Real estate law in the light of the new right of revocation

On June 13, 2014, the “Law on the Implementation of the EU Consumer Rights Directive” (Directive 2011/83/EU of the European Parliament and of the Council of October 25, 2011) came into force. This comprehensively revised the law on distance selling and doorstep selling. There are legal consequences and risks associated with the new right of withdrawal.

The initial situation

Before the Act Implementing the Consumer Rights Directive came into force on June 13, 2014, it was discussed whether the consumer also had a right of withdrawal in the case of a brokerage contract that was concluded using exclusively means of distance communication (distance contract). There was a dispute as to whether a brokerage contract is a contract for the provision of services within the meaning of Section 312b of the German Civil Code. Only then would the consumer be entitled to a right of withdrawal in accordance with § 312d BGB (old version).

In its ruling of June 17, 2013 (1 BvR 2246/11), the Federal Constitutional Court still considered the question of the applicability of the provisions on distance contracts to brokerage agreements to be in need of clarification.

Changes due to the Act Implementing the Consumer Rights Directive

Now the law implementing the Consumer Rights Directive has brought clarification. It significantly expands the scope of application for the right of withdrawal. Pursuant to Sections 312, 312b of the German Civil Code (BGB), as amended, the consumer now has a right of revocation for all consumer contracts that have as their subject matter “a service provided by a trader for consideration” and that were concluded outside the trader’s business premises or using exclusively means of distance communication and a distribution or service system organized for distance selling.

Only the explanatory memorandum to the law again refers to the fact that the delivery of a good or the provision of a service must be the subject of the consumer contract. However, there are indications that the term “service” is to be interpreted broadly according to the definition under European law and concerns almost all contracts that do not have the delivery of goods as their object.

Exceptions for real estate contracts and contracts for conversion measures

According to § 312 para. 2 BGB, for example, contracts relating to the establishment, acquisition or transfer of ownership or other rights in real property, as well as to the construction of new buildings or significant conversion measures, are partially excluded from the scope of §§ 312 et seq. BGB. Accordingly, only § 312a para. 1, 3, 4 and 6 of the German Civil Code (BGB), which concerns various information duties, is applicable. There is no right of withdrawal for such contracts.

Residential leases

• 312 par. Section 4 BGB largely exempts contracts for the rental of residential space from the provisions of sections 312 et seq. BGB. In the case of such contracts, on the other hand, there is a right of revocation in addition to numerous information obligations, unless the tenant has inspected the apartment before concluding the rental agreement. This should be the rule.

Revocation period and declaration of revocation

The revocation period for contracts concluded away from business premises and distance contracts is 14 days from the conclusion of the contract. However, a prerequisite for the start of the period is that the entrepreneur has properly informed the consumer about the conditions, time limits and procedure for exercising the right of withdrawal, as well as the model withdrawal form. Otherwise, the period for exercising the right of withdrawal is extended up to one year and 14 days since the conclusion of the contract.

The entrepreneur may fulfill his obligation to provide information by providing the consumer with the information leaflet specified in Annex 1 to Article 246a § 1 para. 2 sentence 1 no. 1 of the German Civil Code Act (BGBEG), duly completed and sent in text form. The form is available on the website of the Federal Ministry of Justice and Consumer Protection (www.bmjv.de).

A standard EU-wide model form has also been developed for the declaration of withdrawal.

Expiry of the right of withdrawal

The right of withdrawal shall also expire, except after the expiry of the deadline in the case of a contract for the provision of services, if the entrepreneur has provided the service in full. However, the prerequisite for this is that he has begun with the execution of the performance only after the consumer has given his express consent to this and at the same time confirmed his knowledge that he loses his right of withdrawal upon complete fulfillment of the contract by the entrepreneur, § 356 para. 4 BGB. Previously, complete fulfillment of the obligations of both parties was required, § 312d para. 3 BGB a.F.

With respect to a brokerage agreement, the question arises as to when exactly the broker has fully performed his “service.” The decisive factor here will be whether, according to the agreements made, the entrepreneur was to act merely as a broker of record or also as an intermediary broker.

Remuneration of the contractor in case of revocation of the contract

Until the complete fulfillment of the contract by the entrepreneur, a revocation of the contract within the revocation period is possible. If the consumer cancels the concluded contract, the entrepreneur is not entitled to remuneration.

However, the Entrepreneur shall be entitled to compensation for the value of services already rendered if the Consumer has expressly requested the Entrepreneur to commence performance before the expiry of the withdrawal period and the Entrepreneur has duly notified the Consumer in accordance with Art. 246a § 1 para. 2 sentence 1 no. 1 and no. 3 BGBEG. In the case of an off-premises contract, the consumer must also have transmitted his request on a durable medium.

When calculating the amount of compensation for lost value, the agreed total price is to be taken as a basis. Only if this is disproportionately high is the market value of the service provided relevant. The protection of the consumer is now ensured by the company’s duty to instruct.