Commercial Property

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Sellers may be liable for damages if actual rent is lower than stated in the rent roll, despite contractual exclusion of liability for defects.

By Christian Thiele and Patrick Braasch

The Higher Regional Court of Cologne (HRC Cologne) has ruled that a property seller is liable for the difference between the rent shown in the rent roll attached to a property purchase agreement and the actual rent — irrespective of the general exclusion of warranty claims in a purchase agreement. As a consequence, a seller may have to compensate a purchaser for all future losses resulting from such lower actual rent for up to 30 years. The decision highlights the high commercial relevance of rent rolls and the legal risks resulting from rent rolls in the context of real estate transactions.

Background

The HRC Cologne’s judgment, dated 29 November 2018 (3 U 24/18), involved a case in which the plaintiff had acquired from the defendant a residential building with 14 rental units. The sale and purchase agreement (SPA), which excluded the defendant’s statutory liability for material defects as seller, stated that the plaintiff was aware of the lease agreements. An exhibit listing all leases (names of tenants, location of and rent for the respective rental units) was attached to the SPA, which also stated the annual net rent for the entire building.

Ruling finds that parties may make informal modifications without notarization after the conveyance has become binding.

By Christian Thiele

The German Federal Court recently ruled that parties may informally modify a property purchase agreement if the conveyance has become binding — thereby confirming prior case law. The Court further held that the parties may also make such informal modifications if they have granted fiduciary instructions to the notary not to file the conveyance with the land register until the purchaser has paid the full purchase price.

The case

On 4 May 2011, the defendant bought three apartments from the plaintiff by virtue of a notarial purchase agreement at a price of €309,692. The parties declared the conveyance and applied for the entry in the land register. In the purchase agreement, the parties instructed the notary to file the conveyance only when the purchaser paid the full purchase price. On 24 July 2012, the defendant demanded a €27,100.76 reduction of the purchase price. The plaintiff accepted the reduction in writing, and the defendant paid the reduced price. However, the plaintiff then requested the payment of the full purchase price, arguing that the reduction of the purchase price was invalid because the amendment had not been notarized.