New decisions on remuneration under loan agreements

In 2017, the German Federal Court of Justice (BGH) decided that even among merchants in loan agreements a processing fee could not be effectively agreed if such agreement was based on general business conditions. This decision was not entirely unexpected, as with respect to consumer credits such case law has been around for some time. Nevertheless, the decision has been criticized by banks because it impedes reaching an agreement on such fees, even if the parties of the loan agreement consider that they are commercially desirable and useful in the relevant transaction. Such a processing fee, which is independent of the term of the loan, can only be effectively concluded through an individual agreement (Individualvereinbarung). In order to create such an individual agreement jurisprudence has set high requirements on the formal and documentation side.

There are important voices in the legal literature that believe that this case law does not apply to one-off fees, administrative commissions or cost assumptions if they are agreed as part of a syndicated loan. An uncertainty remains here since there is no case law yet and the BGH has so far given the impression that it is opposite of all forms of payment for a loan for fundamental reasons, insofar as it is not about interest.
Recently, there have been two higher court decisions that consider the agreement of a renumeration (not being interest) as permissible even if the agreement is based on general business conditions. These decisions complement the picture and have the advantage that their justifications are consistent with the above mentioned BGH decisions.
With the decision of March 24th, 2020 XI ZR 512/18 the BGH decided that the agreement of a commitment fee as a price element under a loan agreement does not fall under the legal restrictions of general business conditions and is therefore not controllable by a court, because the commitment fee is the remuneration of an additional service provided by the lender, which exceed the mission statement of the German Civil Code (BGB) for a loan.

This special service consists of the obligation of the lender to keep the loan amount available for drawing by the borrower after conclusion of the loan agreement for an agreed period, the so-called drawing period. Such a drawing period is not contained in Section 488 paragraph 1 sentence 1 BGB. Without the agreement of a drawing period, the lender would rather be entitled to immediately pay the loan amount to the borrower in accordance with Section 271 (1) BGB and to claim the interest owed.

The other case concerns a judgment of the Higher Regional Court (OLG) Nürnberg of 17.3.2020 14 U 189/19. The lender's customer wanted to buy a property and finance the purchase price with a loan. The lender had specified the desired loan terms with its customer in a term sheet and both have additionally agreed that a drop-dead fee of EUR 15,000 would be payable if the intended financing could not be realized. In fact, the property acquisition failed because the seller wanted to achieve a higher purchase price and other conditions. The loan agreement was never executed. In this case it was decided that the agreement of a drop-dead fee was valid and that the legal restrictions of general business conditions did not conflict with such agreement.

The court dealt in particular with Section 308, No. 7 (unwinding of contracts) BGB and Section 309 No. 5 (flat-rate claims for damages) BGB.

Section 308, No. 7 BGB is not relevant here, since this is not about the unwinding of a contract after termination or withdrawal, because the loan agreement was not executed. Instead, claims from an existing contract (the separate agreement of the drop-dead fee) were made. Section 309 No. 5 BGB is not relevant either. This would require that the contracting party concerned was in breach of contract. It was crucial that the clause was not agreed in a loan agreement but in a separate document and that no claims from the breach of duty from a contractual relationship were made, but from the normal performance of the agreed terms of a contractual agreement not being a loan agreement.