Once buyers and sellers have agreed on a real estate purchase agreement, it is generally legally binding. In certain situations, contracts can be retrospectively annulled, such as in the case of usury.

What does usury mean?

In the legal context, usury means that someone exploits the recklessness, inexperience, or coercion of a particular person to obtain a performance that is significantly disproportionate to their own performance. For a contract to be retrospectively annulled due to usury, there must be (1) a significant imbalance between performance and consideration and (2) the exploitation of a disadvantaged position of the abbreviated person.

Supreme Court (OGH) Decision on Usury in a Real Estate Purchase Agreement

Recently, there was an OGH decision on when usury may occur in a real estate purchase agreement. The facts were as follows:

Due to financial difficulties, the plaintiff (seller) contacted the son of the managing director of the defendant in 2016 and 2017 to discuss the sale of some of her properties. In 2018, the plaintiff concluded a total of 13 purchase agreements for her properties with buyers, all of whom were in a family relationship with the son of the defendant's managing director.

The plaintiff was unaware of the true market value of the properties and relied on the proposed purchase price being reasonable. At the time of contract conclusion, the plaintiff was legally capable but suffered from mental and physical health problems, and increased consumption of alcohol as well as pain and sedative pills, leading to a loss of control over her financial situation from 2016 to 2021. However, she managed to conceal her condition from the contracting parties. The plaintiff now applied to the court, among other things, for the annulment and reversal of two purchase agreements from October 2018.

Principles for Usury in Real Estate Purchase Agreement

The decision provides the following principles on the topic of usury in real estate purchase agreements:

• Contract annulment due to usury requires a clear imbalance between the performance and the consideration. This is present when the value of the consideration is significantly higher than the value of the performance; however, there is no defined threshold.
• The clear imbalance must be attributable to specific circumstances, such as recklessness, coercion, lack of mental capacity, inexperience, or emotional stress of the contracting party. The mentioned circumstances affecting the contracting party are not exhaustive. For example, ignorance of the value of one's own performance or excessive trust in the contracting party can also be considered. Coercion exists in any case when the contracting party is faced with the choice between concluding the contract and suffering an even more severe disadvantage. Coercion can also be temporary, psychological, or perceived, manifesting in fears, such as the threat of foreclosure, leading to the loss of one's own home.
• Finally, there must be an exploitation of this situation by the other contracting party. The criterion of exploitation presupposes that the person committing usury is aware of or should be aware of the contracting party's situation and the imbalance between performance and consideration. The person committing usury, however, does not need to have actively caused the contracting party's situation - it is sufficient if they negligently exploit the contracting party's situation.

Do you have further questions in real estate law?

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Link to the decision

OGH 5 Ob 57/23b (German)