Early loan repayment – Berlin Court of Appeal strengthens lenders’ position

In banking-law practice, credit institutions often face the question of whether, and under what conditions, they should agree to a borrower’s request for early termination of a contract. The Berlin Court of Appeal (Kammergericht), in a decision (4 U 104/23) obtained by Noerr for Berliner Sparkasse, has provided clarity on this matter. The claimant sought reimbursement of an early termination fee based on an alleged assignment by the original borrower. The original borrower was a property holding company and former subsidiary of the claimant. The legal dispute raised two questions of practical relevance for the banking sector: essentially, whether a borrower can, by way of exception, invoke the interests of third parties when seeking early repayment of a loan (see section 490(2) of the German Civil Code (Bürgerliches Gesetzbuch – BGB)), and whether the lender must in individual cases accept a combination of a change of borrower and exchange of collateral.

The Berlin Court of Appeal rejected both questions, in line with the previous ruling of the Berlin Regional Court. By an order dated 22 July 2025 (case no. XI ZR 122/24), the Federal Court of Justice (Bundesgerichtshof – BGH) dismissed the complaint against the refusal to grant leave to appeal.

No consideration of third-party interests in cases of early loan repayment

According to section 490(2) of the German Civil Code, a borrower may terminate a loan agreement early if justified by their own legitimate interests. It has long been established that third-party interests should not generally be taken into account in this context. The Berlin Court of Appeal has now confirmed that this also applies even if the third party is the sole shareholder of the borrower and the borrower is a property holding company. In its reasoning, the court relied mainly on the unambiguous wording of section 490(2) of the German Civil Code and the explanatory memorandum, which does not suggest otherwise either. Therefore, neither corporate links nor the economic interests of a third party can give rise to a borrower’s right against the lender for early termination or amendment of the contract.

No combination of a change of borrower and exchange of collateral

According to the case law of the Federal Court of Justice, in very narrowly defined exceptional cases the lender may be obliged to accept a change in the person of the borrower (Federal Court of Justice, judgment of 30 November 1989 – III ZR 197/88). Similarly, in strictly limited exceptional circumstances, an exchange of the collateral agreed for the loan may also be considered (Federal Court of Justice, judgment of 3 February 2004 – XI ZR 398/02).

The distinctive feature of the case decided by the Berlin Court of Appeal was that the claimant sought a combination of a change of borrower and exchange of collateral. The court clearly rejected this. In the court’s view, such an obligation to contract with third parties on amended contractual terms is no longer supported by the wording of section 490(2) of the German Civil Code and is incompatible with the case law of the Federal Court of Justice.

Practical implications

The interests of third parties, even those of sole shareholders, are irrelevant when assessing an early loan repayment. Any obligations may exist solely in relation to the original borrower, and only to the extent that legitimate individual interests are present under the strict requirements of section 490(2) of the German Civil Code. Under German civil law, lenders are therefore not required to accept a combination of an exchange of collateral and a change of borrower.

This approach, confirmed by the Federal Court of Justice, provides clear and reliable guidelines for credit institutions: banks and savings banks, by virtue of their private autonomy, are free to decide for themselves whether they wish to enter into a complex remodelling of contracts involving both a change of debtor and an exchange of collateral.

Noerr has firmly established itself as a market leader in handling banking-law disputes. Noerr’s specialised Banking Litigation team drawn from its Class Action & Mass Claims Defence and Banking & Finance practice groups regularly advises clients on defending lawsuits related to credit transactions.