Contract law

Statutory right of withdrawal

Generally, if the other party defaults on the performance of the contract, a reasonable deadline must be set before withdrawal – during which time the contractual obligation can still be fulfilled. If the other party fails to fulfil its obligation even within this period, withdrawal from the contract is then possible. Payments already made etc. can be reclaimed.

Statutory rules on compensation

In the event of a breach of contractual obligations, in principle compensation may also be claimed (as an alternative to the right of withdrawal) if the damage would not have occurred without the culpable conduct of the other party.

Default occurs if

• a debtor fails to fulfil the contract at the agreed time, place and in the agreed manner (debtor default), or if
• the creditor does not accept the service offered by the debtor at the agreed time, place and in the agreed manner (creditor default).

Payment default occurs if the creditor (contractor/vendor) has fulfilled its performance in accordance with the contract but the debtor (contracting party/purchaser) does not meet the contractual or statutory payment deadline.

The due date for a payment for service is generally based on the contractual agreement. If nothing is specified in the contract, payment for service is usually due as soon as the service has been performed.

If the customer defaults i.e. if he does not pay by the due date, the creditor is entitled to demand default interest from the day following the due date. If no default interest is stipulated in the contract, statutory interest may be charged.

For consumer transactions (i.e. between traders and consumers) or for transactions between private individuals, a statutory default interest rate of 4 per cent per year applies. For transactions between traders (or traders and legal entities under public law, such as the federal government, the federal states ("Länder") or municipalities), a statutory default interest rate of 9.2 per cent above the base rate applies.

There is no legal requirement to send a reminder before taking legal action (e.g. a lawsuit).

For contracts concluded remotely and at a distance (distance transactions and transactions negotiated away from business premises) between traders and consumers, the special provisions of the Fern- und Auswärtsgeschäfte-Gesetz (FAGG) apply. Businesses must fulfil certain information requirements in the case of distance contracts (this also includes onine shop). There are special requirements to be observed for contracts concluded by telephone and for contracts concluded electronically. Consumers have a right of withdrawal from a distance contract that they can exercise within 14 days.

By way of exception, the FAGG does not apply in certain cases, such as the following:

• contracts concluded away from business premises where the fee to be paid by the consumer is 50 Euro or less,
• if the transaction relates to social services (social housing, childcare, nursing care, etc.) or health services (with the exception of the sale of medicines and medical devices at a distance),
• games of chance with a money stake,
• financial services,
• the creation, acquisition or transfer of ownership or other rights in immovable property,
• the construction of new buildings, the substantial conversion of existing buildings or the rental of accommodation for residential purposes,
• package holidays,
• timeshare contracts, contracts for long-term holiday products, and resale and exchange contracts,
• contracts concluded by a public official who is legally bound to independence and impartiality and who is obliged to provide comprehensive legal information to consumers,
• contracts for the supply of foodstuffs, beverages or everyday household goods which are physically supplied by a trader on frequent and regular rounds to the consumer’s home, residence or workplace,
• the use of vending machines or automated business premises,
• contracts concluded with telecommunications operators that use public telephones for their performance, or contracts for the use of an individual telephone, fax or internet connection made by a consumer.

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