On 31 August 2010, the first e-mail from DSC Legal was sent from the 8th floor of the high-rise building at Kurfürstendamm 207-208 in Berlin-Charlottenburg. On 31 August 2020, we were now able to celebrate the 10th anniversary of our law firm.

We look back on a decade full of interesting events and exciting moments, which is characterised by a considerable number of often very demanding legal mandates, usually involving advice on real estate and corporate transactions as well as real estate project developments. We regularly work on numerous mandates containing a foreign connection together with partner law firms from all over the world, with whom we are a member of the world's largest network of consultants, IR Global, with over 1,000 law firms around the globe. With IR Global, we also associate a large number of business and often friendly contacts as well as the participation in unique conferences all over the world. We also fondly remember the numerous events held at DSC Legal, which left lasting impressions.

The regular recognition of our legal work in the law firm studies carried out by the Federal German Association of In-house Counsels (Bundesverband der Unternehmensjuristen e.V.) found a particularly pleasing highlight in 2018: DSC Legal defended 1st place in the national overall ranking for the real estate sector and was voted “leading law firm in the real estate industry” (“Führende Kanzlei Immobilienwirtschaft”). In the same year our law firm moved to the DZ Bank building at Pariser Platz in the heart of Berlin (next to Brandenburg Gate).

In addition to our activities as lawyers, the notarial practice in particular has gained considerably in importance in these ten years, with thousands of notarizations for national and international parties in the fields of real estate and corporate law. Notarial services have therefore been one of the main pillars of DSC Legal's activity for many years.

Our thanks go to all our clients and parties involved, both nationally and internationally, who have always placed their trust and appreciation in our expertise. We would also like to thank our great team, which delivers outstanding performance day after day.

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On May 14, 2020, the German Bundestag (Federal Parliament) approved the Federal Government's draft bill on the distribution of brokerage fees when brokering sale and purchase agreements for apartments and single-family homes. According to the bill, the buyer will in future pay a maximum of 50 percent of the total brokerage fees for the purchase of real estate.

What is new and when do these new regulations become effective?

The following new regulations are to be introduced into the German Civil Code (Bürgerliches Gesetzbuch – BGB) (§§ 656 a to 656 d BGB):

• Brokerage agreements for apartments and single-family homes require text form to be effective (e.g. via email).
• The new regulations on the distribution of brokerage fees only apply to consumers.
• If the broker acts on behalf of both the buyer and the seller based on two brokerage agreements, the broker can only demand commission from both parties in equal parts. If, on the other hand, only one party has made the decision to engage a broker, this party is obliged to pay the brokerage fee. Agreements with the aim of imposing these fees on the other party are only effective if the fees passed on amount to a maximum of 50 percent of the total brokerage fees. Moreover, the buyer does not have to pay his/her share until the seller has provided proof of payment.
• Additionally, the term „Mäkler“ for broker in the meaning of the German Civil Code was changed to the more modern term “Makler”.

Unless the German Bundesrat (Federal Council) raises objections, the new regulations shall become effective six months after their promulgation - presumably in mid/end December 2020 or January 2021. They shall apply to brokerage agreements concluded after the bill has become effective. This transitional period should enable brokers to adapt their business practices to the new legal situation.

What types of brokerage clauses are commonly included in sale and purchase agreements?

So-called declarative clauses, which merely clarify that the sale and purchase agreement was concluded through the services of a broker, are considered unobjectionable in terms of notarial professional law and notarisation law. These clauses do not constitute a material legal claim for payment by the broker. They serve only for the purpose of proof. Furthermore, they do not trigger any additional costs.

In addition, a so-called transfer agreement can be considered, which is also unobjectionable in terms of notarial professional and notarisation law. This option applies if the parties wish to transfer an existing obligation for payment of broker fees from one party to the other as part of the performance or consideration. The purpose of this clause is to fulfil the obligation to pay the broker's commission by one of the parties, without this constituting an independent claim of the broker. Such a clause requires notarisation, as it is in this respect an agreement between the parties concerning the costs to be borne. It is also conceivable that the broker's fee is imposed on one of the parties by way of an assumption of the contract or debt or on the basis of an abstract acknowledgement of debt (with submission to immediate enforcement).

So far controversial are broker clauses designed as a contract for the benefit of third parties in the sense of § 328 German Civil Code, according to which an independent claim in favour of one of the contracting parties and/or the broker is directly established, irrespective of whether the broker is actually entitled to it. As a rule, this constitutive broker clause establishes an independent claim of the broker against the buyer which leads to an increase of notary and court costs.

What effects do these new regulations have on notarial practice?

In previous practice, brokers have tried to secure their commission claims for brokering purchase agreement for apartments, real property or development agreements by including a constitutive brokerage clause in the notarial sale and purchase agreement.

Even if the inclusion of a constructive brokerage clause does not usually correspond to the actual will of the buyer, this constitutive brokerage clause is nevertheless still used in notarial practice. This is because in most cases the buyer is put under pressure if he believes that he cannot purchase the property without accepting this brokerage clause. Whether and to what extent this so-called constitutive broker clause is effective has been disputed for decades.

In its ruling of November 24, 2014, the Federal Court of Justice (Bundesgerichtshof - BGH) addressed the official duties of a notary in the case of notarisation of such a clause, and the Federal Chamber of Notaries (Bundesnotarkammer) has issued a circular letter to each regional chamber of notaries and their members urging them to handle these clauses with utmost care. When including a constitutive broker clause, the notary should always carefully consider whether the inclusion of such a clause is at all necessary and required and how this clause should be legally structured. If there are no objective reasons, e.g. a concrete threat of pre-emption, the inclusion of a constitutive clause at the unilateral request of the broker against the will of the parties is not advisable.

Due to the obligation of neutrality of notaries and taking into account the interests of the contracting parties, a constitutive brokerage clause should not be included as a regular case in the notarial contract. It is possible for the broker to secure his/her commission claim in other ways, e.g. by concluding a written brokerage agreement.

Taking into account the new draft bill, it can be summarised that such a broker clause will only be effective in the future, if the contracting parties who have appointed a broker by mutual agreement are obliged to pay at least the same amount of commission. If, on the other hand, only one party (either the seller or the buyer) has commissioned the broker, that party alone must pay the broker's commission. Agreements with the aim of imposing the brokerage fees on another party are only effective if the costs passed on amount to a maximum of 50 percent of the total brokerage fees.

If the buyer acts within the scope of a commercial activity, the distribution of the brokerage fees can also be agreed upon otherwise. The inclusion of such clauses always requires careful examination, especially with regard to their legal effectiveness.

Smart and to the point.

DSC Legal focuses on rendering legal advice and providing notary services with respect to M&A, real estate transactions, startup & venture capital, IP/IT, banking & finance and property construction.

Advising on transaction law issues forms a core component of our legal practice.

The information in this newsletter cannot and should not replace in-depth legal advice under extensive examination of the individual case. Our law experts will be delighted to advise you on your legal options and represent you with their outstanding professional competence and extensive experience in the extrajudicial and judicial enforcement of your claims.

The ongoing spread of the COVID-19 pandemic is not only challenging and changing our everyday lives, it also cripples large parts of economic life worldwide.

The construction industry is particularly affected. Developers are forced to temporary postpone or even fully stop construction activities, either because of interrupted supply chains, due to a reduced workforce resulting from inner-European border closures or due to stricter safety measures to be observed by the developer resulting from labour law. These are all direct results from various ordinances and protective measures by authorities.

In this context, the question may arise what effects these obstacles have on existing developer contracts and what mutual rights and obligations the parties have?

Supply bottlenecks and a reduced workforce as well as restrictions imposed by authorities often lead to a shutdown or at least to a slowdown in construction activities. This can result in missed deadlines regarding the handover or even the completion of the whole construction work. Unless otherwise agreed upon in the developer contract, the developer bears the risk of non-performance of the contract regarding the construction.

If and insofar as the non-performance of the developer contract or default of the developer is due to a culpable breach of duty on his part, buyers may be entitled to withhold purchase price instalments, assert claims for damages (e.g. due to contractual penalties agreed upon in the developer contract) or even be to rescind from the whole developer contract.

Is the property developer in default with his performanceand can he exonerate himself?

The developer is in default if the non-performance or late-performance is a result of any circumstances for which he is responsible. If there is no culpable breach of duty on the part of the developer, e.g. the obstruction is corona-related and therefore not the responsibility of the developer, the developer is not in default; claims for damages due to delay are excluded.

If the reduced workforce or closure of the construction site is due to an administrative order, the developer could exculpate himself by referring to the administrative order. In addition, the developer, as an employer, has to observe duties of care and protection towards his employees and may therefore be obliged to close or limit his operations in accordance with labour law provisions.

If the construction delays are due to "force majeure", the developer is not responsible for breach of duty. Force majeure is defined as an unforeseeable, unavoidable and external event. With corona classified as a pandemic by the WHO and by declaring it an international health emergency, corona is likely to be regarded as force majeure.

However, so far simply invoking force majeure has not been recognised by the German courts. Each individual case has to be carefully reviewed as to whether clauses regarding force majeure are included in the existing developer contract and whether non-performance is in fact a result of force majeure. If this is the case, any rights or claims for damages of the buyer against the developer are excluded. However, the COVID-19 pandemic can probably no longer be classified as "unforeseeable" for contracts concluded after or shortly before its worldwide outbreak.

In the event of a delay in construction not caused by the developer, the developer can also demand an extension of the construction deadline. However, usually he cannot claim any additional remuneration or compensation.

Furthermore, in the event of force majeure, the developer is, in principle, temporarily released from its contractual obligations to effect performance, without the purchaser being able to derive any claims from this. This is particularly the case if the performance has become impossible and unreasonable for the developer (§ 275 German Civil Code – Bürgerliches Gesetzbuch, BGB).

Can the contract be adjusted as a result of the disruption to the basis of the transaction?

In addition, an adjustment in accordance with the principles of interference with the basis of the transaction pursuant to § 313 BGB will come into consideration. This requires that circumstances which have become the basis of the contract have changed significantly after the conclusion of the contract and that the parties would not have entered into the contract or would have entered into it with different content if they had foreseen this change and one of the parties cannot reasonably be expected to uphold the contract without alteration.

For example, a disruption of the basis of the transaction in the event of an official prohibition of the contract performance was accepted if the security risks involved concern both parties equally and one party could not reasonably be expected to bear the consequences alone. Furthermore, the threat of destroying the economic existence due to external circumstances not attributable to the own sphere of risk is acknowledged. If the principles of interference with the basis of the transaction are applied, the contractual distribution of risk must still be taken into account. Whether the contract can be adjusted due to the COVID-19 pandemic depends on the circumstances of the individual case. If adaptation of the contract is not possible or one party cannot reasonably be expected to accept it, the disadvantaged party may withdraw from the contract.

In any case, the developer should at least try to find an amicable solution with regard to the extension of the execution periods or the completion deadline in order to ensure the ultimate success of performance. This can be achieved by a separate agreement on a contractual penalty or lump-sum compensation.

Conclusion

In summary, it can be noted that contractual agreements on the exclusion of liability as well as the extension of execution deadlines due to force majeure or other unforeseeable extraordinary events are advisable for existing and future developer contracts. The inclusion of such clauses requires a careful assessment as to their legal effectiveness.

Smart and to the point.

DSC Legal focuses on rendering legal advice and providing notary services with respect to M&A, real estate transactions, startup & venture capital, IP/IT, banking & finance and property construction.

Advising on construction and architectural law issues forms a core component of our legal practice.

The information in this newsletter cannot and should not replace in-depth legal advice under extensive examination of the individual case. Our construction law experts will be delighted to advise you on your legal options and represent you with their outstanding professional competence and extensive experience in the extrajudicial and judicial enforcement of your claims.

We would be pleased to advise you on the applicability of the new case-law to your personal financing, and to represent you against the financing bank in the enforcement of repayment claims.

FCG Group (“FCG”) through a German subsidiary has acquired all shares in Pohl Consulting & Associates GmbH („PCA“).

PCA based in Berlin, which was previously solely managed by Mr Stephan-Andreas Graf von Brühl-Pohl, is one of the leading firms in the field of economic development consulting, whose cross-border advisory services are provided in particular to state institutions.

FCG is a group of companies headquartered in Helsinki that has been engaged in international development consulting in more than 150 countries around the globe since 1967. The company’s current market areas are the Nordic countries, as well as emerging and developing markets. FCG has subsidiaries in Sweden, Romania, Bulgaria, New Zealand, Singapore, and now in Germany too. This year, FCG celebrated its 70th anniversary.

FCG was advised by DSC Legal throughout the transaction.

Smart and to the point.

DSC Legal is specialized in advising on all legal and notarial aspects of real estate transactions.

Due to the legal support of various corporate acquisitions and mergers, we have been able to constantly strengthen our M&A advisory practice in recent years.

We advise our domestic and international clients in all areas of real estate law, corporate law, banking and finance law, construction and architectural law, the law regarding startups and venture capital and IP/IT law for domestic and cross-border matters.