No defect rights for the customer without acceptance

On 19 January 2017 (ref. VII ZR 301/13), the BGH [German supreme court] made a decision on the lengthy dispute under German law about whether and to what extent there are defect rights before acceptance. The plaintiff demanded an advance on costs for work required to remedy defects in an incorrectly treated facade of a building. The defending contractor was sent a request to remedy defects with a deadline before acceptance. Just as there was no acceptance, there was no remedy of the defects. The defects are proven. The LG [regional court] Landshut und OLG [higher regional court] Munich upheld the plaintiff’s claims. The BGH has set the decisions aside because the plaintiff’s defect rights lacked an acceptance. It refers back to have it clarified whether there could be an exception.

The results

With theoretical legal reasoning derived from the wording of statute, according to which the customer can only demand fulfillment up until acceptance and the liability for defects does not arise until acceptance is communicated, the BGH in principal denies defect rights before acceptance. This does not come as a surprise and seems to correspond with the prevailing opinion. The BGH goes further, however, and gives short shrift to such exceptions which had to date been permitted by the case law of the upper regional courts. There, possible defect rights were previously also permitted without acceptance according to the prevailing opinion if the contractor had produced the work and the customer correctly refused acceptance due to defects. The BGH believes there is no room for this. Finally, the BGH itself makes some exceptions, but limits these significantly. Only if the customer explicitly or by implication expresses that the customer no longer wants to work with the contractor under any circumstances does a mere settlement relationship arise, in which the secondary defect rights may be claimed alongside the claim for performance before acceptance.

What is to be done?

Before acceptance, the customer will be referred to the rights arising from default and compensation for damages. The customer may set a deadline to complete the (due) work and essentially pursue the customer’s rights through termination, rescission and/or claims for damages.  The customer may also claim defect rights if he nevertheless declares acceptance (after termination) and reserves the right to recognized defects.