DE: Sellers Duty to Inform Gets Tougher

Nov 3, 2023 Benn-Ibler Rechtsanwälte

Buyers must be adequately informed by sellers about the costs of renovating a property. According to the German Federal Court of Justice (Bundesgerichtshof, hereinafter BGH), making this information available in a virtual data room only three days before the conclusion of the contract is not sufficient to fulfil the necessary disclosure requirements.

A company purchased several commercial units in a large building complex for approximately EUR 1.5 million. The vendor gave assurances that, to their knowledge, there were no exceptional renovations to be carried out on the property and that no resolutions had been passed at the owners’ meeting that would result in future exceptional charges. It was also contractually stated that all the minutes of the owners’ meetings for the last three years had been given to the buyer and that the buyer was therefore aware of the contents of the documents.

During the purchase contract negotiations, the buyer was given access to a virtual data room set up by the seller containing various documents relating to the property. Three days before the contract was signed, the seller posted only the relevant documents from the 2016 owners' meeting, which showed maintenance costs for the common property of EUR 50 million. The buyer then challenged the contract on the grounds of fraudulent misrepresentation.

The BGH has now overturned the judgement of the court of first instance. According to the BGH, the appellate court’s assumption that the seller had not breached any pre-contractual duty of disclosure with regard to the pending costs of the renovation work was wrong in law.

For the documents provided by the data room, the previous case law of the BGH on physically delivered documents can be applied. It cannot be concluded that the buyer will take note of the facts to be disclosed merely because the seller sets up a data room and allows potential buyers access to the data. Only if, in a particular case, it is reasonable to expect that the buyer will become aware of certain information provided by the seller in a data room – for example, in the context of a due diligence process – and incorporate it into their purchase decision, will a separate disclosure not be required. Therefore, the seller could not rely on the buyer taking note of the documents so close to the conclusion of the contract and should have informed the buyer separately.

Press release No.159/2023 on BGH V ZR 77/22 (15 September 2023)