01 Apr
2020

Facilitation of tenancy law and other permanent contractual obligations for consumers and micro-enterprises

On 27.03.2020, the Bundesrat (Upper house of Parliament) approved numerous changes, among others in tenancy law, but also for other contractual relationships, which the Bundestag had passed two days earlier.


The law aims at alleviating the consequences of the Corona pandemic for citizens who, among other things, earn considerably lower incomes through job losses, short-time work or childcare and who are therefore often no longer able to cover their running costs such as rent, loans and other maintenance costs. However, it is also intended to help micro-enterprises (companies with fewer than 10 employees or an annual balance sheet total of less than EUR 2 million) confronted with considerable losses in turnover due to the corona pandemic.


The law not only provides relief for tenency/lease contracts and loan obligations, but also for a large number of other so-called permanent debt relationships (i.e. contracts under which the individual is obliged to make monthly recurring payments), from which payment obligations arise.
However, it should be noted that payment obligations arising from the contractual relationships do not cease to apply!
All measures described below are subject to one key condition: the consumer or micro-enterprise is particularly affected by the effects of the COVID pandemic. The debtors have to prove that they are particularly affected by the protective measures initiated by the authorities or the resulting economic consequences such as loss of jobs, short-time work, childcare, lack of orders, cancellations etc.

 

Continuing obligations

With regard to continuing obligations, Article 5 of the Act, amending Article 240 of the Introductory Act to the Civil Code, stipulates that the consumer who is party to a contract with a continuing obligation in the field of basic public services (e.g. electricity, water, gas and telecommunications), may refuse due payments until 30 June 2020 on the condition that the contract was concluded before 8 March 2020 and he is not in a position to provide for payment without jeopardising his reasonable livelihood or those of his relatives due to the Corona pandemic.
The microentrepreneurs, on the other hand, have a far-reaching right to refuse fulfilment of their contractual obligations. Until 30 June 2020, they can refuse fulfilment of their contractual obligations for all essential contracts that are necessary for the appropriate continuation of their business operations, including leasing, insurance and beer supply contracts.


However, this temporary right to refuse fulfilment may not be exercised if this is unacceptable for the creditor and would endanger his economic basis. In that case, however, the consumer or the microentrepreneur is entitled to terminate the contractual relationship prematurely in order to free himself from those payment obligations he is unable to meet.
However, the right to refuse fulfilment of contractual obligations does not apply to tenancy/leasing relationships, employment and loan agreements.

 

Tenancy / lease agreements

With regard to tenancy / lease agreements, the following special rules apply:
Tenants/leaseholders as well as micro-enterprises unable to pay their rent due to the spreading of the coronavirus are protected against termination of their contract for a limited period of time. At the moment, this only applies if rent is not paid within the period from 01.04.2020 to 30.06.2020.  Termination of the contract on the basis of failure to pay rent is excluded only until 30.06.2022. Until that date, the outstanding rent from the period April to June 2020 must have been paid.

 

Consumer loan agreement

Further measures to alleviate the effects of the Coronavirus regard consumer loan agreements:
In the case of consumer loan agreements concluded before 15.03.2020, payments (interest and principal) due in the period from April to June 2020 are to be deferred for 3 months. However, the parties to the contract may also make different agreements. During the period of deferral termination should be excluded. If no agreement is reached between the parties, the term of the contract shall be automatically extended by the deferred 3 months. Here, too, deferral is not feasible if it is not acceptable for the lender.


The regulations concerning the loans also concern all joint and several claims for compensation under § 426 BGB.
The Federal Government is authorised to extend the regulations on consumer loan agreements to micro-entrepreneurs, but has not yet done so.

 

Residential property law

Relief is also available in numerous other areas of law, including residential property law.
The aim is to enable owner communities remain capable of acting, despite the currently limited freedom of movement and assembly. Powers of the current administrators have been therefore extended until their re-election or the appointment of a new administrator. Furthermore, the continuation of the previous business plan was ordered. According to the legislator, however, the owner communities ought not hold their meetings online or in written form like the cooperatives or associations, but hold them in their usual form after the main protective measures have been terminated.

 

Final remark

As a general rule, all regulations are  time-limited. An extension of the deadlines by the Federal Government until 30.09.2020 is possible and already provided for by law.
Once the current exceptional situation has ended, there will be a return to the previous legal situation.

Please note that the above information only reflects the current state of information and may change over time. Neither can the information provided under any circumstances replace a consultation tailored to the individual case in question. Further legal and updated information on the Corona crisis can also be found at www.derra.eu. Our attorneys will be happy to provide you with individual advice at any time.