By David van Dijk MRICS
In response to the COVID-19 pandemic, the German federal government recently introduced a legislative package providing for far-reaching amendments. The new legislation took effect on 1 April 2020.
Brief analysis of the new legislation in Germany and the UK
The new German legislation is, in essence, similar to the UK's Coronavirus Act 2020. Both prohibit the termination of certain leases during the COVID-19 crisis, banning the forfeiture of leases for arrears of rent during the pandemic.
In their article Implications for Commercial Landlords and Tenants, Dev Desai and Alexander Mulroney of Watson Farley & Williams conclude that the UK's Coronavirus Act 2020 is flawed because inter alia it fails to solve the issue that tenants will still have to pay arrears when the moratorium ends, in Q3 2020.
However, the German and UK legislation differ on a number of important points. In Germany, termination of a lease for arrears of rent arising in the period from April to June 2020 due to the COVID-19 pandemic will only be possible as from July 2022.
In practice, this means that, in Germany, leases cannot be terminated in Q3 2020 on the basis of arrears resulting from the COVID-19 outbreak and that, for all intents and purposes, tenants will benefit from a much longer period (two years in fact) to pay arears accumulated during the crisis.
Comparison of the Dutch system with the UK and German legislation
The Dutch system has more in common with the UK's.
The Dutch government has not introduced specific COVID-19 legislation allowing tenants to postpone rent payments or banning landlords from forfeiting leases. However, this already follows from the existing Dutch legal system. In the Netherlands, a commercial lease cannot be forfeited without court approval.
Neither the UK nor the Dutch system resolves the issue that tenants will have to pay their rent in the short term, either immediately or in Q3 2020, at the latest (*1). This is in sharp contrast to the German legislation, which essentially allows tenants to pay two years later (*2).
Which system is best?
The answer to the question of which system is best - the German, Dutch or UK response – is of course a matter of perspective. It is clear that the German legislation provides greater protection to tenants. The Dutch system – without specific COVID-19 legislation relating to the termination of leases – falls somewhere in between, as a commercial lease cannot be terminated by the landlord because of rent arrears without court approval, which generally takes about a year to obtain, during which time the parties are usually able to reach an agreement.
*1. Tenants will have to pay rent because, in the UK and the Netherlands, landlords can force them to do so by threatening forfeiture of the lease.
*2. Tenants are obligated to pay rent, but the landlord cannot terminate the lease if the tenant fails to pay due to COVID-19. In practice, this means that tenants in most cases will not pay rent.