Guiding principle
In the case of a condominium, the purchase of which is intended to serve as a pension plan, a reasonable buyer generally does not expect that the proposed financing will not be fully completed for several years after retirement age. If this is the case, the buyer must be clearly and unambiguously informed of this during the consultation. If the investment advisor fails to provide such information, he or she is liable for damages.
The case:
A private individual (the plaintiff) approached her investment advisor (the defendant) with a request to review her financial situation and optimize her retirement planning. The defendant recommended that she improve her retirement provisions by purchasing one of her condominiums in Leipzig. The plaintiff followed the defendant's advice and took out a loan to finance the purchase price of the apartment. The purchase of the apartment goes ahead.
The plaintiff only realized later that she would be around 78 years old at the time of full repayment of the loan, even taking into account the incoming rents. The plaintiff would therefore be significantly burdened with the loan installments even after reaching retirement age. The defendant had not pointed this out to the plaintiff during the consultation.
The plaintiff demands repayment of the purchase price concurrently with the unencumbered return of the apartment. She loses both at the district court and at the higher regional court. The Federal Court of Justice, however, finds in favor of the plaintiff.
The verdict:
The BGH confirms the existence of an advisory error by the defendant. The defendant should have pointed out to the plaintiff unequivocally in the course of the advisory discussion that she would only have repaid the loan taken out to finance the purchased condominium, taking into account the planned final financing,The defendant should have pointed out that the purchase is not suitable for providing for old age.
The defendant cannot hide behind the fact that the plaintiff could or should have recognized this herself.
In the case of a condominium, the purchase of which is intended to serve as a pension plan, a reasonable buyer in the plaintiff's position would not expect the proposed financing to be fully completed only several years after retirement age, as in this case. Because it then does not lead to the promised additional retirement pension, but on the contrary to a burden that is to be avoided (see OLG Celle, ZIP 2005, 199, 204; OLG Oldenburg, OLGR 2008, 104,106). The plaintiff is entitled to have the purchase agreement rescinded.
Practical tip:
Particularly in times of low interest rates, private individuals should keep a cool head when it comes to real estate transactions. This applies in particular if the real estate transaction is intended to supplement retirement planning. In many cases, interested parties are unable to understand the consequences of the investment, or can only do so with difficulty.
Choosing the right, trustworthy advisor is imperative to avoid nasty surprises in old age.
Should something go wrong, however, the Federal Court of Justice has considerably strengthened the rights of the home buyer with this judgment. Incorrect advice from the seller can result in a right of rescission in favor of the buyer. The attribution of the knowledge and behavior of the consultants on the seller side is being increasingly expanded in case law.
Reference:
BGH, judgment of January 17, 2014 – V ZR 108/13; previously: OLG Dresden, March 19, 2013 – 14 U 1679/12; LG Leipzig, September 19, 2012 – 1 O 4006/11
The statements represent initial information that was current for the law applicable in Germany at the time of initial publication. The legal situation may have changed since then. Furthermore, the information provided cannot replace individual advice on a specific matter. Please contact us for this purpose.