Key Points at a Glance
- A developer contract is an agreement for the purchase of a plot of land as well as the construction of a building.
- A developer contract is a mixed-type agreement combining a purchase agreement with a construction contract.
- A developer contract must be notarised.
What Is a Developer Contract?
A developer contract is an agreement covering both the purchase of a plot of land and the construction or conversion of a building on that land. It combines two types of contracts: the acquisition of the land constitutes a purchase agreement, while the construction component is governed by the law of contracts for work and services. Developer contracts are legally regulated in Section 650u of the German Civil Code (BGB).
- Applicable Law: A developer contract merges two different legal regimes. The purchase of the land is governed by purchase law; the construction or conversion of the building is governed by the law of contracts for work and services.
- Eligible Buildings: Developer contracts may concern a wide variety of buildings—single-family homes, multi-unit residential buildings, or commercial properties.
- Content: Developer contracts are extensive documents. They describe in detail what type of building will be constructed. The construction specification defines precisely what will be built, which materials will be used, and other essential technical and design details. Plans, drawings, and site layouts form part of the agreement. The contract also specifies the completion date, the purchase price, payment milestones, and other key terms.
- Licensing Requirement: Any party offering developer services on a commercial basis must hold an official licence pursuant to Section 34c (1) No. 3 of the German Trade Regulation Act (GewO).
What Special Requirements Apply When Entering Into a Developer Contract?
Entering into a developer contract combines the legal requirements for land purchase agreements and construction contracts:
- Notarial Form: Any agreement for the acquisition of land must be notarised (Section 311b BGB). Because the developer contract forms a single, unified agreement, the entire document must be notarised.
- Construction Specification for Consumers: Where the buyer is a consumer, the notary must provide the purchaser with the contract and the full construction specification in good time before the signing appointment. Professionally, it is mandatory that the documents be made available at least 14 days prior to signing. This ensures that consumers can thoroughly assess the project before making a significant financial commitment.
- Real Estate Transfer Tax: Real estate transfer tax applies on the purchase. Rates vary by federal state between 3.5% and 6.5%. The tax is calculated on the purchase price. Own labour is not taxed. Individual customisations are taxable, whether or not they are notarised. Tax authorities often verify these through questionnaires.
- General Terms and Conditions (AGB): If the developer is an entrepreneur and sells to a consumer, the contract generally qualifies as general terms and conditions. This triggers strict requirements under Sections 305 ff. BGB. Developers and notaries must therefore draft clauses particularly carefully.
How Does the Process of a Developer Contract Work?
Construction projects typically require significant time, often several years from planning to hand-over. Developer projects follow similar extended timelines because they involve both the acquisition of the land and the construction process:
- Preparation: Preparatory steps vary. For consumer purchases, the complete draft contract including construction specification must be provided at least two weeks before signing.
- Contract Signing: Once the parties have reached agreement, the contract is executed before a notary. Construction often begins only after signing.
- Payment: Payment under developer contracts is made in instalments according to construction progress. This protects the buyer from prepaying the entire price before construction is completed. However, risk remains: if the developer becomes insolvent before completion, the buyer may be left with an unfinished building. Completing the project with another company is often more expensive than the outstanding payment amounts.
- Acceptance: Once the building is completed, the purchaser must formally accept it. Acceptance is a crucial milestone: Before acceptance, defects can be asserted easily. After acceptance, the burden of proof for defects shifts to the buyer.
- Transfer of Ownership: After construction is complete and the purchase price and real estate transfer tax have been paid, ownership of the land is transferred to the buyer.
How Do Warranty Rights Work in a Developer Contract?
The applicable warranty regime depends on where the defect arises:
Defects relating to the land → governed by purchase law. Defects relating to the building → governed by the law of contracts for work and services.
This distinction can have significant implications.
Exclusion of liability for the condition of the land is common and generally permissible. However, liability for construction and planning defects cannot be excluded, as developer contracts involving consumers are subject to AGB law.
If defects arise after acceptance, the buyer may assert warranty claims for up to five years. Depending on the nature of the defect, this may include claims for remediation or damages.
