Mith individual stocks no returns can be generated? Some financial advisors keep preaching about the one-time investment on the stock exchange, which private investors should ideally forget about immediately after the purchase, only to be delighted years later at the increase in value in their portfolio.
A curious legal dispute in Cologne shows that the sentence “the squirrel feeds with difficulty” is also particularly true on the capital market. This is about the issuance of a rental deposit. However, because this was reinvested in securities and remained untouched for decades, there was an incredible increase in value from almost 400 euros to 115,000 euros: That is 281 times!
In 1960, when the Federal Chancellor was still called Konrad Adenauer, banks were advising investors to take out a home savings contract or a savings book and the average monthly salary in West Germany was 263 euros according to the Federal Statistical Office (adjusted for inflation), a couple moved into a rented apartment in Cologne on the right bank of the Rhine. The landlord, a housing association, demanded a security deposit of 800 DM (about 409 euros today). According to the contract, the owner could now decide how he wanted to deal with the money, which gave him security for rent losses or damage to the apartment. Instead of depositing it in a deposit account, those responsible at the time decided to invest the sum in their own securities. The shares themselves were managed by a trustee.
Right to vote for landlords?
The highlight: according to the lease, the shares should be handed over when the tenants move out. But the housing association also retained the right to choose to pay out the nominal amount of DM 800 instead of the securities – i.e. without any interest, from which the tenants would usually have benefited in the case of a savings account, for example. For decades nobody bothered about this passage. In 2005, when the couple moved into another apartment owned by their landlord, the original deposit was included in the new lease.
Beginning in , the housing association paid annual amounts that were offset against rent and reported as “dividends” on tax returns. Almost 6,000 euros gross flowed to the elderly tenants, who were probably not aware of their role as “small shareholders”. The tenancy ended in mid-2018. But instead of shares “en de Täsch” – as they say in the Rhineland – the landlady wanted to invoke her right to vote. The daughter of the now deceased tenants was to receive 409 euros, i.e. the nominal value at the time.
However, the woman was apparently aware of the market value of the shares. She went to the Cologne district court and demanded the return of the securities, which were worth around 115,000 euros at the time the lawsuit was filed in December 2021. A value in dispute that would otherwise be a reason for every district court to declare itself not competent. However, because it was a process from a residential tenancy for a Cologne apartment, there was factual jurisdiction, the court said in a statement.
During the oral hearing, the plaintiffs’ arguments convinced the court. In its judgment a few days ago, it found that the housing association’s right to choose, which was reserved in the original lease, was invalid. “The plaintiff is fundamentally entitled to the return of the rental security in the form of shares.” The district court refers to paragraph 551 of the German Civil Code (BGB) as justification. It stipulates that the tenant is entitled to income from the rent deposit, regardless of the form of investment chosen.
Plaintiff is entitled to price gains
These include not only the dividends paid out, but “also any price gains,” emphasizes the district court. Even if the BGB provision did not exist in 1960, it is applicable – because the tenants agreed in 2005 on the transfer of the old rent security and other agreements.
The plaintiff will have to wait for the rain of money from the “one-time investment” of her deceased parents. Because the judgment is not yet final. The housing association, whose name is not known, can still appeal (Az. 203 C 199/21).