Landlords exposed to losses in new coronavirus protective legislation

In a note to clients last week, Berlin law firm Bottermann Khorrami highlighted an important anomaly in the German Bundestag’s legislative package designed to mitigate the negative economic impact of the Coronavirus pandemic.

The package includes clauses preventing landlords from terminating rental contracts for residential and commercial premises due to Corona-related payment arrears, with the law providing for the obligation to file for insolvency and the associated prohibition of payments to creditors to be suspended until 30 September 2020.

However, as Esfandiar Khorrami, lawyer and partner at Bottermann Khorrami LLP, explains: "On the one hand, suspending the obligation to file for insolvency is helpful to gain time and thus enable the individual companies to remain capable of acting. However, it is equally important that the money from the stabilisation fund arrives quickly and in sufficient amounts where it is most urgently needed. However, the legislative package does not provide for any suitable protective measures for landlords who run the risk of getting into economic difficulties themselves through prohibitions on termination and deferral of rent."

"Landlords, too, will feel the effects of the Corona crisis significantly: through loss of income, higher vacancy rates and possibly more difficult new contract negotiations with commercial tenants. With the far-reaching restrictions on the landlord side, owners are facing difficult times. In this situation and in the event of loss of current rental income, many may no longer be able to meet their own liabilities," said Khorrami.

Khorrami’s partner Uwe Bottermann added, "This will hit private landlords who have acquired real estate property as a retirement provision particularly hard. Especially as defaulting tenants who invoke the Corona pandemic have until June 2022 to settle outstanding rent payments. On the other hand, owners and landlords cannot defer their payment obligations, such as interest on loans or ongoing utility costs." And Bottermann adds: "As well-intentioned as the law is, there is a danger that by suspending the obligation for companies to file for insolvency and the possibility of not having to pay rents, the economic problem will only be shifted, namely from traders and tenants to the landlord."

The law firm also highlighted a new significant exception to normally permitted practice, whereby the Berlin Chamber of Notaries (Notarkammer) has relaxed some of its more restrictive rules in recognition of the coronavirus pandemic.

In particular, the necessity of all parties’ personal presence during the notarisation of, for example, real estate purchase contracts, land charges or articles of association, is being amended. Previously, it has only ever been possible in exceptional cases to carry out notarisations by means of a representative without power of representation. Now, this possibility is expressly permitted as the standard for the period of the Coronavirus pandemic, to comply with the decree to avoid personal meetings as far as possible.

Berlin law and tax consulting firm Bottermann Khorrami LLP advises that this is to enable the contracting parties to avoid personal meetings in order to prevent possible infection with the Coronavirus. 

Sarah Scherwitzki, a notary at Bottermann Khorrami, explained the new permitted procedure. "Because notarial services are systemically relevant, the Berlin Chamber of Notaries has given us the means to carry out these services during the Coronavirus pandemic even without the presence of all parties involved. Instead of the parties to the contract, employees of our notary's office can be appointed as representatives without power of attorney. The parties to the contract then simply provide their signature in front of the notary in a place of their choice in order to approve the contract.”

For notaries, parties to a contract are now able to join the notarization negotiations via video conference, where they can ask their usual questions directly while the deeds are being notarised.