Commercial Landlords Often Reject Proposed Rent Adjustments in Surveys
German Retailers Struggle to Negotiate Rent Relief with Landlords Amid COVID-19 Crisis, Survey Suggests
Berlin - A survey by the German Retail Association (HDE) has revealed that many commercial property landlords are unwilling to provide relief to tenants during the coronavirus pandemic. The survey, which was conducted among 245 retailers and reported by "Handelsblatt" (Friday edition), found that in two-thirds of cases, retailers' attempts to discuss a lease adjustment with their landlords were unsuccessful.
Of these unsuccessful negotiations, 25 percent of landlords completely refused to engage, 12 percent postponed negotiations to a later date, and 28 percent failed to reach an agreement. In approximately one-third of cases, retailers were able to achieve an adjustment of their lease. In response, HDE CEO Stefan Genth has urged Federal Minister of Justice Christine Lambrecht (SPD) to expedite the implementation of legal measures to strengthen commercial tenants in distress caused by the COVID-19 pandemic.
Genth expressed concern about the financial struggles facing many inner-city retailers due to decreasing customer frequencies and turnover as a result of the pandemic and associated state containment measures. He criticized landlords for failing to share the risks of the current crisis situation with their tenants, instead opting to shift them onto the tenants. Genth called on the legislator to intervene and break the resistance of the real estate owners.
The legal landscape affecting commercial tenants in financial distress in Germany is primarily shaped by general civil law and specific judicial clarifications, rather than newly enacted statutes targeting the pandemic directly. commercial tenants may, under certain circumstances, claim a disruption of the contractual basis, known as the "Wegfall der Geschäftsgrundlage," which could result in a rent reduction for a particular period. However, this relief is not guaranteed and depends on individual circumstances.
Landlords are expected to engage in good-faith negotiations with tenants facing genuine financial hardship. Some landlords have proactively agreed to temporary rent reductions or deferred payment arrangements to avoid litigation and maintain long-term relationships with tenants. However, given the legal risks and possible judicial adaptations of leases, landlords face uncertainty regarding revenue streams. To mitigate these risks, some major landlords are exploring alternative uses for their commercial properties, such as converting office spaces into data centers in response to changing demand patterns and tenant distress.
In summary, commercial tenants in Germany may seek rent reductions due to COVID-19 impacts, but such relief is not guaranteed and depends on individual circumstances. Landlords are adapting both legally and operationally to manage risks and changing market conditions.
- The economic and social policy discourse, as demonstrated by the ongoing struggle of German retailers to negotiate rent relief with landlords amid the COVID-19 crisis, has become intertwined with finance, business, and politics, leading to calls for legislative intervention.
- Amidst the general-news headlines reporting the resistance of some landlords to negotiate rent relief with distressed commercial tenants, there are examples of proactive landlords adapting their properties for alternative uses, such as converting office spaces into data centers, in response to changing demand patterns.
