Construction Contract Law in Germany

Checking a construction contract takes expert knowledge.

Even as a building contractor or architect, checking the construction contract can be time-consuming. It can leave you open to common mistakes, such as failure to mention a deadline for the project’s completion and not including penalties for missing deadlines.

Having our lawyers conduct the required contract checking means that you can progress with the construction project knowing you have legal certainty and protection. As experienced contract lawyers, our firm can ensure that you have a watertight construction contract that will include the essential points of the agreement.

Our lawyers can be relied upon for checking contractual terms under the BGB and the VOB.

Our lawyers can provide clear guidance regarding designing the contract by working with our team from the start. Therefore, you can avoid overlooking details like the construction description.

The contract should contain detailed descriptions of the project, firmly establish the project’s price, provide guidance regarding how the project will be financed and clearly outline information containing the materials that should be used.

Without clearly stating the project description in the contract, the buyer may end up with a property that does not match their demands or problems or defects that may take years to resolve.

Overlooked details and contract mistakes are commonplace and explain how construction projects regularly exceed the planned budget. Such overpricing comes down to unclear performance specifications and the failure to include a specific total price or payment schedule.

If the private builder had a deadline in mind for the project, which is not specified in the contract, it could lead to extensions and higher costs. Construction contracts should protect against construction defects, and home builders must be aware of their warranty claims from the beginning of the project.

The warranty duration can vary depending on whether the contract contains BGB or VOB/B elements.

Under both the BGB and VOB, clients have the right to terminate the construction contract; however, there are differences in how this happens.

Under § 648 BGB, the client can terminate the construction contract at any time without providing reasons. However, it must be provided in writing (§ 650h BGB). § 648 BGB states:

“The ordering party (or customer) may terminate the contract at any time until completion of the work. If the ordering party terminates the contract, the contractor shall be entitled to claim the agreed remuneration; however, the contractor shall be entitled to deduct from the remuneration any expenses saved as a result of the termination of the contract or which (they) acquire or maliciously refrain from acquiring through the use of (their) labour elsewhere. It shall be presumed that the contractor is entitled to 5 per cent of the agreed remuneration for the part of the work not yet performed.”

Therefore, it should be noted that terminating the contract should only be considered after receiving expert advice in advance of the decision.

The decision has significant consequences as the contractor is entitled to the agreed remuneration minus two elements: the saved expenses for services that no longer need to be provided and the remuneration that the contractor incurs due to the possible acceptance of new orders.

To prevent the calculations from getting out of hand due to excessive space for interpretation, the legislator considers 5 % of the work’s remuneration appropriate. It should be noted that the 5% is not binding under the law.

Under the BGB, the contractor can also terminate the construction contract. However, they must provide the customer with sufficient time and a written notice regarding the proposed action in advance.

The contractor can terminate the agreement if they require an action from the customer to fulfil the contract, which is not acted upon by the customer. If this happens, the construction project may fall behind schedule.

Once the termination has occurred, the contractor is entitled to remuneration for the services provided and possible expenses. Whether the customer needs to provide additional costs depends on the case matter.

Extraordinary Termination of a Construction Contract

Extraordinary notices of termination are permitted by law under § 648a BGB as it states:

“Both contracting parties may terminate the contract for good cause without observing a notice period. Good reason shall be deemed to exist if the terminating party, taking into account all circumstances of the individual case and weighing the interests of both parties, cannot reasonably be expected to continue the contractual relationship until completion of the work.”

Although this regulation may appear vague, it provides space for individual case matters. The phrase “good cause” refers to situations where the relationship of trust between the two parties is no longer stable, and therefore, further cooperation is unacceptable despite all efforts.

How this arises does depend on the case facts. Still, incidents of malicious deception, threats or highly aggressive behaviour and refusal to remedy defects are among the justified reasons for extraordinary termination.

§ 648a provides further guidance regarding extraordinary termination, as it outlines the following:

“(5) If one party to the contract terminates the contract for good cause, the contractor shall only be entitled to demand payment for the part of the work performed up to the time of termination.

((6) The right to claim damages shall not be excluded by the termination.”

When seeking extraordinary termination collecting the evidence is critical. Without documentary evidence of the alleged wrongdoings, parties will likely not proceed in the manner desired. Our lawyers can advise you regarding collecting evidence.