Corona Crisis and Contract Law
The corona crisis, triggered by the COVID-19 pandemic, has had significant worldwide effects on contract law. As a result of government measures to contain the pandemic, there were extensive restrictions on public life and the economy. This particularly challenged civil law obligations and raised numerous issues pertaining to contract law.
General Effects of the Corona Crisis on Contractual Relationships
With the outbreak of the corona crisis, numerous contracts were affected directly or indirectly. This included, among others, lease agreements, employment relationships, service contracts, contracts for work and services, travel contracts, and delivery contracts. Many contracting parties were temporarily or permanently unable to fulfill their contractual obligations due to government restrictions, official orders, or economic difficulties.
Official Measures and Their Effects
Major interventions resulting from the corona crisis included business closures, bans on events, contact restrictions, and travel limitations. These government measures had an immediate impact on the performance of numerous contracts and led to disruptions in contract fulfillment.
Legal Classification of Performance Obstacles
Impossibility of Performance (§ 275 BGB)
According to German law, a factual or legal impossibility releases the debtor from their obligation to perform (§ 275 BGB). The corona crisis resulted in certain performances no longer being possible, for example, when events were canceled or business trips became impossible. Legal impossibility, such as due to official bans, is also a significant factor.
Frustration of Contract (§ 313 BGB)
Besides impossibility, § 313 BGB (frustration of contract) became particularly relevant. According to this, an adjustment or dissolution of the contract can be demanded if, due to changed circumstances, it is unreasonable for one party to maintain the unchanged contract. The corona pandemic has been classified in numerous cases as an “exceptional event” that could not be foreseen and constituted a serious change in circumstances.
Force Majeure
The application of so-called force majeure clauses in contracts also became important due to the corona crisis. Whether pandemic-related obstacles to performance are considered force majeure depends largely on the individual case and the wording of the contract. In situations of force majeure, there are often temporary or permanent hindrances to performance without entitlement to damages.
Types of Contracts and Specific Effects of the Corona Crisis
Tenancy Law
The effects of the pandemic on tenancy law were seen, among other things, in declines in sales by commercial tenants due to business closures. The legislator responded with temporary protection against termination, which gave tenants protection from immediate termination due to pandemic-related payment arrears. Questions regarding rent reductions for pandemic-related usage losses were increasingly discussed in the context of frustration of contract (§ 313 BGB).
Law Governing Contracts for Work and Services
In the law of contracts for work and services, issues of performance disruptions and possible delays in the completion of works were in focus. Construction companies and other contractors were often unable to deliver on time due to supply shortages or official shutdowns. Depending on the contract and the reasons for the delay, adjustments to deadlines and claims for damages became relevant.
Law of Sale and Supply Contracts
In supply contracts, the pandemic frequently led to delivery delays or failures. The main issue was distinguishing between temporary and permanent impossibility as well as the interpretation of agreed delivery deadlines and any contractual penalties. Force majeure clauses and the exclusion of liability for pandemic-related delays played a major role in international trade.
Service and Employment Contracts
In service contracts, for example in the event sector or travel bookings, it had to be examined whether fees already paid could be reclaimed or whether vouchers could be issued instead (implementation of the EU voucher solution). In relation to employment contracts, special regulations regarding short-time work and working from home were introduced.
Statutory Responses and Temporary Regulations
In response to the crisis, various legislative measures were enacted. These included the Act to Mitigate the Consequences of the COVID-19 Pandemic in Civil, Insolvency and Criminal Procedure Law as well as specific measures in tenancy law, insolvency law, and consumer protection.
Overview of Statutory Safeguards
- Tenancy Law: Temporary protection against termination for rent arrears from April to June 2020.
- Insolvency Law: Suspension of the obligation to file for insolvency for companies facing economic difficulties due to the pandemic.
- Consumer Protection: Rights of withdrawal for package tours and events, voucher solutions as alternative performance.
International Aspects and Comparison with Other Legal Systems
Pandemic-related hindrances to performance were also discussed in the international context, especially in connection with the UN Convention on Contracts for the International Sale of Goods (CISG) and international force majeure regulations. The interpretation of the pandemic as a case of force majeure was handled differently, depending on national and international contractual arrangements.
Role of Judicial and Extrajudicial Dispute Resolution
The number of contractual disputes increased significantly as a result of the pandemic. In addition to court proceedings, arbitration boards, mediation, and arbitration tribunals were used to resolve pandemic-related conflicts over contract adjustment or termination. Many courts emphasized the importance of contract adjustment to enable a fair distribution of pandemic-related risks.
Outlook
The corona crisis has had a lasting impact on contract law and has highlighted the importance of flexible contract drafting as well as the options for frustration of contract and the use of force majeure clauses. In the future, it can be expected that pandemic risks will play a decisive role when concluding contracts and when formulating performance limitations or exclusion of liability.
Note: This article provides a comprehensive legal overview on the topic of the corona crisis and contract law. Specific circumstances should be examined on a case-by-case basis, taking into account the current legal situation.
Frequently Asked Questions
What effects has the corona crisis had on the performance of contracts?
The corona crisis has placed numerous contracting parties in situations in which they could fulfill their contractual obligations only with limitations or not at all. Legally, the main issue is whether, and under what conditions, performance disruptions – such as delivery delays, cancellations, or payment defaults – are justified. Under German law, § 275 BGB (‘impossibility of performance’) is particularly relevant if the performance of the contract is objectively or subjectively no longer possible. Furthermore, the right of rescission under § 323 BGB or adaptation of the contract according to the principles of frustration of contract (§ 313 BGB) may be considered. Whether a contracting party is released from its duty due to the pandemic or must pay damages depends in each case on the individual case, the content of the contract, any force majeure clauses, and statutory provisions. The requirements are strict; economic difficulties alone are generally not sufficient for release.
Can tenants refuse or reduce rent payments for commercial premises due to the corona crisis?
During the corona crisis, tenants of commercial premises, due to government-imposed usage restrictions, were often unable to use their rental space as planned. The legal treatment is based on § 313 BGB (frustration of contract). The legislator clarified with Article 240 § 7 EGBGB that state-imposed restrictions can result in a frustration of the basis of commercial leases or rental agreements. The prerequisite for this is always a significant unreasonableness of unchanged contract fulfillment for one party. However, usually an adjustment of the lease agreement, mostly a temporary rent reduction, is possible and must be negotiated individually. An automatic reduction does not occur; only a claim for contract adjustment can arise if there is no other contractual arrangement.
What role do force majeure clauses (‘Force Majeure’) play in contracts during the corona crisis?
Force majeure clauses regulate in many international and national contracts the consequences of events that are outside the control of the contracting parties, such as natural disasters, wars, or epidemics. The corona pandemic was frequently considered ‘force majeure’, but applicability always depends on the concrete wording of the clause in each contract. If the clause explicitly includes pandemics or epidemics, parties may rely on release from performance, extensions of deadlines, or termination of the contract. If such regulation is missing, the general statutory provisions apply. Decisive are the unpredictability, unavoidability, and the fact that the party could not have averted the consequences through reasonable measures.
Is it generally possible to rescind a contract because of corona?
A general right to rescind a contract solely because of the corona crisis is not provided by law. What matters is always whether the circumstances meet the requirements of impossibility (§ 275 BGB) or frustration of contract (§ 313 BGB). Otherwise, rescission often requires that an obligation was not performed despite a set deadline and no exceptions apply. Particularly regarding general requests for rescission of booked events, trips, or services, the courts have stressed the need for individual assessment. Only if the performance of the contract has actually become unreasonable due to the effects of the corona pandemic, a right of rescission may exist in exceptional cases.
Do advance payments or cancellation fees have to be paid if a service cannot be rendered due to the pandemic?
If a service cannot be provided due to the pandemic (e.g. canceled event, closed venues), it must be examined whether the contract is unwound due to impossibility (§ 275 BGB). If performance is legally or factually impossible, the obligations lapse and advance payments already made are generally to be refunded according to § 326 para. 1 BGB. Cancellation fees may not be withheld in such cases, unless the contract or the general terms and conditions expressly regulate exceptions for pandemic-related cases. If withdrawal from the contract is merely voluntary, without the execution of the contract being objectively impossible or unreasonable, cancellation fees may be justified.
What about liability for delivery delays resulting from corona?
For delivery delays due to corona measures – such as interrupted supply chains, quarantine requirements, or official business closures – it must be legally assessed whether there is an impossibility or only a temporary impediment to performance. If it is merely a temporary obstacle, the contract obligation remains, but delay claims can be excluded as long as the debtor is not responsible for the delay (§ 286 para. 4 BGB). For example, if a delivery is not possible due to official orders, there is no obligation to pay damages during the period of hindrance; after the obstacle is removed, the obligation to perform revives. Whether and to what extent compensation or contract termination is possible depends on the contract and the specific circumstances.
Can companies or employees terminate contracts because of the pandemic?
The mere existence of the pandemic usually does not constitute grounds for termination. For continuing obligations (e.g. leases, leasing, employment contracts), the right of termination is regulated by law and always requires a significant change in circumstances or a breach of contract. Terminations due to operational limitations as a result of the pandemic must be in line with the statutory framework—for example, in employment law § 1 KSchG (socially unjustified dismissal) or in tenancy law § 543 BGB (important reason from the conduct of the other party). Many dismissals during the pandemic are based on ‘extraordinary termination for good cause.’ However, it is important to examine whether alternatives (contract adjustments, short-time work, etc.) would have been reasonable and whether the other party is not at fault for the change. Relevant court decisions must always be considered.
