Liability for defects in the purchase of real estate
Warranties and guarantees for commercial properties, residential buildings, condominiums and other real estate in Germany
If, after a real estate purchase under german law, it turns out that the property does not meet the buyer's expectations, it must be clarified whether there is a defect and whether the seller is liable for it. The course for this decision is set in the wording of the warranty clauses in the purchase contract.
As a german law firm for real estate law, we draft and review clauses on liability for defects in real estate purchase contracts, enforce warranty claims out of court or in court, or defend against them.
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Typical regulations and formulations for liability in the purchase contract in german practice
The starting point for the seller's liability for defects are the regulations Sections 433 et seq. BGB. This covers purchase contracts for owner-occupied homes as well as commercial real estate purchases in Germany.
The german law starts - if a defect exists - with the removal of the defect. It is assumed that the parties want to stick to the transaction despite the defect. The seller has extensive possibilities to "improve" and remove - even various - defects. Therefore, in principle, the buyer cannot easily withdraw from the purchase contract if a defect appears.
Old buildings in Germany
However, the contractual reality is different in german practice. Real estate sellers want to be liable for defects as little as possible. This is based on the idea that the buyer can technically inspect the property/building. Further also to the salesman unknown lack can be present. It would be economically completely unreasonable if the seller were to enter into strict liability for defects. Therefore, existing buildings are usually bought "as seen".
New buildings in Germany
In the case of new buildings (e.g. when purchasing from a developer), the situation is different under german law. Here, the buyer is granted extensive warranty rights and even the assignment of warranty claims against companies involved in the construction.
Overview of possible material defects under german law
In german practice, it is probably more often a question of material defects than of defects of title. According to german law, a material defect is either a deviation of the actual condition from the agreed condition or a lack of suitability for the contractually presumed use or the lack of suitability for the usual use/usual condition. These three groups of cases are to be examined from top to bottom, so to speak. If no contractual condition has been agreed, the statutory definition of defects applies in german practice.
In german practice, classic material defects are, for example, rising damp, woodworm infestation, use of toxic building materials, contaminated sites or even just the suspicion of contaminated sites. Other defects are significant deviations in area, lack of water supply, listed buildings, odor nuisance or actually non-existent income from commercial leases when a shopping center is purchased.
Overview of possible defects of title in german practice
A defect of title exists only in the case of individual encumbrances on the property purchased by the buyer.
Restrictions that affect every german property owner due to general legal requirements must be accepted by the purchaser. This applies, for example, to private neighbor law, nature conservation law and the law on the protection of historical monuments in Germany. The municipality's right of first refusal for land in accordance with the provisions of the German Building Code is also not a defect of title.
On the other hand, there is a defect of title if the property is partially dedicated as a public road or the purchaser of the property is obliged to pay a superstructure rent as the party building over the property. Furthermore, encumbrances in the german land register and (undisclosed) rental and lease agreements are also defects of title.
Disclosure obligation of the seller under german law
The seller has to point out particularly serious hidden defects without being asked. If he fails to do so, he risks not only civil claims but also criminal prosecution (forfeiture). Over the years, german case law has developed groups of cases in which the seller's duty of disclosure is affirmed. One of the most frequent cases is probably the case of rising damp or the presence of contaminated sites.
Reversal (rescission and avoidance), reduction of the purchase price (abatement) and damages - the buyer's claims in Germany
The rights of the buyer under german law differ as to whether a contractual claim for defects exists or whether the seller has concealed a hidden defect.
In addition to the defectiveness of the purchased item, another prerequisite for the effectiveness of the withdrawal is that the buyer has unsuccessfully set the seller a reasonable deadline for subsequent performance; only in exceptional cases is the setting of a grace period dispensable. In cases where the seller has fraudulently misrepresented defects, the setting of a grace period is generally not required in german practice.
In the event of rescission due to fraudulent misrepresentation, the seller must, in addition to repayment of the purchase price, also bear the notary fees, land registry costs, financing costs and land transfer tax in Germany.
The action for rescission or damages before the german civil court
A lawsuit must be brought before the regional court in Germany. The district court at the seller's registered office would have local jurisdiction.
In the case of fraudulent misrepresentation of a hidden defect under german law, the buyer must show and prove that a hidden defect exists and that the seller had knowledge of the defect. It is legally presumed that the buyer would not have concluded the purchase contract if he had known about the defect.
In german practice, the seller would have to show and prove that - if there is an undisputed defect - he disclosed the defect to the buyer before the conclusion of the contract.
The costs of such a lawsuit in Germany depend on the purchase price. The legal costs can easily reach high five-digit amounts. These are situations in which it actually pays to have legal protection insurance in german practice.
Further information on relevant topics can be found on the following pages of our german law firm on the Internet:
- COMMERCIAL REAL ESTATE TRANSACTIONS
- REAL ESTATE PURCHASE AGREEMENT; LAND PURCHASE AGREEMENT
- LAND REGISTER