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 |  Dennis Wiegard

In purchase law, the compensation of "fictitious" defect removal costs is still possible

In its ruling of February 22, 2018 (Case No. VII ZR 46/17), the VII. Civil Senate of the Federal Court of Justice (BGH) decided that it is no longer permissible to settle a claim for damages due to defects in the building on the basis of the (fictitious) costs of remedying defects that are expected to be necessary but have not yet been incurred. This was a groundbreaking change in case law, as the BGH had abandoned fictitious settlement, which had been permissible for decades, with this ruling.

The uncertainty triggered by the ruling also affected the ongoing legal disputes of the V. Civil Senate at the Federal Court of Justice (responsible for sales law). In a decision dated March 13, 2020 (Case No. V ZR 33/19), the Vth Civil Senate asked the VIIth Civil Senate (responsible for construction and architects' contracts) whether the change in case law would remain and whether this change would also have an impact on purchase contracts. In a (response) decision dated October 8, 2020 (Case No. VII ARZ 1/20), the VII Civil Senate of the BGH stated that it would like to adhere to its change in case law and that a different treatment of contracts for work and services and contracts of sale was required. A difference between the two types of contract exists in the liability for material defects. Whereas a purchaser under the law governing contracts for work and services/construction law is entitled to an advance payment for the rectification of defects, the law governing the sale of goods does not provide for an advance payment claim for the purchaser. It would therefore be inequitable if the purchaser had to pre-finance the removal of defects in the defective purchased item because he could not fictitiously settle on the basis of a cost estimate.

According to the BGH, the risk of unreasonable overcompensation (pocketing the anticipated costs of rectifying defects without having the defects rectified in the future) of purchasers and (work) purchasers is also not comparable, as subsequent performance under the law of sale can be regarded as disproportionate in accordance with the requirements of Section 439 (4) sentence 2 BGB. In the event of disproportionality, a purchaser could only demand the defect-related reduced value as compensation for damages. In the law on contracts for work and services, there is no such limitation of the claim for damages.

The V. Civil senate agreed with this interpretation in its ruling of March 12, 2021 (Case No. V ZR 33/19). In the future, this will result in a different liability for defects for purchase contracts and contracts for work and services.

The subject of the proceedings were possible claims for damages by the plaintiffs, who purchased a used property (condominium) from the defendant in 2014 at a price of EUR 79,800.00 under exclusion of liability for material defects. The purchase agreement stated:

"The seller is aware that there was moisture on the bedroom wall in the past. Should there be moisture in the bedroom again by December 31, 2015, the seller undertakes to remedy it at his own expense."

At the end of 2014, moisture damage occurred again, which the defendant had not repaired despite being requested to do so by a deadline. In the lawsuit, the plaintiffs demanded payment from the defendant of the anticipated (fictitious) costs of remedying the defects and were now upheld by the Krefeld Regional Court and the Düsseldorf Higher Regional Court, as well as by the Federal Court of Justice. In the acquisition of used real estate, the practical differences between the law on sales and the law on contracts for work and services are generally minor. For in the case of defects with which the real estate purchaser cannot "live" or at least can live significantly worse than with the defect-free real estate, the VII Civil Senate, as it expressly clarified, continues to consider the estimation of the defect-related reduced value on the basis of the costs of remedying the defect to be permissible.

In summary, buyers can continue to demand either compensation for the defect-related reduced value or reimbursement of the presumably necessary costs of remedying the defect within the framework of small claims for damages, whereby it is irrelevant whether the defect is actually remedied (fictitious settlement is also possible), whereas in the law on works/ construction/architects, fictitious calculation of damages on the basis of the presumably necessary costs of remedying the defect is prohibited. Here, the customer has to prefinance the defect rectification or to assert his claim for advance payment.

Dusseldorf, March 15, 2021

Author: Attorney Dennis Wiegard

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