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Anyone who wants money for the removal of defects, must also have the repairs done

Someone who keeps a defective work and does not have the defect removed can no longer calculate a reduction or compensation according to the fictitious costs of removing the defect (German Federal Supreme Court, judgment of February 22, 2018, Case No. XII ZR 46/17).

The case

The natural stone slabs on the exterior of a four-story apartment building show considerable defects as a result of planning errors and implementation defects. The client sued the contractor and the architect simultaneously according to their respective share in liability for damages. He calculates the damage according to the fictitious costs of removing the defect, selling the object during the course of the on-going appeal, defects included. The Düsseldorf Higher Regional Court upholds the action, with the exception of the required sales tax. However, the German Federal Court sets aside the decision and refers the case back to the Higher Regional Court. In doing so, it abandons its previous case law and at the same time presents comprehensive guidelines for the future decision.

The consequences

The German Federal Supreme Court denies the use of the fictitious costs of removing the defect both for calculation of damages as well as the reduction, if the defect has not been eliminated at all. That is because the actual disadvantage of the client would thereby be overcompensated, since he would not in fact have the cost of remedying the defect. Instead, the damage must be determined by the difference between the value of the object with and without defect, whereby in case of doubt the agreed price for the defective part of the performance can be used. If the client removes the defect, he furthermore has the right to be reimbursed for the actual costs incurred. The client also retains the right to advance payments if he actually intends to remedy the defect. The German Federal Supreme Court applies the same principles to the legal relationship with the architect. Here, too, compensation – or the claim for reduction – should only be paid for the costs of remedying the defect if the defect is actually remedied.

What is to be done?

In future, the emphasis will be on the production of defect-free work. This is also the basic concept of the German Construction Contract Procedures Part B (VOB/B), as the Federal Supreme Court emphasizes several times. It will be exciting to see how cases are resolved in which an advance is successfully won, but then removal of the defect is “forgotten”. The Federal Supreme Court allows the fictitious costs of removing the defect to be converted to a claim for advance payments as a later change in interest (Section 274 (3) German Code of Civil Procedure - ZPO). In proceedings already in progress, therefore, there is no need for a change of claim that is subject to approval.

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