Buying a new-build from a developer in Germany

What kind of contract it is

Section 650u BGB defines the developer contract: it covers the building or conversion of a house or similar structure and, in the same contract, the duty to transfer the plot or a building right to the buyer. The building part follows the law of works contracts, the transfer of the plot follows the law of sale. Because land is sold, the whole thing needs a notarial deed (§ 311b BGB).

Not every rule from the construction-contract chapter applies to you. Section 650u(2) disapplies a list of them (§§ 648, 648a, 650b to 650e, 650k(1), 650l and 650m(1)), so an article about ordinary “building contracts” does not necessarily describe your position.

The building description

Where the buyer is a consumer, the developer must supply a building description with the details set out in the Introductory Act (§ 650j BGB), unless you or your representative give the planning. Paragraph 650k(1), which would make its statements part of the contract automatically, is one of the sections excluded for developer contracts, so make sure the deed itself refers to the description. Where it is unclear or incomplete, the contract is interpreted by reference to the comfort and quality shown in the rest of the description, and doubt is resolved against the developer (§ 650k(2)). The contract must also give a binding completion date or the duration of building works, otherwise the date given in the description counts (§ 650k(3)).

Security before you pay

The MaBV (§ 3(1)) lets a developer accept your money only when all of the following are true:

1. the contract is effective and every approval needed for it is in hand, confirmed in writing by the notary, and the developer has no right to withdraw;
2. a priority notice (Vormerkung) is registered in your favour at the agreed rank; for a flat the division into units must also be completed in the register;
3. the plot is freed from prior mortgages and land charges that you do not take over, and this is secured even if the building is never finished;
4. the building permit has been granted, or the authority has confirmed it counts as granted, or building may begin under the rules.

The developer can avoid these conditions only by giving a guarantee that covers every claim you could have to get your money back (§ 7 MaBV). Ask which route the contract uses and have the notary explain the papers. The developer needs a permit under § 34c GewO to do this kind of business.

Payment in stages

Section 650v BGB says the developer may demand stage payments only as agreed under the regulation, which is the MaBV. Section 3(2) MaBV permits up to seven instalments, in percentages of the contract sum that follow the build:

• 30% after the start of excavation (20% where a building right is involved);
• then, of the remaining sum, 40% at completion of the shell, 8% for roofs and gutters, 3% each for the rough installation of heating, sanitary and electrical systems, 10% for the windows, 6% for interior plaster, 3% for the screed, 4% for sanitary tiling, 12% at readiness for occupation against handover of possession, 3% for facades and 5% on full completion.

Calculation, not a quote: on a €400,000 contract, the first instalment is at most €120,000 (30%). Of the remaining €280,000, the shell stage allows 40%, or €112,000, and the roof stage 8%, or €22,400. If a listed item does not occur, its percentage is spread over the other instalments.

Acceptance and defects

After completion you decide whether to accept the work (Abnahme, § 640 BGB). A minor defect is not a reason to refuse. If you accept a work you know to be faulty, you lose several remedies unless you reserve your rights at acceptance. If the developer sets a reasonable period and you neither accept nor refuse with at least one stated defect, the work is deemed accepted, but for a consumer only if the developer warned you of this in text form with the request.

Claims for defects in a building lapse after five years from acceptance (§ 634a(1) no. 2 and (2)). If the developer fraudulently concealed a defect, the ordinary limitation period applies instead and is not shorter than the five years. Keep the acceptance record and the list of defects.

Which professional to consult

A notary explains the deed. An independent architect can read the building description and attend acceptance. A mortgage broker can ask lenders how stage payments fit the loan.