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 |  Axel Kötteritzsch

Liability of the architect in the event of an incorrect cost estimate

Architects not only plan buildings and supervise the construction work on them. They also advise property owners or prospective buyers about the costs of certain measures such as conversion, renovation or even demolition of buildings. Their statement on the costs involved is the basis for decision-making for the person seeking advice, but in many cases it is also presented to banks or investors for financing. Financial decisions are often made (solely) on the basis of such a cost estimate. This also raises the question of how far the architect's duty to inform and advise goes and for what damage he is liable in the event of an incorrect cost estimate.

In the decision of the OLG Karlsruhe of 30 April 2020 (reference 8 U 92/18), the plaintiffs commissioned the architect (defendant) to determine the probable costs for the renovation of a building yet to be acquired by the plaintiffs and, alternatively, the probable costs for its demolition and subsequent new construction. According to the defendant's calculation, the anticipated costs for the reconstruction were significantly lower. The plaintiffs decided to buy the property and subsequently renovate and modernise it.

However, after the renovation was largely completed, the plaintiffs noticed an odour in the building. An examination for harmful substances revealed that the wall construction was heavily contaminated with formaldehyde and that there was mould in the wall and floor construction. The plaintiffs then stopped the renovation work and instead intended to have the building demolished and a new building constructed. They demanded compensation from the defendant for the remediation costs they had incurred and the costs of the expert.

The OLG ruled in favour of the plaintiffs. The damage had not yet occurred because the plaintiffs had not yet erected a new building after demolition. It was only at this point that the plaintiffs' renovation expenses became useless and had to be compensated. However, the plaintiffs can have it established that the defendant is obliged to compensate them for the damage they suffer if the plaintiffs demolish the building and then have it rebuilt.

According to the OLG, the defendant's cost calculation for the renovation was defective. The extent of the architect's duty to explain and inform always depends on the circumstances of the individual case and he does not generally have to point out cost increases in such projects. In the specific case, however, the OLG saw such clear indications, already due to the year of construction and the simple type of construction of the property, that the defendant absolutely should have pointed out that the property could be contaminated with pollutants, which would lead to significantly higher remediation costs. Therefore, the defendant would have been obliged to take into account the economic concerns of the plaintiffs and to warn them of the risk of a significant increase in costs even before the investment decision was made.

The OLG further assumes in favour of the plaintiffs that they would have reasonably had the building examined for contaminants and would then have decided in favour of demolition and subsequent new construction if the defendant had properly informed them beforehand. This investigation would certainly have informed the plaintiffs of the actual costs of decontamination and their only reasonable reaction to this would have been for the OLG to decide in favour of demolition and new construction and against remediation from the outset. The OLG did not allow the defendant's objection that the plaintiffs had not already bought the property and that they would not have incurred the expenses if his performance had been faultless to prevail.

In the end, the plaintiffs can - if they have demolished and rebuilt the building - claim reimbursement from the defendant for the full costs of remediation as useless expenses. The plaintiffs do not have to be limited by way of mitigation of damages to the difference between the costs of a complete renovation and those of a demolition and new construction that was undertaken in advance. It is true that completion of the remediation (including formaldehyde and mould removal) may result in a lower pecuniary loss. However, since the defendant's calculation was intended to serve as a basis for the plaintiffs' decision, they may calculate their damages as if the defendant had informed them correctly from the outset.

The judgement shows how liability-laden such an order can be for the architect. There is no general standard for the architect's duty to check and inform. And the client's legitimate expectation that he relied on the architect's cost estimate when making his decision is, in case of doubt, always a very considerable argument with potentially very far-reaching consequences for the contractor concerned. Remedial action could possibly be taken here by a contractually previously precisely defined standard of review by the architect, the exact purpose of the estimate and the agreement of a limitation of liability. However, in case of doubt, the client must also carefully examine whether and, if so, which damages exactly he can claim against the architect, should the latter's cost estimate actually be incorrect. We will be happy to advise you in such cases.

Düsseldorf, 18 May 2021

Author: Axel Kötteritzsch

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