Reform of law on general terms and conditions for large corporations

Large corporations should be better able in future to count on their contractual general terms and conditions standing up in court.

Reform plans

The new German government has announced a reform of the law on general terms and conditions in the new coalition agreement. Specifically it states:

"We will reform the law on general terms and conditions to ensure that large corporations can also count on the courts to acknowledge what is agreed within the framework of private autonomy when corporations enter into contracts with each other using general terms and conditions in accordance with section 267 (3) German Commercial Code (HGB)."

The planned reform is aimed solely at companies that are either publicly traded corporations within the meaning of section 264d German Commercial Code (HGB) or fulfil at least two of the following three criteria ("large corporations", section 267 (3) German Commercial Code (HGB)):

• a balance sheet total of at least EUR 25 million
• annual revenue of at least EUR 50 million
• at least 250 employees

The coalition agreement does not include any specific proposals for changes to the law on general terms and conditions. It would be possible to amend the scope of application in section 310 German Civil Code (BGB) for contracts between large corporations, in which case these would be exempt from general terms and conditions scrutiny or subject to a less strict standard of review.

Arguments in favour of reform

For parties engaged in commercial business transactions, uncertainties can regularly arise due to the constant threat of general terms and conditions coming under the scrutiny of the courts.

Whether and when a contractual clause is to be regarded as falling within the realm of what constitutes general terms and conditions or whether the parties have negotiated it individually (section 305 (1) sentence 3 German Civil Code (BGB)) is a decision made on a case-by-case basis.

In the context of disputes, it is therefore often the case that a party objects to a clause that is unfavourable to it by stating that the clause has been or was intended to be used repeatedly, must therefore be considered to be a general term or condition and as such is invalid. Disproving this allegation is usually very labour-intensive for the other party. Whether a clause is "unreasonable" within the meaning of section 307 German Civil Code (BGB) is also decided in case law on the basis of a comprehensive assessment of the individual case. The result is case law that is now difficult to interpret and can lead to major risks, especially in the case of typical provisions such as limitations of liability or contractual penalties in project contracts. These risks and the associated costs are often incomprehensible for parties engaged in business transactions.

As scrutiny of general terms and conditions in the B2B sector is often less strict in foreign legal systems, international companies therefore regularly favour other legal systems for their contracts over the German system ("forum shopping").

Strengthening Germany as a centre of justice

To make Germany more attractive as a centre of justice, the need in particular to amend the law on general terms and conditions for international commercial disputes was discussed in connection with the Act to Strengthen Germany as a Centre of Justice, which came into force on 1 April 2025 and introduced commercial courts. As long as business parties have to worry that contractual agreements may subsequently be labelled "unreasonable" and therefore invalid, German law will remain less attractive in business transactions, which in turn will also reduce the attractiveness of the commercial courts.

The planned reform of general terms and conditions therefore fits in with the concept that was pursued by passing the Act to Strengthen Germany as a Centre of Justice.

Extension to other economic operators

The goal formulated in the coalition agreement of reforming the law on general terms and conditions for large corporations and ensuring that "the courts [will] acknowledge what is agreed within the framework of private autonomy" will have send a message that Germany is a centre of justice.

However, it remains to be seen how the German government will implement the announced reform for large corporations and whether the restrictions on scrutiny of general terms and conditions will also be extended to other economic operators in the future.