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LEXIKON
Unacceptable clause in property development contracts
Due to the current prevailing and generally difficult economic situation, the major construction boom appears to have come to an end, at least temporarily. However, property development contracts have been and continue to be concluded. The Supreme Court recently dealt with the question of the admissibility of certain clauses in a contract concluded between a property developer and a consumer.
Property development contract – initial situation
In general and in most cases, a property development contract is a contract for the acquisition of ownership or condominium ownership of buildings, apartments, or business premises that are yet to be constructed or are to be thoroughly renovated. In most cases – but in any event before completion of the property – a contract for the acquisition of the respective property rights is concluded between the property developer and the respective purchasers. Since defects in construction projects are not always avoidable, particular attention must be paid to the warranty aspects provided for in the contract.
In the decision cited at the beginning, the plaintiff condominium owners, as consumers, claimed against their developer and contractual partner under the purchase agreement concluded with it for various defects, proportionate improvement costs with regard to general parts of the property, and a price reduction with regard to their property.
In the proceedings, the defendant property developer argued that the claim was not due, especially since the arbitration procedure provided for in the purchase agreement regarding the determination of defects had not been complied with.
Purpose of an arbitration opinion
The purpose of an arbitration opinion is to resolve differences of opinion between contracting parties in a binding manner by means of an independent, impartial, and technically experienced expert. In ordinary court proceedings, the civil court hearing the case is then bound by this opinion.
The Supreme Court now had to assess whether this arbitration agreement could be validly agreed between the property developer as an entrepreneur and the buyers as consumers within the meaning of the Property Development Contract Act or the Consumer Protection Act. The court of first instance affirmed the admissibility of an arbitration agreement and therefore dismissed the action on the grounds that it was not due. The court of appeal, on the other hand, assumed that the arbitration agreement constituted an inadmissible restriction on consumers.
Reasons for inadmissibility
The Supreme Court upheld the decision of the court of appeal. On the one hand, the arbitration procedure agreed in the case under review causes a certain delay. Furthermore, the arbitration clause also largely deprives the consumer of the possibilities provided for in the Code of Civil Procedure in connection with court-appointed experts to work towards the impartiality of the expert and the technical accuracy of the expert opinion. The Supreme Court sees the reason for this in the fact that comparable rights of participation are not provided for in arbitration proceedings. Court proceedings following the arbitration proceedings no longer provide any remedy for the consumer because the result of the arbitration opinion is generally binding on the parties and the court in terms of substantive law.
In arbitration proceedings, consumers have neither the opportunity to discuss the expert opinion orally nor access to legal remedies such as procedural or evidentiary objections. Overall, in the opinion of the Supreme Court, consumers’ procedural rights of participation in arbitration proceedings are not safeguarded to the same extent as before the ordinary courts. This constitutes an inadmissible restriction of consumers’ warranty rights and procedural rights of participation within the meaning of Section 9 (1) KSchG. For these reasons, an arbitration agreement provided for in a property development contract is invalid vis-à-vis consumers.