Fraud

Fraud - Fraud occurs when one party to a contract induces the other party to enter into the contract by intentionally concealing or misrepresenting facts. In real estate law, this entitles the deceived party, pursuant to § 123 BGB, to rescind the purchase agreement and may also give rise to claims for damages. Fraudulent misrepresentation also overrides a contractual warranty exclusion.

Elements and Legal Consequences

Three conditions must be met for fraudulent misrepresentation: First, there must be an act of deception-either the active fabrication of false facts (e.g., forged energy performance certificates, inflated rental income) or the deliberate concealment of defects subject to disclosure (e.g., known mold infestation, contaminated soil). Second, the deception must be intentional-the seller must be aware of the defect or at least consider it a possibility. Third, the deception must have been causal to the conclusion of the contract-had the buyer known the true circumstances, they would not have entered into the contract or would not have done so under these terms.

The legal consequence is the voidability of the purchase contract: The buyer may rescind the notarized purchase contract within one year of discovering the deception. The contract is then retroactively treated as void-the buyer and seller must return the performance received. In addition, the buyer may claim damages under Sections 280 and 311(2) of the German Civil Code (BGB), for example for expenses incurred, loss of use, and financing costs.

Significance in Real Estate Purchases

Most real estate purchase agreements contain a warranty disclaimer-the sale is made “as is.” However, this disclaimer does not protect the seller in cases of fraudulent misrepresentation. Anyone who is aware of a defect and conceals it cannot invoke the exclusion of liability (Section 444 of the German Civil Code (BGB)). Typical cases in practice include:

• Concealed dry rot or mold infestation (especially if freshly painted over)
• Concealed moisture damage in the basement or behind paneling
• False information regarding living space (a deviation of more than 10% generally gives rise to suspicion of fraud)
• Concealment of known contaminated sites or soil contamination
• False information regarding rental income or vacancy periods for investment properties
• Concealed construction defects following a prior inspection

Typical Cases of Fraudulent Misrepresentation and Their Consequences

Case	Act of Deception	Possible Consequence
Freshly painted-over mold	Active concealment of a known defect	Voidability + Damages
Incorrect living space specification (>10%)	Misrepresentation of facts	Voidability or reduction of purchase price
Concealed soil contamination	Failure to disclose	Voidability + rescission
Falsified rental income documentation	Active deception regarding return on investment	Voidability + increased damages
Ongoing legal dispute not mentioned	Breach of duty of disclosure	Damages, possibly rescission
Dry rot behind paneling	Concealment through installation of wood paneling	Rescission + reversal of the transaction
Known construction defect according to expert opinion	Deliberate concealment despite knowledge	Rescission, §§ 123, 444 BGB

Seller’s Duty of Disclosure

Even without an active act of deception, the seller is subject to a duty of spontaneous disclosure: The seller must, without being asked, inform the buyer of defects that the buyer cannot reasonably perceive and that are so material to the buyer’s decision to purchase that the buyer would not have purchased the property-or would not have purchased it at that price-had they been aware of them. The line between permissible silence and a breach of the duty to disclose is a matter of judgment in each individual case-in practice, the Federal Court of Justice (BGH) has tended to interpret the duty to disclose broadly.

Practical Tip for Property Owners in Nuremberg and Franconia

We recommend that sellers in the Nuremberg metropolitan area disclose in writing all defects known to them-ideally in a list of defects attached to the purchase agreement. This transparency protects against later challenges and claims for damages. Documented disclosure also signals trustworthiness to serious buyers, which often speeds up the sales process.

We advise buyers to have an independent inspection of the property conducted before the notary appointment and to record all of the seller’s representations in writing. For older buildings in Nuremberg neighborhoods such as St. Johannis or Gostenhof, it is particularly worthwhile to check for hidden moisture damage, mold spores behind wallpaper, and structural defects in the basement and roof.

Frequently Asked Questions

How long do I have to contest a purchase agreement on the grounds of fraudulent misrepresentation?

The period for contesting the agreement is one year from the date on which the deceived party discovered the deception (Section 124 of the German Civil Code). Regardless of this, the right to contest the agreement expires ten years after the conclusion of the purchase agreement. Claims for damages arising from fraudulent misrepresentation are subject to the general statute of limitations: three years from the date of becoming aware of the damage and the identity of the party responsible, beginning at the end of the year in which such knowledge was acquired.

Is Negligence Sufficient for Fraudulent Misrepresentation?

No, mere negligence is not sufficient. The seller must have been aware of the defect or at least accepted it with full knowledge (conditional intent). For example, if a seller knew of a previous report regarding harmful substances or mold infestation and failed to mention this during the sale, fraudulent intent is likely. If, on the other hand, the seller was unaware of a defect and could only have discovered it through a careful inspection, this constitutes negligence-in which case the contractual warranty exclusion applies.

What must the buyer prove?

The buyer bears the burden of proof for all elements of fraudulent misrepresentation: the existence of the defect, the seller’s knowledge of it, and the causal link to the conclusion of the contract. In practice, proving knowledge is particularly difficult. Helpful evidence includes witness statements from former residents, contractor invoices for hidden repairs, previous expert reports, or correspondence proving that the seller was aware of the defect. Painting over fresh moisture damage shortly before the sale can also be considered strong evidence of fraudulent conduct.

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