Construction trades safety - Lawyer Düsseldorf
In principle, a contractor is obliged to make advance performance vis-a-vis the owner. Payment is not due until the final invoice has been issued and acceptance has taken place, unless the parties have agreed on progress payments. This represents a considerable risk for the contractor, as he must make advance payments for the cost of materials and labor.
Safety provision possible in principle
In order to reduce this risk for the contractor, Section 650f of the German Civil Code (BGB) provides that the contractor may demand security (usually a bank guarantee) from the client. The contractor can demand the security deposit from the client in accordance with Section 650f of the German Civil Code (BGB) by setting a deadline. The amount of the security deposit is based on the agreed but not yet paid compensation for work. In addition, the contractor may increase the security for ancillary claims by up to 10%.
Exceptions for consumer construction and developer contracts
The regulations of the building trades security according to § 650f para. 6 no. 2 BGB do not apply to the consumer construction contract (§ 650i BGB) and not to the developer contract (§ 650u BGB).
If the customer is a consumer and is constructing a new building or performing significant remodeling work on an existing building, a consumer construction contract exists.
A developer's contract is a contract that has as its object the construction or reconstruction of a house or a comparable structure and that at the same time contains the obligation of the contractor to transfer ownership of the property to the purchaser or to create or transfer a heritable building right.
The legislator wants to protect the so-called "home builders". The builder cannot demand a builder's collateral from them. The reason for this is the legislator's view that house builders have solid and sustainable financing and therefore there is no risk of insolvency on the part of the purchaser, meaning that the builder is sufficiently protected.
The surprising consequence of this is that a contractor cannot demand security from a private builder when building a house, but can do so for a less complex partial renovation of a bathroom.
The details on safetys can be confusing. We are happy to advise contractors and purchasers on this.
Author: Lawyer Dennis Wiegard
Düsseldorf, February 2nd, 2023