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Briefing

Update on recent Corona related developments in Germany (status 21 March 2020)

The German government is currently working on certain legislative changes, which might pass in parliament as early as next Wednesday.

They include the following changes for contracts:

  • Lease agreements (residential and commercial):
    Landlords may not terminate lease agreements if the tenant fails to pay rent during the period from 1 April through 30 September 2020 (possibly to be extended until 31 March 2021) where such non-payment is caused by the effects of the Corona pandemic. As regards the burden of proof, there is a presumption (albeit rebuttable) that the tenant’s non-payment is caused by the effects of the pandemic. Whilst, as stated, the landlord may not terminate due to the non-payment of rent, the tenant’s obligation to pay remains legally due without the law foreseeing the right of the tenant to reduce the rent.

  • Loan agreements (signed before 8 March 2020 but this date could change):
    Claims for repayment, amortisation and interest are postponed by 6 months from their respective due date if the borrower suffers a decline of income due to the extraordinary circumstances caused by the Corona pandemic. Again, there is a presumption (albeit rebuttable) that the pandemic has caused the decline in income. Creditors’ termination rights are excluded until 30 September 2020 (possibly extended until 31 March 2021). If the creditor and debtor cannot agree on an arrangement for the time period after 30 September, the term of the agreement will be extended by 6 months (possible extension: 12 months). The relief for the debtor shall not apply if the creditor can claim that postponement of the payment or the exclusion of the termination right are unconscionable for the creditor, taking into account all circumstances.

  • Management / development / construction agreements:
    The debtor of an obligation arising in connection with a contract (excluding leases and loan agreements) may refuse performance until 30 September 2020 (possibly to be extended until 31 July 2021) if it cannot deliver due to circumstances that are caused by the Corona pandemic; the burden of proof is on the debtor. An exception applies where the refusal would be (i) unconscionable for the creditor (taking into account all aspects of the individual case) (in which case the creditor may have a termination right) or (ii) contrary to applicable rules of international law for the transport of goods. Our interpretation would be that these provisions will also apply to management, development and construction agreements.