International Tree Purchase Agreements and Their Validity: OLG Koblenz on the Sale of Individual Trees in Brazil
The Higher Regional Court of Koblenz dealt in a judgment dated November 13, 2020 (Case No. 6 U 1582/19) with the validity of a contract for the purchase of individual trees on a forest property in Brazil. The decision is of significant importance for investors and companies wishing to invest in international agricultural or forestry projects. It raises central questions about dealing with ownership acquisition, purchase of goods, and legal control in cross-border commercial transactions.
Background: Subject Matter of the Contract and Project Structure
The specific case involved the offer of a German company that enabled customers to purchase individual trees in Brazil. Unlike classic land transactions, buyers were not registered as landowners in the local land register but received a so-called “tree purchase contract” which related exclusively to certain usable trees. Additionally, the company guaranteed care, management, and subsequent utilization of the trees.
Many buyers expected not only an acquisition of tangible assets but also participation in sustainable and ecologically oriented investment models. However, there was considerable uncertainty regarding the real rights position and especially about whether ownership acquisition of individual trees is possible and enforceable under German and Brazilian law. This led to buyers later demanding reversals and asserting their rights before German courts.
Legal Assessment: Purchase of Goods and Ownership Acquisition of Trees
Purchase of Goods Instead of Ownership Acquisition in Real Estate
The OLG Koblenz assessed the tree purchase contract in detail: Under German law, the principle “superficies solo cedit” (the surface follows the soil) applies, meaning essential parts of real estate – which generally includes standing trees – cannot be legally sold separately. However, Brazilian law, which was decisive here due to the property’s location, allows under certain conditions an independent acquisition of ownership in tree stands.
Since the buyers were neither granted the property nor a co-ownership share, the court concluded that the tree purchase contract must not be classified as acquisition of a real right in real estate but as purchase of movable goods (here: the felled trees including harvesting rights and assignable timber yields). This classification significantly influences the provisions under which claims arising from the contract must be examined and, if necessary, enforced.
Contractual Safeguarding and Risk Allocation
The court emphasized that, although buyers were not assigned a direct land register right, the contractual nature of the tree purchase – combined with management and later profit claims from the harvest – is sufficiently defined to assume a contract for the sale of goods. Risk allocation corresponds to general sales law, whereby the effective enforceability of rights abroad must be measured by protection against contractual breaches and insolvency-related risks.
Protection Mechanisms and Trust Foundations in Foreign Investments
Information and Disclosure Obligations in Sales
The case highlights the compliance, information, and disclosure obligations of providers of international projects. Investors must be informed about the scope and limitations of their property-like rights to avoid misconceptions concerning legal protection. The OLG stressed that contractual claims and factual control in investment models with tangible assets must be communicated with particular care.
Contract Design in International Tangible Asset Investments
Special attention must be paid to structuring control and utilization rights, as buyers regularly rely on the services and reliability of the project operator or trustee. Cross-border matters require examination of the effectiveness and enforceability of rights under foreign (here: Brazilian) law, including any registry entries, liens, and insolvency protection regulations.
The judgment makes clear that contractual handling with specified performance obligations and a clear assignment of yields can fundamentally be upheld. The crucial questions revolve around enforcement and value retention of claims in the international context.
Implications for Investors and Companies
Opportunities and Risks in International Tree Investments
Companies and investors engaged in cross-border raw material, agricultural, or forestry projects find orientation in the judgment regarding the legal structuring of such contracts. The focus is on the effectiveness, enforceability, and legal protection of investments outside the German legal system. The decision emphasizes that such tree purchase agreements can be valid if the contractual provisions are clearly designed and actual access to the tangible assets is guaranteed.
Importance of Applicable Law and Conflict Resolution
The application of foreign law and the case law of German courts regarding international jurisdiction are of central importance in cross-border tangible asset projects. Investors must be prepared that contractual claims for performance against foreign contracting partners are regularly subject to additional legal and factual examination. Not least, the structuring of securities and control mechanisms in international trade plays a crucial role.
The timber purchase contract for individual usable trees in Brazil illustrates the complexity of commercial contractual relationships in the international context. Companies and committed investors dealing with questions of contract design, security, and enforceability when acquiring tangible assets or usage rights abroad will find further information on relevant issues and current developments in the field of commercial law under [Rechtsberatung im Handelsrecht].
