Reservation fee when buying real estate

The question repeatedly arises as to whether reservation payments agreed in reservation contracts can be withheld or refunded by the estate agent or seller. may be retained as compensation. The Federal Court ruling from 1913 speaks a clear and unequivocal language.

The most important content and decisive sentence for this judgment is the following: “The invalidity of the contract extends to its entire content and therefore also to such ancillary agreements belonging to it, whereby the obligation of a party to perform is to be confirmed.”

In practice, only verifiable expenses such as notarial costs (expenses may be incurred for non-certification) and/or travel costs can be deducted from the reservation fee. The remainder must be repaid to the buyer.

Click here for the exact judgment at the time, which is still valid today:

42 Judgment of the 1st Civil Division of April 26, 1913 in the matter of Hess, plaintiff, and Huber, defendant.

Art. 216 CO: The provision that preliminary contracts for the purchase of Real Estate must be officially notarized has been established for the sake of public order and failure to observe it therefore results in the absolute invalidity of the preliminary contract concluded. This also extends to related ancillary agreements intended to confirm the obligation to perform, such as the agreement of a contractual penalty or a penalty for repentance. – Examination of whether a preliminary contract for a property purchase has been concluded in the given case. – If the debtor promises to pay compensation in the event of non-performance, this is not a conditional promise of payment of an abstract nature, but an obligation that forms part of the entire contractual relationship. – Fraudulent misrepresentation of the other party regarding the requirement of public notarization (denied for reasons of fact).

A. By judgment of 18. September 1913, the 1. The Court of Appeal of the Zurich High Court ruled in the present dispute:
“The action is dismissed”.
B. The plaintiff has appealed against this judgment to the Federal Supreme Court, requesting that the action be upheld in its entirety.
C. Neither the appellant nor a representative for him appeared at today’s hearing. The appellant’s lawyer concluded that the appeal should be dismissed and the contested decision confirmed.

The Federal Supreme Court takes this into consideration:

1. the defendant, Ernst Huber-Wanner, on September 9, 1912, made the following written offer to the plaintiff, Dr. Hess: “Mr. Huber in Goldbach hereby offers to Dr. Hess…. for confirmation by tomorrow Tuesday September 10, 8 p.m.: His villa (formerly Grämli) located in the Goldbach between Seestrasse and the lake with approx. 12 acres of surrounding land at a price of CHF 74’000.- ….”

This is followed by more detailed provisions, which are not relevant here, concerning the payments, the mortgages, the legal fees and the scope of the object of purchase, and at the end it is stated: “Should Mr. Huber-Wanner withdraw from this offer, he shall pay Dr. Ed. Hess CHF 5,000 compensation.” On September 10, the plaintiff replied to the defendant: he informed him that he was buying the villa offered in accordance with the conditions agreed in yesterday’s preliminary contract; the notarized purchase contract was to be drawn up in the morning of September 11. The defendant refused to notarize the purchase. The plaintiff now set him a deadline to declare whether or not he wished to convey the property and, when the defendant remained silent, brought an action requesting that the defendant be ordered to pay compensation of CHF 5,000 in accordance with the contract of 10 September. September 1912.

2. Since the plaintiff accepted the defendant’s offer of September 9, 1912, by a statement dated September 10, 1912, a meeting of the minds between the parties has been established; specifically, the substance of this agreement constitutes a preliminary contract for the purchase of real property: When the defendant states that he is offering the real estate to the plaintiff, he does not thereby intend to make a declaration of sale, but only to promise the future submission of such a declaration and his cooperation in the purchase agreement to be concluded at a later date. And if he promises compensation of CHF 5,000 in the event that he withdraws from this offer, he intends to be obligated to pay that sum only if, after the plaintiff has accepted the offer, he fails to proceed with the purchase; however, he does not intend to be bound by the offer itself until the plaintiff has accepted it and a meeting of the minds has been reached. The plaintiff also regarded the offer of September 9 as a proposal to conclude a preliminary contract, as evidenced by the fact that, upon accepting it, he referred to a preliminary contract and stated that the “notarized purchase agreement” was to be drawn up the following day.

The lower court is therefore correct to base its assessment of the case on para. 2 of Art. 216 of the Swiss Code of Obligations, according to which preliminary contracts for the purchase of land require public notarization in order to be valid. This formal requirement has been divided up for the sake of public order, in that on the one hand it is intended to protect the parties to purchase contracts for real estate from concluding contracts without due consideration and on the other hand to provide guarantees for the correct determination of the content of the contract in the interests of the parties and the public (see also Huber, Schweizerisches Privatrecht IV p. 839). Accordingly, the invalidity due to lack of public notarization must be absolute; it means that the contractual declarations of intent made by the parties are legally ineffective per se, i.e. do not establish any contractual entitlement or obligation for either party.

Accordingly, the defendant cannot have a legal obligation to pay the promised CHF 5,000 if the promise to pay forms part of the concluded contract, i.e. if it is a promise to pay a contractual penalty which would be owed in the event of non-performance of the contract – refusal by the defendant to offer his hand to conclude the purchase contract – but possibly a promise to pay a new sum in return for which the defendant could withdraw from the contract. The invalidity of the contract extends to its entire content and therefore also to such ancillary agreements belonging to it, whereby the performance obligation of one party is to be confirmed.

(3) – However, the plaintiff now wants to assign the disputed clause a separate, independent status from the other contractual content by claiming that it is a conditional promise of payment of an abstract nature, which as such does not require a specific form. In reality alone, the conditional payment obligation cannot be detached from the underlying legal transaction. The claim that accrues to the creditor by law or contract in the event of non-fulfillment of the debtor’s obligation to perform is not ordinarily outside the contractual relationship, but forms an integral part of it and is related to the other contractual relationships. It has not been demonstrated that the situation is different here for special reasons. In this regard, the plaintiff wrongly argues that the defendant promised payment in the event that he withdrew from his “offer” – not from the contract. As already noted, this can only mean the withdrawal from the preliminary contract, or more precisely the non-fulfillment thereof. And incidentally, the plaintiff maintained his pre-contract offer as such and allowed the pre-contract to be concluded.

(4) – Finally, the plaintiff counters the objection that the contract is invalid by arguing that the defendant acted fraudulently because he was aware of the invalidity of the contract from the outset and left the defendant in error. However, according to the facts of the case, as established by the lower courts and incontestable under federal law, there is already a lack of the necessary factual evidence from which fraudulent conduct on the part of the plaintiff could be inferred.
It is therefore not necessary to examine what the legal consequences of such conduct would be, namely whether it would preclude the nullity of the contract from being asserted against the deceived party or whether the latter would be entitled to compensation in tort.

Accordingly, the Federal Supreme Court has recognized:

The appeal is dismissed and thus the judgment of the 1st instance is upheld. Chamber of Appeal of the High Court of the Canton of Zurich of 18. January 1913 confirmed.

Judgment in the original wording: 42nd judgment of the 1. Civil Division of 26. April 1913

Own information on the subject of notarization / transfer of ownership

Own information on the subject of reservation contracts