Purchaser entitled to terminate a contract for the sale of a let flat

The purchaser of a commonhold flat in the course of construction lived abroad at the time of the purchase. The purchaser intended to live in the flat, but her job required her to stay abroad longer than planned. Therefore, she chose to let out the flat for a period.

The contract of sale contained a clause entitling the purchaser to terminate the contract if the area of the flat proved to deviate by 5 % or more relative to the area estimated in the contract of sale. At the same time, the contract of sale provided that a rescission of the contract would only imply that the parties were to return the flat and the purchase price. None of the parties would be entitled to e.g. damages.

One year's time after the date of possession, the land registration process showed that the area of the flat was smaller than disclosed in the contract of sale. The registered area was more than 5 % smaller than the area specified in the contract of sale. Consequently, the purchaser was, as a general rule, entitled to terminate the contract. At the time, the flat was, however, let out. In the opinion of the seller, the purchaser was therefore not entitled to terminate the contract of sale because the flat could not be returned in the condition it was in at the date of possession. The question for the court was then whether the purchaser was barred from terminating the contract of sale because the flat was let out.

The contract of sale could be terminated regardless of the letting

The district court based its decision on the terms of the contract of sale and assessed that the conditions for rescission of the contract had been met. The district court did not attach importance to the condition of the flat. The judges of the High Court disagreed on this issue. The majority held that the fact that the flat was let out did not bar the purchaser from terminating the contract of sale. However, the judges referred to the facts of the case, emphasising for example that the tenant had vacated the flat already while the case was pending before the district court. The minority believed on the other hand that the contract of sale could not be terminated because the flat could not be returned in the condition it was in before the purchaser took possession.

Before the Supreme Court, the seller withdrew its claim that the purchaser was barred from terminating the contract. The question was than whether the rental income earned by the purchaser entitled the seller to claim damages.

The Supreme Court held that the compensation clause in the contract of sale implied that the purchaser was not to compensate the seller for the rental income she had received before the rescission. However, the seller had a claim for compensation of any net profits from the purchaser's rental income for the period after the rescission and until the return of the property and the purchase price.

IUNO's opinion

The decision shows that a contract for the sale of real property may probably be terminated even though the real property has been let out since the purchaser took possession of it.

It is, however, reasonable to assume that it affected the outcome of the case that the tenant vacated the flat already during the court proceedings.

The district court, the High Court and the Supreme Court did not explicitly consider whether the outcome of the case would have been different if the tenant had still lived in the flat. To have clear rules, IUNO advises both purchasers and sellers of real property to write directly in the contract of sale whether a tenancy is to affect a possible rescission of the contract.

[Supreme Court judgment of 4 March 2013, case no. 116/2011]