International Business Articles
By Eike Weerda – German Attorney at Law at WINHELLER
Time and again, real estate buyers pay purchase prices far exceeding the market value of the real estate. One of the main reasons for this is a lack of knowledge about the local market.
In such cases, the question inevitably arises whether the purchase contract is valid or whether it is void as being contra bonos mores enabling buyers to return the real estate and claim their money back for that reason alone.
Purchase contracts void as being contra bonos mores
A purchase agreement is considered contra bonos mores if the legal transaction is of a usurious nature. This is the case if there is a striking disproportion between performance and consideration, i.e. the purchase price and the value of the real estate, and if at least one additional aspect makes the purchase agreement, taken as a whole, appear to be contra bonos mores. As a rule, the reprehensible attitude of the beneficiary – here, the seller, who wants to deceive the buyer – qualifies as such additional aspect. According to case law, a reprehensible attitude can invariably be assumed if there is a particularly gross disproportion between performance and consideration. In case of real estate purchase agreements, such disproportion is deemed to exist when the purchase price exceeds the market value by 90%.
In such cases, buyers can claim the purchase price back and return the real estate if the seller fails prove that he had no intention to deceive the buyer.
Notarization costs and real estate tax can be deducted
As shown by the Federal Court of Justice, BGH, earlier this year, however, a schematic comparison of the purchase price and the market value is not sufficient. The BGH had to decide on a case where the purchase price exceeded the market value by more than 91%. However, in its judgment, the BGH held that, without additional findings, there was no room for the court to assume that the seller had a reprehensible attitude. This reasoning was based on the fact that the seller had borne the ancillary acquisition costs (notarization, real estate tax, etc.). As this was not common practice, said costs had to be deducted from the consideration. After deduction, the consideration exceeded the market value by “only” about 79%.
This judgment shows once again that, while real estate buyers do not need to accept any purchase price, it may be crucial to have a close look at the details of the contract in the specific case. Our specialized real estate attorneys can take a closer look on your (upcoming) agreements. Please do not hesitate to contact us.
WINHELLER Attorneys at Law & Tax Advisors
Tel.: +49 (0)69 76 75 77 80
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