BGH: Stricter disclosure obligations for real estate sales

In legal transactions, the seller is generally obliged to inform the buyer about particularly important circumstances. The German Federal Court of Justice (BGH) has now made a landmark decision on the extent of these disclosure obligations regarding due diligence in the course of a real estate purchase. Due to the comparable legal situation, the judgment will also be relevant in Austria.

Underlying facts

Central to the case was the acquisition of several commercial units valued at over EUR 1.5 million in a large building complex in Hanover, Germany. During the negotiations, the buyer was given access to a data room containing the relevant documents to carry out due diligence. However, on the Friday before the notarization of the purchase, which was scheduled for Monday, the seller uploaded the protocol of an owners’ meeting. The protocol revealed that future refurbishment measures were expected to incur costs of up to EUR 50 million.

The buyer thus declared the rescission of the purchase agreement due to a breach of the pre-contractual disclosure obligations through the “secret” uploading of the important protocol.

Reasoning of the BGH

The German Federal Court of Justice largely agreed with the argumentation for a rescission of the contract due to a breach of the disclosure obligations. Even when unsolicited, the seller is obliged to provide any information that is of considerable importance for the final purchasing decision of the buyer.

Providing a virtual data room is only sufficient if in the respective individual case, the seller can have the “justified expectation” that the buyer will check the documents thoroughly and specifically for the respective concrete information. If important documents are deposited in the data room shortly before the contract is concluded and without any corresponding notification, there is no such “justified expectation”.

Conclusion

For real estate purchases, but also other large corporate transactions in which extensive documents are made available in virtual data rooms, sellers are advised to clearly point out important circumstances at an early stage. If the seller fails to fulfill these pre-contractual disclosure obligations, liability may arise.

(BGH – September 15^th, 2023, V ZR 77/22)