Based on a public interest action of the Public Prosecutor’s Office, the court examined the general terms and conditions of a residential park developer contract, in which several clauses were declared unlawful and therefore invalid.

The facts

During the pre-trial investigation by the Prosecutor’s Office, two contractual clauses were suspected of being unlawful. The company applying the clauses that were challenged by the Prosecutor’s Office started to build a residential complex of around 200 apartments in Budapest and then sold the apartments under construction from 2016 onwards, mainly to private individuals. The apartments had already reached 85-98 percent completion when, in an unexpected turn of events for the buyers, the company started to unilaterally terminate the contracts. The developer claimed a lack of labour but, after completion, resold some of the apartments at a higher price. The contracts, however, stipulated that the former buyers could only get back the purchase price they had paid if the company managed to resell the property.

The prosecutor’s examinations

Before lodging the public interest action, the Prosecutor’s Office examined the terms of the contracts, in particular whether the company could lawfully claim labour shortages or shortages of building materials under the contracts concluded and whether it could only refund the purchase price after termination only if it could resell the property that it had already sold.

The prosecutor found both clauses to be illegal and therefore invalid and not part of the agreement between the parties. To enforce this, it brought an action of public interest against the contractor before the competent court.

Findings of the court

The Metropolitan Court of Budapest, as the court of second instance, ruled with final effect that the contractual terms challenged by the prosecution were invalid.

According to the final judgment, the contractual term which allowed the contractor to exclude the applicability of rights of the purchasers provided by the law on the grounds of lack of labour in case of late performance was unfair. The court ruled that this was a one-sided exemption for the business, but left the consumer in a vulnerable and uncertain position.

In its action, the Prosecutor’s Office also criticised the fact that the contract did not allow the buyers to know whether the contract would be terminated in full due to a lack of labour or whether the contractor would only postpone the delivery of the apartments. The court also found this clause to be unfair because the company could invoke the legal consequences of the termination of the contract on the grounds of labour shortages, but the buyer could not foresee at the time of the conclusion of the contract how the rights and obligations of the parties would develop in this case.

The court also found the contractual clause unfair which entitled the contractor to repay the purchase price only after the resale of the property concerned in the event of cancellation. According to the court, this contractual term concerning the refund to the consumer is uncertain, unforeseeable and not controllable, and therefore does not adequately determine the deadline for payment.

Conclusions

In our opinion, the contractor could have drafted general contractual terms and conditions with the appropriate legal advice, which would have dealt with the risks involved in a predictable and lawful manner. Furthermore, the lawsuit could still have been avoided even if the contractor had accepted the prosecution’s arguments and offered to amend the contract with the consumer, i.e., to remedy the illegality and to stop using illegal contractual terms. It did not do so and the Prosecutor’s Office was therefore right to take action against the application of those contractual terms in order to protect the interests of consumers.