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Purchase contract: Seller's liability for defects

In Germany, notarization of a contract is required for real estate sales. In this series, we look at the specific components of a purchase agreement, of which this article is also a part. Specifically, the topics are as follows: the parties involved, the subject matter of the purchase, the purchase price, the seller's liability for defects, Transfer of possession, use, burdens, and risk, Costs and Taxes, Conveyance and land register entry. Learn here for which aspects of a real estate sale the buyer can establish liability claims against the seller.

Seller's liability for defects

At Real Estate Sales Is the seller obliged to provide the property to the buyer Free from material defects and defects of title to provide. As a rule, the buyer is entitled to this. The question arises as to when the property is free of material defects. This is the case if the property is suitable for the use according to the contract or if it meets the requirements placed upon it. There must be no discrepancies whatsoever between the seller's information and the actual condition. Therefore, the seller must also pay attention to the statements they make in advertising.

Here are some examples of material defects:

The heating system is not working.
Dry rot
The utility connection for the property is missing.
The roof is leaking.

If the seller is aware of material defects, it is recommended to mention this in the purchase agreement.

Furthermore, the seller is liable if they guarantee certain characteristics of the property has assumed a guarantee. Here are some examples of guarantee contents:

Specification of the plot size
Specification of living or usable floor space
development readiness of a plot of land
Payment of development costs
Guarantee of rental income

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Seller's liability for legal defects

The seller is obligated to provide the buyer with the property free of legal defects. The property is free of legal defects if third parties have no rights to the property that the buyer is not willing to assume. This means that the property is free of Easements, encumbrances, etc. All rights are in the Land Register noted and the seller is obligated to remove all rights registered for third parties.

Here are some examples of legal defects:

the maximum height of the house
Existing lease and/or usufructuary lease agreements
Registered annuity charges, land charges, mortgages, real burdens
Restrictions under the Residential Property Promotion Act regarding the tenant demographic and rent level

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Disclaimer

However, the seller's liability can also be excluded. This may be the case in the following situations:

The buyer is aware of the defect upon conclusion of the purchase contract.
Either buyers and sellers limit liability for material defects or they exclude it completely.

It is of great importance that the liability clauses in the purchase agreement are formulated clearly and unambiguously. It must be regulated which rights are assumed by the buyer and which the seller must remove. Finally, it should be pointed out that a disclaimer of liability does not apply if the seller has fraudulently concealed the defect or has assumed a guarantee.

Public burdens

Public burdens are charges that are associated with a property. Public burdens on properties include in particular:

Property taxes
Development contributions
Resident contributions for public supply and disposal lines

The seller is obligated to bear the above-mentioned costs for structural work commenced up to the date of the conclusion of the contract, regardless of when the contribution liability arises. A deviating agreement in the purchase contract is possible.

Buyer's rights

If the seller fails to fulfill their obligations agreed upon in the purchase contract regarding defects in quality and title, the buyer may initially demand subsequent performance. Should this remain unsuccessful, the buyer is entitled to the following claims:

Cancellation of the purchase agreement
Reduction of the purchase price

Both in the event of withdrawal and a reduction of the purchase price, the buyer may demand damages from the seller.

Excerpts from the purchase agreement regarding the seller's liability for defects

Legal defects
The rights registered in Section II shall remain in effect and are assumed by the buyer for continued in rem subsistence. The buyer assumes the resulting rights and obligations. Otherwise, the seller warrants that the contractual property is free from all encumbrances and private-law obligations registered in the land register.

The parties consent to all creditor declarations necessary for the release of the contractual property from encumbrances, including the application for entry in the land register. They instruct the notary to request these declarations by means of a draft.

Development costs
The seller shall bear the costs for infrastructure development under the Federal Building Code and for capital investment expenditure under the Municipal Contributions Act that have been invoiced for the contractual property to date. Such costs shall be borne by the buyer as of today, regardless of to whom the assessment notice is addressed.

The buyer was advised that they can obtain certainty about the status and billing of the development from the competent authority. The seller assures that there are no unpaid assessment notices against them.

Defects in material
The buyer has inspected the contractual object and accepts it in its current condition. The seller does not warrant any specific floor area, any specific soil condition, nor the usability of the contractual object for the buyer's purposes.

However, the contracting parties agree as a quality of the subject matter of the contract that the supply and disposal facilities must be in a fully functional condition upon the transfer of possession. All claims and rights of the buyer due to material defects in the subject matter of the contract, in particular regarding the structural condition of buildings and any movable property sold with it, are excluded. No guarantees are given. The seller states that they have no knowledge of hidden defects and soil contamination and that they are not aware of any agreements with the building authority or neighbors regarding compliance with setback areas. It is solely the seller's responsibility to bear the risk of any deterioration of the subject matter of the contract up to the time of the transfer of possession, excluding normal wear and tear.

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