German Civil Code

The German Civil Code (in German: Bürgerliches Gesetzbuch or in short: “BGB”) provides for the statutory rules on German Construction Law. Find an extract of the relevant Sections here:

Subtitle 1
Contract to produce a work

Section 631
Typical contractual duties in a contract to produce a work

(1) By a contract to produce a work, a contractor is obliged to produce the promised work and the customer is obliged to pay the agreed remuneration.

(2) The subject matter of a contract to produce a work may be either the production or alteration of a thing or another result to be achieved by work or by a service.

Section 632
Remuneration

(1) Remuneration for work is deemed to be tacitly agreed if the production of the work, in the circumstances, is to be expected only in return for remuneration.

(2) If the amount of remuneration is not specified, then if a tariff exists, the tariff remuneration is deemed to be agreed; if no tariff exists, the usual remuneration is deemed to be agreed.

(3) In case of doubt, remuneration is not to be paid for a cost estimate.

Section 632a
Part payments

(1) The contractor may demand a part payment from the customer for work carried out in accordance with the contract in the amount in which the customer has received an increased value by virtue of the work. The part payment may not be refused because of minor defects. Section 641 (3) applies with the necessary modifications. The work must be documented by a list which must facilitate a rapid, secure evaluation of the work. Sentences 1 to 4 also apply to required materials or building components that are supplied or specially prepared and made available if ownership of the materials or building components is transferred to the customer or an appropriate security is provided for this, at his option.

(2) If the subject-matter of the contract is the construction or conversion of a house or comparable building and at the same time entails an obligation incumbent on the contractor to assign to the customer ownership of the plot of land or to establish or assign a hereditary building right, part payments may only be demanded insofar as they have been agreed in accordance with an ordinance based on Article 244 of the Introductory Act to the Civil Code.

(3) If the customer is a consumer, and if the subject-matter of the contract is the construction or conversion of a house or comparable building, the customer must be given a security amounting to five percent of the remuneration claim on effecting the first part payment for the correct implementation of the work without major defects. If the remuneration claim increases by more than ten percent as a result of amendments to or supplements of the contract, the customer is to be given a further security of five percent of the additional remuneration claim on effecting the next part payment. At the request of the contractor, the security is to be provided by retention such that the customer retains the part payments up to the total amount of the security owed.

(4) Securities in accordance with this provision may also be provided by means of a guarantee or other payment undertaking by a financial institution or credit insurer entitled to operate in the scope of application of this Code.

Section 633
Material defects and legal defects

(1) The contractor must procure the work for the customer free of material defects and legal defects.

(2) The work is free of material defects if it is of the agreed quality. To the extent that the quality has not been agreed, the work is free from material defects

1.  if it is suitable for the use envisaged in the contract, or else

2.  if it is suitable for the customary use and is of a quality that is customary in works of the same type and that the customer may expect in view of the type of work.

It is equivalent to a material defect if the contractor produces a work that is different from the work ordered or too small an amount of the work.

(3) The work is free of legal defects if third parties, with regard to the work, either cannot assert any rights against the customer or can assert only such rights as are taken over under the contract.

Section 634
Rights of the customer in the case of defects

If the work is defective, the customer, if the requirements of the following provisions are met and to the extent not otherwise specified, may

1.  under section 635, demand cure,

2.  under section 637, remedy the defect himself and demand reimbursement for required expenses,

3.  under sections 636, 323 and 326 (5), revoke the contract or under section 638, reduce payment, and

4.  under sections 636, 280, 281, 283 and 311a, demand damages, or under section 284, demand reimbursement of futile expenditure.

Section 634a
Limitation of claims for defects

(1) The claims cited in section 634 nos. 1, 2 and 4 are statute-barred

1.  subject to no. 2, in two years in the case of a work whose result consists in the manufacture, maintenance or alteration of a thing or in the rendering of planning or monitoring services for this purpose,

2.  in five years in the case of a building and in the case of a work whose result consists in the rendering of planning or monitoring services for this purpose, and

3.  apart from this, in the regular limitation period.

(2) In the cases of subsection (1) nos. 1 and 2, limitation begins on acceptance.

(3) Notwithstanding subsection (1) nos. 1 and 2, and subsection (2), claims are statute-barred in the standard limitation period if the contractor fraudulently concealed the defect. However, in the case of subsection (1) no. 2, claims are not statute-barred before the end of the period specified there.

(4) The right of revocation referred to in section 634 is governed by section 218. Notwithstanding the ineffectiveness of revocation under section 218 (1), the customer may refuse to pay the remuneration to the extent that he would be entitled to do so by reason of the revocation. If he uses this right, the contractor may revoke the contract.

(5) Section 218 and subsection (4) sentence 2 above apply with the necessary modifications to the right to reduce the price specified in section 634.

Section 635
Cure

(1) If the customer demands cure, then the contractor may, at his option, remedy the defect or produce a new work.

(2) The contractor must bear the expenditure necessary for cure, including, without limitation, transport, workmen’s travel, work and materials costs.

(3) The contractor may refuse cure, without prejudice to section 275 (2) and (3), if it is only possible at disproportionate cost.

(4) If the contractor produces a new work, he may demand from the customer return of the defective work in accordance with sections 346 to 348.

Section 636
Special provisions on revocation and damages

Except in the cases of sections 281 (2) and 323 (2), there is no need for a period to be set even if the contractor refuses cure under section 635 (3) or if cure has failed or cannot be reasonably expected of the customer.

Section 637
Self-help

(1) If there is a defect in the work, the customer may, after the expiry without result of a reasonable period specified by him for cure, remedy the defect himself and demand reimbursement of the necessary expenses, unless the contractor rightly refuses cure.

(2) Section 323 (2) applies with the necessary modifications. A period of time need not be specified even if cure has failed or cannot reasonably be expected of the customer.

(3) The customer may demand from the contractor advance payment of the expenses necessary to remedy the defect.

Section 638
Reduction of price

(1) Instead of revocation of the contract, the customer may reduce the remuneration by declaration to the contractor. The ground for exclusion under section 323 (5) sentence 2 does not apply.

(2) If the customer or the contractor consists of more than one person, reduction of price may be declared only by or to all of them.

(3) In the case of reduction of price, the payment is to be reduced in the proportion which, at the time when the contract was entered into, the value of the work in a state free of defects would have had to the actual value. To the extent necessary, the price reduction is to be established by appraisal.

(4) If the customer has paid more than the reduced remuneration, the contractor must reimburse the surplus. Section 346 (1) and section 347 (1) apply with the necessary modifications.

Section 639
Exclusion of liability

The contractor may not rely on an agreement by which the rights of the customer with regard to a defect are excluded or restricted, insofar as the contractor fraudulently concealed the defect or gave a guarantee for the quality of the work.

Section 640
Acceptance

(1) The customer is obliged to accept the work produced in conformity with the contract, except to the extent that, in view of the quality of the work, acceptance is excluded. Acceptance may not be refused by reason of trivial defects. It is equivalent to acceptance if the customer does not accept the work within a reasonable period of time specified for him by the contractor, although he is under a duty to do so.

(2) If the customer accepts a defective work under subsection (1) sentence 1, even though he knows of the defect, he only has the rights designated in section 634 nos. 1 to 3 if he reserves his rights with regard to the defect when he accepts the work.

Section 641
Due date of remuneration

(1) The remuneration must be paid upon acceptance of the work. If the work is to be accepted in parts and the remuneration for the individual parts is specified, then the remuneration is to be paid for each part when it is accepted.

(2) The remuneration of the contractor for a work whose production the customer has promised to a third party is due at the latest

1.  to the extent that the customer has received from the third party his remuneration or parts of his remuneration for the production of the promised work,

2.  to the extent that the work of the customer has been accepted by the third party or is deemed to have been accepted, or

3.  to the extent that the contractor has unsuccessfully set the customer a suitable deadline for information on the circumstances referred to in nos. 1 and 2.

If the customer has given the third party security on account of possible defects of the work, sentence 1 applies only if the contractor gives the customer an appropriate security.

(3) If the customer may demand remedy of a defect, he may, after becoming due, refuse to pay a reasonable portion of the remuneration; twice the costs necessary to remedy the defect are appropriate as a rule.

(4) If the remuneration is assessed in money, the customer must pay interest on it from the acceptance of the work on, except to the extent that remuneration is deferred.

Section 641a
(repealed)

Section 642
Collaboration by the customer

(1) If, in the production of the work, an act by the customer is necessary, then the contractor may demand reasonable compensation if the customer, by failing to perform the act, is in default of acceptance.

(2) The amount of compensation is assessed on the one hand on the basis of the duration of the default and the amount of the agreed remuneration, and on the other hand on the basis of what expenses the contractor saves or what the contractor can earn by employing his working capacity elsewhere.

Section 643
Termination for failure to collaborate

In the case of section 642, the contractor is entitled to give the customer a reasonable period of time for making up for the act to be performed by declaring that he will terminate the contract if the act is not undertaken by the end of the period of time. The contract is deemed to be cancelled if the act is not made up for by the end of the period of time.

Section 644
Allocation of risk

(1) The contractor bears the risk until acceptance of the work. If the customer is in default of acceptance, then the risk passes to him. The contractor is not liable for any accidental destruction or accidental deterioration of the materials supplied by the customer.

(2) If, at the demand of the customer, the contractor ships the work to a place other than the place of performance, then the provisions of section 447 governing purchase apply with the necessary modifications.

Section 645
Responsibility of the customer

(1) If the work, before acceptance, is destroyed or deteriorates or becomes impracticable as the result of a defect in the materials supplied by the customer or as the result of an instruction given by the customer for the carrying out of the work, without a circumstance for which the contractor is responsible contributing to this, then the contractor may demand a part of the remuneration that corresponds to the work performed and reimbursement of those expenses not included in the remuneration. The same applies if the contract is cancelled under section 643.

(2) A more extensive liability of the customer for fault is unaffected.

Section 646
Completion in lieu of acceptance

If acceptance is excluded due to the quality of the work, then, in the cases of sections 634a (2) and 641, 644 and 645, completion of the work takes the place of acceptance.

Section 647
Security right of the contractor

For his claims under the contract, the contractor has a security right over the movable things of the customer that he has produced or repaired if they have come into his possession during the production or for the purpose of repair.

Section 648
Mortgage of a building contractor

(1) The contractor for a building or an individual part of a building may demand, for satisfaction of his claims under the contract, that a mortgage over the building plot of the customer is granted. If the work is not yet completed, then he may demand that a mortgage is granted for a portion of the remuneration corresponding to the work performed and for expenses not included in the remuneration.

(2) The owner of a shipyard, for his claims in relation to the building or repair of a ship, may demand to be granted a ship mortgage over the ship under construction or ship of the customer; subsection (1) sentence 2 applies with the necessary modifications. Section 647 does not apply.

Section 648a
Builder’s security

(1) A contractor for a building, outdoor facilities or a part thereof may demand a security from the customer for the remuneration also agreed in additional commissions and not yet paid, including associated incidental claims, which are to be estimated at ten per cent of the remuneration claim to be secured. Sentence 1 also applies to the same degree to claims replacing the remuneration. The claim of the contractor for a security is not ruled out by the customer being able to demand fulfilment or having accepted the work. Claims with which the customer is able to offset against the contractors right to remuneration are disregarded when calculating the remuneration unless they are non-contentious or have been ascertained with the force of law. The security is to be deemed sufficient even if the provider of the security reserves the right to revoke his promise, in case of substantial deterioration of the financial circumstances of the customer, with effect for claims to remuneration for building work that the contractor has not yet performed when the declaration of revocation is received.

(2) The security may also be provided by means of a guarantee or other promise of payment by a banking institution or credit insurer authorised to conduct business operations within the area of application of this Code. The banking institution or credit insurer may only make payments to the contractor to the extent that the customer recognises the claim of the contractor to remuneration or has been ordered by a provisionally enforceable judgment to pay the remuneration and the requirements are met under which execution of judgment may be commenced.

(3) The contractor must pay to the customer the customary costs of provision of security up to a maximum amount of two per cent per year. This does not apply to the extent that the security must be maintained because of objections of the customer to the remuneration claim of the contractor and the objections turn out to be unfounded.

(4) To the extent that the contractor has obtained a security for his claim to remuneration under subsections (1) and (2), the claim to be granted a mortgage under section 648 (1) is excluded.

(5) If the contractor has unsuccessfully set the customer a suitable deadline to provide the security in accordance with subsection (1), the contractor may refuse to carry out the work or may terminate the contract. If he terminates the contract, the contractor is also entitled to claim the agreed remuneration; he must however allow set-off of the expenses he saves as a result of cancelling the contract or acquires or wilfully fails to acquire from other use of his labour. There is a presumption that the contractor is accordingly entitled to five percent of the remuneration accounted for by the part of the work not yet provided.

(6) The provisions of subsections (1) to (5) are not applicable if the customer

1.  is a legal person under public law or a special fund under public law with regard to the property of which insolvency proceedings are not permissible, or

2.  is a natural person and is having the construction work done to build or repair a one-family house with or without a self-contained apartment attached.

Sentence 1 no. 2 does not apply if the construction project is looked after by a construction agent authorised to dispose of the financial resources of the customer.

(7) Any agreement deviating from the provisions of subsections (1) to (5) above is ineffective.

Section 649
Right of termination of the customer

The customer may terminate the contract at any time up to completion of the work. If the customer terminates the contract, then the contractor is entitled to demand the agreed remuneration; however, he must allow set-off of the expenses he saves as a result of cancelling the contract or acquires or wilfully fails to acquire from other use of his labour. There is a presumption that the contractor is accordingly entitled to five percent of the remuneration accounted for by the part of the work not yet provided.

Section 650
Cost estimate

(1) If the contract is based on a cost estimate without the contractor guaranteeing the accuracy of the estimate and if it turns out that the work cannot be carried out without substantially exceeding the estimate, then the contractor is only entitled, if the customer terminates the contract for this reason, to the claim specified in section 645 (1).

(2) If such exceeding of the estimate is to be expected, then the contractor must notify the customer of this without undue delay.

Section 651
Application of sale of goods law*)

The provisions of sale of goods law are applicable to a contract dealing with the supply of movable things to be produced or manufactured. Section 442 (1) sentence 1 also applies to these contracts if the defect is caused by the material supplied by the customer. To the extent that the movable things to be produced or manufactured are not fungible things, sections 642, 643, 645, 649 and 650 apply, subject to the proviso that the applicable point of time under sections 446 and 447 takes the place of acceptance.

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