Formal Deficiency of an Advance Payment Agreement and Nullity of the Purchase Contract – Federal Court of Justice (BGH), V ZR 8/23
A formal deficiency in an advance payment agreement does not necessarily result in the entire real estate purchase contract being void. If the buyer can prove a payment made in advance towards the purchase price, the presumption of the total nullity of the contract is rebutted. This was determined by the Federal Court of Justice (BGH) in a ruling on June 14, 2024 (Ref.: V ZR 8/23).
In real estate transactions, it is generally advisable to meticulously document every step. This also applies to any payments and advance payments made. Formal errors can lead to the nullity of the entire purchase agreement, as pointed out by the business law firm MTR Legal Rechtsanwälte, which also advises on real estate law.
The Presumption of Nullity Can Be Rebutted
The BGH has now made it clear that the presumption of nullity of the entire purchase contract can be rebutted if the buyer can prove the advance payment. It is sufficient if the buyer can unambiguously demonstrate the advance payment from their perspective. A receipt from the seller is not necessarily required for this proof.
In the underlying case, the now-deceased father of the defendant had sold his co-ownership share of a property to a GmbH (limited liability company) in March 2017 for a price of €40,000. The managing director of the GmbH initiated payments to the buyer in April and May 2017 totaling €80,000. The purpose stated for the payments was “975/23.3.2017” and “final payment 975/23.3.2017,” respectively. In November 2018, the now-deceased father and testator entered into a notarized purchase agreement with the managing director of the GmbH for the other half of the co-ownership. The purchase price was again €40,000. The GmbH then transferred its acquired co-ownership share to its managing director.
Advance Payment Agreement Not Notarized
The dispute between the parties arose over the transfer of the second co-ownership share to the buyer. The key issue was the €40,000 advance payment. The plaintiff claimed that there had been an oral agreement between the parties regarding this advance payment for the purchase of the second co-ownership share. However, there was no notarization of this agreement. The Higher Regional Court (OLG) of Hamm did not find this sufficient. It ruled that this was an advance payment agreement requiring notarization. Since the notarization had not taken place, the agreement was deemed void. According to Section 139 of the German Civil Code (BGB), this led to the entire purchase contract being void, the OLG Hamm decided.
The plaintiff could not prove the advance payment, as the purchase contract contained no indication of it, and the transfers were unilateral actions by the plaintiff, not receipts from the seller, the OLG concluded.
BGH: Purchase Agreement Does Not Have to Be Completely Void
However, the BGH arrived at a different conclusion in the appeal process. The plaintiff’s claim could arise from the purchase agreement over the second co-ownership share concluded in November 2018. Based on the previous findings of the OLG, it did not appear that the entire purchase contract was void, according to the judges in Karlsruhe.
The BGH confirmed that an advance payment agreement must indeed be notarized. This stems from the fact that at the time of the advance payment, the purchase price claim does not yet exist. Therefore, without the corresponding agreement, the advance payment cannot legally contribute to fulfilling part of the purchase price debt. Thus, an advance payment agreement requires notarization, and without it, the agreement is void. However, this does not necessarily mean that the entire purchase contract is void, said the BGH.
Buyer Must Prove Advance Payment
Although nullity is presumed under Section 139 of the BGB, this presumption can be rebutted under certain circumstances, the BGH further explained. This could be the case here. According to the constant case law of the BGH, the presumption is rebutted if the buyer can prove the advance payment towards the purchase price. The decisive factor is proof of the payment, emphasized the Karlsruhe judges.
If the buyer can prove the payment, it is reasonable to conclude that the parties would have proceeded with the notarized part of the property purchase even without the advance payment agreement. This is all the more likely if the seller has issued a receipt for the payment, but this is not a prerequisite. The crucial point is that the buyer can conclusively demonstrate the payment from their perspective, the BGH clarified, and referred the case back to the OLG Hamm. The OLG must now decide again whether the plaintiff has rebutted the presumption of the total nullity of the purchase contract.
MTR Legal Rechtsanwälte advises on real estate transactions and other matters in real estate law.
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