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Planned changes to rental, lease and loan contracts
27. März 2020
The federal government would like to protect tenants and borrowers. In light of the corona crisis, the federal government has submitted a bill to protect tenants and borrowers if they can’t pay their rent or loan instalments. This law is set to be passed in the expedited procedure by the Bundestag and Bundesrat (Lower and Upper Houses of German Parliament, respectively) in the days to come.
It pertains to the prevention of rent and loan terminations. The Federal Government plans to create a new art. 240 EGBGB (Einführungsgesetz zum Bürgerlichen Gesetzbuch [Introductory Act to the German Civil Code]) with which the requirement to pay such obligations remains in principle but may not result in termination if it is unfulfilled.
What happens if you can’t currently pay your rent or lease?
You will still be required to make the payment or pay rent. If you are in arrears with rent payments, the landlord does not have the right to issue an extraordinary termination until 30 September. According to the current situation, the missed payments must be paid by 30 September. However, the bill operates under the presumption that the period may be extended if the corona crisis lasts longer.
Furthermore, tenants or leaseholders are not required to prove the corona crisis as a reason for the missed payment of obligations. It is rather the landlord that has the burden of proof. In that sense, this regulation differs from other permanent obligations.
What if you can’t pay your loan installments?
In this case, you are also required to pay the loan instalments. Even so, lenders are not entitled to terminate a loan and use collateral until 30 September.
Unlike rent payments, the bill assumes that loan relationships may be changed after 30 September. Payments in arrears may then be caught up at the end of the loan relationship; the loan contract will be extended.
Our assessment and recommendation
The proposed regulations help to secure companies‘ livelihood and are therefore sensible. The federal government would like to protect tenants and borrowers. However, we are still at the stage of a legislative proposal. The legislative bodies still have to agree to this so we expect changes which we will inform you about here.
Regardless, we recommend making all rental and lease payments since they must be paid in full by 30 September. If you can’t pay due to a tight liquidity situation, you should avail yourself of the aforementioned regulation.
However, we advise you to enter into a discussion with your landlord by having a constructive conversation. You might consider postponing payments until the end of the year or later in order to avoid a onetime, high liquidity requirement as of September 30. Such a contractual arrangement should provide for an extension option in the event that the legal regulation extends beyond 30 September. We would be happy to help you with it.
In the case of loan instalments, too, we strongly recommend an amicable arrangement with the financing credit institutions. They are currently attending to applications for aid loans and will offer you an overall solution in many cases. That also includes regulations for existing loans. We’d also be happy to help you with that.