synonymously and with the same meaning.
b) In the literature that is now emerging, there are also strong voices that primarily use the right to reduce rent to resolve corona-related conflicts between tenants (e.g. Krepold, WM 2020, 726 - 734 or Horst, MK 2020, 089-092). In each case, the authors would assume the purpose of the letting, for example a hotel or restaurant business (Krepold, loc. cit. 731) or even the impossibility of continuing the contract in the event of a ban on use (Horst, loc. cit.), whereby a rent reduction of 100% would generally be considered, which would correspond to the statutory automatic nature of the landlord's aforementioned guarantee liability.
Moreover, it is recognised anyway that public law restrictions as legal conditions can constitute a defect if they relate to the quality, usability or location of the item, whereby the agreed business purpose is important and the restriction must exist in principle (Palandt, BGB, 2020, § 536 para. 18).
c) Against this background, the court considered the existing restrictions on the rental property to be a rental defect within the meaning of Section 536 BGB.
The purpose of the lease, which was set out in writing (Section 1 of the lease agreement) and also clearly assumed by the parties, was to operate as a furniture shop with home accessories for retail purposes. This rental purpose could no longer be fulfilled following the public law restrictions imposed as a result of the coronavirus pandemic. These restrictions would not fall within the scope of risk of the defendant tenant. Insofar as it was stipulated in the contract (§ 1 1.1) that the tenant was obliged to obtain and maintain any further official permits required for its operation at its own risk, this did not lead to any other distribution of risk, since, according to the parties' consensus, these could only be permits under building law or, if applicable, labour law; the parties had certainly not given any thought to restrictions on use in the city centre due to epidemiological measures at the time the lease was concluded. Thus, the official restriction affected the contractually assumed possibility of use of the leased property itself, since according to the parties' unanimous intention, a shop for high-quality furniture and high-quality furniture accessories was to be operated in a central Munich location.
The landlord, who was also keen to maintain a high-quality environment for the entire ensemble, also had to adhere to this rental purpose. Thus, the situation also differs fundamentally from the situation of a restaurant that is affected by the Bavarian smoking ban regulation brought about by a referendum. A restaurant could continue to operate, whereby refraining from smoking could be expected to result in greater customer, guest and, in particular, labour protection for waiters and employees. However, such protective provisions, which ultimately extend into labour law, must always be accepted by a restaurant operator; they only have to do with the agreed purpose of the lease in unusual special situations. In the present case, however, the agreed purpose of use of the leased property, which was assumed by both parties and on which the defendant's utilisation of the property was based, was significantly disrupted. This constitutes a rental defect in the present commercial lease with the above-mentioned explanations.
3 As a result of the existence of the defect, a reduction in rent should be assessed, as the existing defect is not merely of a trivial nature. In accordance with the rental agreement, the court assumes a total gross rent owed including ancillary costs and heating costs of 76,003.22 euros. The - albeit relatively small - deviating amounts stated by the plaintiff are not apparent to the court. The payment amount itself was disputed between the parties and was also not comprehensible to the court on the basis of the plaintiff's internal account clearing system.
The reduction occurs without the tenant having to invoke it. An appropriate reduction is to be made in proportion to the reduction in suitability by estimating a percentage deduction, in the case of a significant reduction in area according to the percentage deviation in area. In the case of commercial premises, the primary criterion is the disturbance to the operation of the business, whereby in the event of a periodic disturbance, the reduction only occurs with the period of the disturbance (Palandt, BGB, 2020, Section 536, paragraph 33). Even in the case of supplementary contractual provisions, the defendant was able to invoke the legally reduced rent here, as the plaintiff would otherwise have to return any overpaid amount to the defendant (dolo fazit qui petit, quod statim redditurus est, Sec. 242 BGB).
This would result in the following dimensions:
aa) April rent 2020
In April 2020, due to the extensive closure of the shop due to the infection control regulations and general orders, it was almost impossible for the public to sell goods. In principle, the premises were only available for employees, the maintenance of administration or inventory work, and possibly for a mail-order business
The court therefore assumed an extensive reduction of 80%. This means that, based on a rent payment claim including taxes and ancillary costs of EUR 76,003.22, the claimant is entitled to payment of EUR 15,200.64.
bb) May rent 2020
In the month of May until 11 May 2020, only an area of up to 800 square metres could have been used as retail space for the ground floor and basement (out of a total of 2,929 square metres). From 11 May 2020, restrictions on public traffic would have continued to apply without restrictions on retail space. This meant that in the first third of May, only a good 25% of the rented space was available, which also had to be demarcated at great expense. In the last two thirds of May, there was a customer restriction, whereby adjustment expenses were incurred. Therefore, the court estimated the rent reduction for the month of May at 50%, so that 38,001.61 euros were still owed
cc) June rent 2020
For the month of June 2020, the court assumes a significantly reduced rent reduction based on the EUR 76,003.22 owed, as the business could be operated again without space restrictions, but a considerable restriction of the customers to be accommodated with one customer per 20 square metres had to be carried out in compliance with a hygiene concept. In this case, the court assessed the reduction at 15%, meaning that EUR 64,602.74 was owed in this respect.
2. interference with the basis of the transaction
In the present constellation, there was a breach of the basis of the contract, as the parties had obviously not considered the consequences of a corona pandemic and infection protection measures by the state and had therefore hardly concluded the contract (see Section 313 (1), (2) BGB). In terms of the legal consequences, the adjustment would obviously have been a reduced rent, whereby the amount would correspond to the statutory reduction. However, the application of the provisions on liability for defects would appear to take precedence (Palandt loc. cit., § 313, paragraphs 12, 61).
Source: District Court of Munich I
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