The current crisis and its impact on the national and local office real estate market cannot be conclusively assessed at this time. In addition, various situations are leaving landlords and tenants with a number of questions. We discussed some of these questions with Dr. Palm, a specialist lawyer for construction and architectural law, and would like to share the results with you:
Our questions for Dr. Palm on the topic of investment:
Hello Dr. Palm, we can well imagine that you are very busy at the moment, so thank you in advance for taking the time to talk to us. In our previous exchanges, we have already discussed the effects of the coronavirus crisis on the office rental market and the retail market. Our specialists in the investment department are also receiving an increasing number of queries from our clients regarding the legal implications of the coronavirus crisis.
Question: Can the purchaser of a property apply to the tax office for a deferral of the real estate transfer tax?
Answer: In principle, it is not possible to apply for a deferral of real estate transfer tax. If a buyer does not pay the real estate transfer tax, they will not receive a clearance certificate from the tax office and will not be registered as the owner. I am not aware of any provisions for deferral of real estate transfer tax due to the coronavirus in the government's aid packages to date.
Question: Rent deferrals for rental apartments and commercial properties are currently the talk of the town. What legal options are available to owners who are affected by this in terms of loan repayment? Are deferrals also possible in the area of repayment and interest charges?
Answer: On March 25, 2020, the German Bundestag passed the Act to Mitigate the Effects of the COVID-19 Pandemic in Civil, Insolvency, and Criminal Proceedings, which was passed by the Bundesrat on March 27, 2020. This act also contains provisions on loan agreements in Section 5 (3). In summary, these provisions stipulate that the borrower is not required to make the interest and principal payments that are normally due on a monthly basis during the period from April 1, 2020, to June 30, 2020, if they are unable to do so due to the coronavirus. When this is the case is not specifically regulated and is a matter of interpretation. For borrowers who are financing their property and have no or only limited income due to the coronavirus crisis, a deferral of the loan will certainly be possible. If the landlord does not receive rent payments because the tenant is unable to pay due to the coronavirus, the same should apply.
If the loan is ultimately deferred, it will be extended by three months unless otherwise agreed with the financing bank. Otherwise, at the end of the deferral period, the three deferred interest and principal payments as well as the current payments would be due on June 30, 2020. This could then lead to an overload for the borrower on June 30, 2020. For this reason, the law provides that the entire contract shall be extended by three months in such cases.
However, the law expressly stipulates that lenders should offer consumers discussions on possible solutions. I strongly advise you to make use of these discussions in order to find individual solutions.
Question: When a purchase agreement was notarized before the coronavirus crisis, the economic characteristics were fulfilled. Between signing and closing, these changed in such a way that the economic characteristics, i.e., the tenant's ability to pay (e.g., in the case of a hotel), are no longer present for an investment property. Do buyers have a right of withdrawal or other legal remedies in this case?
Answer: Assuming that the parties have agreed on a "certain solvency of the tenant" as a characteristic of the object of purchase – which must be examined in each individual case – then the impairment or loss of this solvency may constitute a defect in the object of sale. In the case you have described, this defect occurs after the conclusion of the purchase agreement, but before handover. It now depends on the provisions of the purchase agreement. In the case of existing properties, the warranty for material defects is usually excluded. In this case, the seller is not liable under the law on material defects. However, the seller bears the risk of accidental deterioration of the purchased item in the period between the notary appointment and the transfer, unless otherwise stipulated in the purchase agreement. The law then provides in principle that the purchase price shall be reduced in accordance with the deterioration. However, whether the buyer is actually entitled to this claim ultimately depends on the issues of contract drafting mentioned above.
The interview was conducted with Dr. Palm, partner at the law firm Busse & Miessen, Friedensplatz 1, 53111 Bonn.
Attorney Dr. Vanessa Palm is a specialist lawyer for construction and architectural law and primarily advises and represents investors, landlords, tenants, building contractors, architects, and engineers in both extrajudicial and judicial matters relating to real estate.
