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

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.

The Higher Regional Court of Stuttgart’s judgement

On 18 July 2017, the Higher Regional Court of Stuttgart ruled that an amendment of a property purchase agreement always requires notarization if the parties enter into it before the registration of the change of title in the land register. The court thereby deviated from previous case law of the Federal Court of Justice, which had held that no such notarization was required because the seller fulfilled its obligations after the conveyance had become binding, notwithstanding the actual entry in the land register. However, many legal authors disagreed with the Federal Court of Justice’s holding.

In its decision, the Higher Regional Court of Stuttgart followed those legal authors and argued that the purpose of the notarization rules requires that all amendments to a property purchase agreement that the parties enter into prior to the registration of the change of title in the land register mandate notarization. In particular, as in the case at hand, if the parties instruct the notary to file the conveyance with the land register only if the purchase price is paid, the seller has not yet fulfilled its contractual duties.

The Federal Court’s judgement

The Federal Court’s ruling, dated 14 September 2018, vacates the judgement of the Higher Regional Court of Stuttgart and upholds its previous case law. The Court held that the parties can modify a property purchase agreement informally once the conveyance has become binding. This also applies in cases in which the parties instruct the notary to file the conveyance only if the purchaser had paid the full purchase price.

The Federal Court of Justice found that the relevant provisions of the German Civil Code undoubtedly allow informal modifications of a property purchase agreement. According to the Court, this does not defeat the purpose of the notarization rules. The Court further determined that once the conveyance has become binding, the parties have fulfilled their contractual obligations.

The Court conceded that the conveyance is not a complete fulfilment of the purchase, as the transfer of title only completes upon entry of the change of title in the land register. However, the Court found that the entry in the land register is merely an administrative act that lies beyond the power of the parties. The Court confirmed that this classification also applies in cases in which the parties instruct the notary to file the conveyance with the land register only when the purchaser has paid the full purchase price. Such instructions do not change the unconditional and binding character of the conveyance. To the contrary, such instructions require a binding conveyance. They are thus only agreements regarding the technical execution of the change of title.

Practical consequences

Informal modifications of property purchase agreements have been and are likely to remain common practice. Such modifications eliminate unnecessary costs and labour for the parties involved. The Federal Court’s judgement significantly contributes to legal certainty surrounding this practice, thereby helping confirm its continued application.