German court rules on rent reduction

Germany Berlin

The Munich Regional Court has ruled that disturbance of use on account of Covid-19 entitled tenants to rent reductions.

Following the judgement, tenants can cut payments by 80% of the total monthly gross rent for April, 50% for May and 15% for June 2020

Garry Levin, managing director & founder, LHC International, told us: “It is hard to find signs of optimism in the coronavirus pandemic. For all the talk of a vaccine, we have had to lock down again, and may have to do so repeatedly. In the hospitality industry, which relies on the free movement of people, the news is no less bleak, but in the last couple of days, a regional court in Munich has thrown the industry a lifeline.

“Admittedly it was not immediately obvious that it was intended for hotels. When a furniture shop in Bavaria took legal action, the court decided that properties could expect reductions in their leases during lockdowns. Lawyers have since confirmed that this will also apply to hotel owners across the whole of Germany, providing for rent reductions of 80% in April, 50% in May and 15% in June.

“This should be greeted with relief by owners of furniture shops and every hotelier. Income may still not match expenditure, but suddenly the gap between them does not look so huge. Not everyone will view the court’s decision as wholly good news, though.

“We represent many big names in the hotel industry, but also have clients who are property owners. They have shared their concerns with us, chief among them that many of these properties are mortgaged, and that lower rental income means they can no longer meet their loan obligations.

“Being able to see both sides of the story, to represent the relieved hoteliers and the worried property owners, means that we are in a unique position to see the effects of the court’s decision. It means that we do not envy such decision-makers. If they fail to allow rent reductions, many hotels will fail. And if they do allow them, as is the case now, then property owners will face an uncertain future.

“It seems that this present arrangement steers a careful middle course. If hotels fail, the property owner will lose all of their income from the lease, and the banks will have to deal with unpaid mortgages. Nobody will be happy, and some people will be much worse off.

“There is a wider lesson here for all of us. Each business might seem self-contained, but it is connected to all of the others in the same ecosystem. The only way we can survive is to keep working closely together to find solutions that help all of us navigate through difficult times, which may perhaps be the greatest reason for optimism of all.”