Commercial Loan TermsCredit terms and conditions
Financing of appliances provided by producers or appliance vendors is sometimes subsidized (e.g. interest-free loans), but often better offers can be obtained through a financial intermediary. When your financing is arranges by an equiment vendor, you may be given commitments outside the financial services provider's arrangement, such as free fittings or deliveries, bar discounts, upgrade, title transfers, etc. But if the commitments are not included in the financial services provider's arrangement, there is a potential that they may not be met.
Is the brokerage and handling charge clause in commercial credit contracts void?
It has been customary for centuries for lenders to levy a handling fee(1) or a handling commission for a loan when it is granted". As a rule, this tax is subtracted from the amount of the loan when it is first drawn, and in commercial business (where the borrowing party and the lending party are entrepreneurs(2) and not consumers) the tax is usually a certain proportion of the amount of the loan (e.g. 1%).
These charges are not linked to the duration of the loan. According to the guidelines(3) deriving from the judgments of the Federal Court of Justice, until 2014 creditors were certain if the handling charge did not surpass 2% of the loan amount. However, (4) On 13 May 2014 the Federal Court of Justice ruled(5) that process charges in credit contracts for credit to non-specimens are void because they discriminate unfairly against them.
Up until July 2017, the Lower Rhine tribunals considered an increase in the number of cases in which they had to rule on whether the rules on handling charges for credit for consumers also apply to commercial credit. Most of the judgments rejected this request and confirmed the applicability of such provisions in commercial credit contracts.
However, on 4 July 2017 the Bundesgerichtshof (Federal Court of Justice) ruled in two judgments(7) that service charge provisions in standard commercial credit contracts are ineffective because they discriminate unfairly against them. It analyses the juridical justification of the Federal Court of Justice's rulings and contains some proposals that creditors should take into account in order to address this topic in the near term.
Legal term of the loan The legal term of the loan after Germans right is mirrored in § 488 exp. 1 BGB. "A credit agreement obligates the creditor to provide the debtor with the amount of funds required in the amount stipulated. Borrowers are obligated to reimburse any interest due and to reimburse the loan provided when it becomes due.
" Under this general approach, the'price' of the loan to be paid by the debtor is the interest rate calculated by the creditor. Interest should be paid to meet all expenditure incurred by the creditor in connection with the grant of the loan and no further charges should be levied. The general applicability of the regulations adopted in 1976, amended after the transposition of Directive 93/13/EEC and included in the Civil Code in 2002 as 305 to 310, governs the applicability of the so-called "General Terms and Conditions".
"any terms and conditions that are pre-formulated for more than two agreements that one contracting partner (the User) submits to the other contracting partner upon conclusion of the agreement. Whether the terms are in the physical part of a agreement or become part of the agreement itself, the scope of the terms, the type of script or type used for them and the nature of the agreement are immaterial.
In the event that a contractual agreement or even a specific provision in a contractual agreement is regarded as general terms and conditions, these terms and conditions shall be ineffective in accordance with 307 BGB (German Civil Code) if, in contravention of the principle of good faith, they discriminate against the other contractual partner inappropriately.
Whereas this appears to make good economic sense with regard to the hypermarket, the legislator went further by stating in Section 310 of the BGB that the general terms and conditions also cover the trade. Therefore, provisions in commercial credit contracts, insofar as they represent general terms and conditions, are also governed by the test of reasonableness used by the Federal States.
Applying the General Terms and Conditions to commercial credit arrangements Pre-formulated terms and conditions submitted to the other contracting partner It is common usage for creditors to use standardised credit arrangements or terms such as the Loan Marketing Association's standardised documents or internal documents. In fact, according to case history, such standardised conditions do not necessarily have to be notated.
In the event that these Terms and Conditions are to be used at least three consecutive occasions, they shall be deemed to be General Terms and Conditions unless they have been specifically agreed. Terms and Conditions shall not be deemed general terms and conditions if they have been agreed between the contracting partners separately.
Recently, in a judgment of the Dresden Higher Regional Court(12), the contracting partners of a commercial credit contract agreed on the amount of the handling charge, but it was not clear whether the debtor could decline to accept the payment of a handling charge (i.e. the fact that a handling charge had to be levied by the creditor did not seem negotiable).
As a result, the Tribunal decided that the term in question was not privately bargained for and was therefore submitted to the review of the Tribunals as general terms and conditions. As it is common for a handling charge to be levied and as a rule only the amount and the method of settlement are agreed, the corresponding terms in loan contracts (which foresee the levying of such a charge) are therefore regarded by the jurisdictions as general terms and conditions, even if the amount of the charge is strongly agreed.
In principle, it is not permissible for domestic judicial authorities to impose the general terms and conditions on terms in a sales agreement which govern the prices of goods or a service as if they were interfering with the free markets. Nonetheless, the so-called "ancillary charges " in a treaty are fully amenable to judicial review.
An honorarium provision in a agreement will not be the object of such judicial review if the honorarium provision governs either the cost of the primary obligation of the beneficiary or the cost of ancillary services. As a handling charge is not charged according to the duration of the loan, it does not represent interest and is therefore not the amount that a borrowing company will pay to use the loan revenue.
Furthermore, a handling charge is intended to recover the cost incurred by the creditor in his own interest or to meet the requirements of the law (e.g. handling the loan request, carrying out a loan assessment, disclosing client reviews and negotiations). Recent rulings by the Federal Court of Justice concerned bi-lateral credits.
It is therefore questionable whether the same argument can be put to an arrange or structure charge for a revolving credit facility. It is possible, however, that the courts may consider them enforceable if the arranger of the operation does so in his own interest in order to be able to obtain the adequate funding needed by the borrowers.
Therefore, one can say with certainty that a fee provision in a loan contract, which is irrespective of the duration of the loan, is open to review by the English court, which will find the provision to be in accordance with the terms and conditions.
The most recent judgments of the Federal Court of Justice confirm that a provision imposing the obligation to pay a handling charge is also unacceptably detrimental to the creditor in commercial transactions and is therefore ineffective under § 307 (2) no. 1 BGB.
The Bundesgerichtshof considers that the levying of such a charge differs from the legal view of Germany that the only cost of using the loan income is interest and that there is no justification for such a difference. Germany's Federal Supreme Court emphasised that an enterpriser could also be discriminated against as a borrower of the General Terms and Conditions because of the lender's "creative power".
According to the CFI, it did not make any difference whether a particular debtor was commercially knowledgeable or had bargaining powers and was fully conscious of the impact of the corresponding handling charge provision. There is a risk that creditors may misuse their powers under the contract and insert terms that deviate from the legal requirements of Germany, thereby taking advantage of this dependence.
Therefore such provisions are void. Also, the Federal Supreme Court emphasised that, in the light of 310 BGB, no other opinion can be held according to which the tribunal must take into account the customary practices(14) and customs(15) of commercial dealings. This is not common in commercial dealings since a handling charge is also levied on credit contracts for consumers.
However, the Tribunal also rejected the commercial practice under Section 346 of the HGB and stated that such a practice would only apply by common consent and that such a charge would have to be levied even if it was not recorded in the loan contract. However, one of the solutions may be to prevent the loan contract with the corresponding fees clause from being governed by the laws of the Federal Republic of Germany by selecting as the valid laws of the loan contract the laws of a place of business which does not consider these provisions to be void.
According to Art. 3 of the EC Regulation (593/2008) (Rome I), the contracting partners are in principle free to decide on the laws to be applied to their contracts. According to Rome 1 paragraph 3 of Art. 3, the election of the political Parties does not, however, affect the applicability of the laws of that other State, which cannot be departed from by convention, if all the other factors affecting the electoral context are situated in a State other than the State whose laws were elected.
That would mean that, in the absence hereof of factors justifying the use of a provision of international commercial law where all the contracting partners of a credit contract are established in Germany, no derogation from the provisions of the General Terms and Conditions of Sale and Delivery is possible. Conversely, a charge note could also be considered as general terms and conditions, and if all contracting entities are established in Germany, it is likely that the provisions of the general terms and conditions would also be applicable to such a charge note.
If the loan contract is drawn up by the debtor and already contains a handling charge provision, it is not necessary for this provision to be the lender's general terms and conditions. In many cases this may not be a viable alternative as creditors usually choose to make the credit contract available to the debtor.
Experienced donors, however, often make the first outline of the credit contract available. Another option would be to design the fees in such a way that they are classed as the "main price" for certain creditor related credit contract related activities.
There would be an undertaking to make the charge payable in a specific arrangement (e.g. a comfort note clearly defining the creditor's commitments - i.e. the service he provides to the creditor - and the charge levied for those services). Therefore, the rendering of such service and the corresponding paying of the fees would be the principal duties of the contracting party under the terms of the engagement and would not be amenable to review by the English court as general terms and conditions.
On the other hand, the mandating document should be worded in such a way that the service for which the handling or agency charge is made goes beyond the "usual services" of the creditor. Failure to do so would increase the risks that this could be seen as circumventing the general terms and conditions.
Elevated interest rates A creditor could calculate an elevated interest on the loan to meet what he would have calculated as a handling cost (e.g. he could use a higher interest in the first year of the loan). These increases would correspond to the handling or handling charges that the creditor would have levied.
The interest rates, as mentioned above, are not controlled by the court under the General Conditions. In addition, an increase in the interest rates on a consortium loan would be unreasonable as the service for which such an increase would be calculated would not be provided by all consortium creditors.
Custom negotiations The provisions of the General Terms and Conditions do not govern the negotiations of clauses as such. It is to be considered as an agreed term and would not be governed by the general terms and conditions. A number of possibilities exist to address the questions posed by these new judicial rulings.
However, the simplest way to minimise the risks of the handling or brokerage fees being invalidated by the domestic court is for creditors to clearly record: the personal negotiations of the handling or brokerage fees clauses (e.g. the possibility to opt for handling or brokerage fees and higher interest rates, and the selection itself should be proven in writing).
Where it is possible to choose the applicable legislation of another country, a special charge under international legislation is also possible. Sentence of the Federal Court of Justice, 13 May 2014, XI ZR 405/12. and ( (7) Federal Court of Justice Judgments, 4 July 2017, XI ZR 562/15 and XI ZR 233/16.
233/16 (11) Judgments of the Federal Court of Justice of 4 July 2017, XI ZR 562/15 and XI ZR 233/16.