Client Alert 30 Mar. 2020

Germany Insight: COVID-19 (Coronavirus) Regulations for Leases and Property, Bankruptcy, Commercial and Corporate and Consumer Protection

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The spread of the novel SARS CoV-2 virus (COVID 19 pandemic) has significant negative effects on public life and in particular economic consequences for many citizens and businesses. In order to mitigate these economic consequences, the German legislator passed the Law to mitigate the effects of the COVID 19 pandemic in civil, insolvency and criminal procedure law on 27 March 2020 (“COVID 19 Act”), which regulates the following key points:

  1. Lease and Property
  2. Bankruptcy
  3. Commercial and Corporate
  4. Consumer Protection

I. Lease and Property

For tenants and leaseholders it will be a particular problem to pay the current rent for residential or commercial space. Therefore COVID 19 Act stipulates that for tenancies of land or of rooms, the right of the landlord to terminate tenancies is temporarily restricted. This applies to both residential and commercial leases. Therefore the act statutes:

  1. Landlords are not allowed to terminate a lease due to rent debts from the period from 1 April 2020 to 30 June 2020, if the rent debts are due to the effects of COVID 19 pandemic.
  2. In return, the obligation of tenants to pay the rent remains in principle. The rents remain due and payable and interest is charged accordingly.
  3. This is valid until 30 June 2022, which means that for payment arrears that occurred between 1 April 2020 and 30 June 2020 and have not been settled by 30 June 2022, the contract can be terminated after this date. This means in general that tenants and leaseholders have more than two years from 30 June 2020 to settle any arrears of rent or lease entitling them to terminate the agreement.

II. Bankruptcy

In the event of bankruptcy, not only creditors can file for bankruptcy, but also the managers of limited liability companies are obliged to file for bankruptcy. The aim of COVID 19 Act is to give the companies and their representatives time to take the necessary precautions to eliminate insolvency maturity. Therefore the act statutes:

  1. The obligation of managers of liable corporate entities to file for bankruptcy with criminal and liability penalties is suspended for a temporary period. Companies do not have to file for bankruptcy by 30 September 2020.

  2. If such an enterprise continues to make payments such as rent, these payments are not contestable by the subsequent insolvency administrator.

III. Commerical and Corporate

For companies and associations, COVID 19 Act provides for temporary facilitation’s for the holding of general meetings and makes provisions for the continued existence of certain appointments to governing bodies. Therefore the Act statutes:

  1. For the AG, KGaA, and SE, the possibility is given to enable the Annual General Meeting to be held online without authorization in the Articles of Incorporation, and to make advance payments on the net retained profits.
  2. For the GmbH, the facilitated possibility of passing shareholder-resolutions in text form or by written vote is temporarily created.
  3. Cooperatives and associations may also held meetings without physical presence. In addition, for cooperatives, associations, foundations and condominium owners' associations, rules have been implemented to circumvent the dismissal of their current management.
  4. In the German Transformation Act (“UmwG”), the deadline pursuant to § 17 sub. 2 sent. 4 UmwG is also extended to twelve months in order to prevent the failure of transformation measures due to the lack of an opportunity to hold a meeting.

IV. Consumer Protection

To mitigate the economic consequences of the corona pandemic for individual consumers, COVID 19 Act also stipulates the following:

  1. For continuing obligations (electricity, gas, telecommunications, water supply, excluding rent) a right to refuse performance is established for consumers and small enterprises until 30 June 2020. This means that payments for these contracts do not have to be made until 30 June 2020 if the payment obligation cannot be met.
  2. For consumer loan agreements, a legal moratorium was implemented for payments that become due between 1 April 2020 and 30 June 2020. For a transitional period of six months, borrowers will be protected against termination based on these (potentially missing) payments. In addition, the law provides for an adjustment of the contract after the above mentioned period has expired, with the possibility for the contracting parties to agree on a different contractual scheme.

Attorney advertising. The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice. No legal or business decision should be based on its contents.

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