DE: Timing Is Critical in Dealing with Defects in the Purchase of Real Estate

Aug 19, 2022 Benn-Ibler Rechtsanwälte

Should a purchaser be represented by an agent without power of attorney when concluding a contract for the purchase of real estate, the time at which the purchaser submits their authorisation is critical should the purchaser become aware of any defect in the real estate. According to the German Federal Court of Justice (BGH), the purchaser must accept any discovered defects up to that point in time.

In the case at hand, a broker demanded payment of brokerage commission from a developer. Previously, the broker had offered the developer a plot of land for sale on behalf of his client. According to the information given in the prospectus, the former office building would be usable as rentable living space (with a floor space of 1,704 sqm) for students. The purchase of the property by the developer was subsequently notarised in April 2019. However, representatives without power of attorney acted on behalf of both the developer and the owner, and liability for material defects was excluded in the purchase agreement. On 15 April 2019, the managing director of the developer’s company had his authorisation notarised. By 06 May 2019 at the latest, he became aware of the incorrect floor space specifications (the floor space was only 1,412 sqm), but did not send the authorisation to the notary public until 29 May 2019, while having become aware of his reservations regarding the floor space specifications. Now the (defendant) developer counterclaimed for damages from the broker as well as from the original owner.

According to the German Federal Court of Justice, the claim for damages is rejected. According to Section 442 (1) sentence 1 of the German Civil Code, a buyer's rights are excluded due to defects that are already known at the time of the conclusion of the contract. The developer was represented, in this case, at the time of conclusion of the purchase contract by a representative without power of attorney. The legally critical point in time for gaining knowledge of a defect is therefore the point in time at which the notary receives the authorisation from the developer. As long as a developer has not put the authorisation into circulation, the developer must accept any newly acquired knowledge of the defect (in this case, a deviation in floor space). Otherwise, the developer would be acting inconsistently. According to the Federal Court of Justice, the developer would thus allow the contract to come into effect while being aware of the the defect, yet this could have been prevented.

BGH, V ZR 282/20 (06.05.2022)