Stuttgart – In appeal proceedings brought by LBBW Immobilien-Development GmbH, the Federal Court of Justice (Bundesgerichtshof, BGH) ruled on 7 December 2023 that a property developer’s payment claim against purchasers becomes statute-barred in accordance with section 196 of the German Civil Code (Bürgerliches Gesetzbuch, BGB), i.e. after ten years. The BGH has thus resolved what has been a contentious issue in the literature and in court cases since the reform of the Law of Obligations in 2002. The authorised legal counsel for LBBW Immobilien-Development GmbH were Klaus-Dieter Schick, a specialist in construction and architectural law at law firm CMS Germany, and Dr Peter Wessels, who provided representation before the BGH.
View of Karlsruhe Higher Regional Court: development contracts are subject to standard limitation periods
Karlsruhe Higher Regional Court had dismissed the lawsuit, which was aimed at obtaining payment of the final instalment resulting from a development contract, ruling that the limitation period had expired. It reasoned that a development contract has elements of both a contract of work and a purchase agreement. With regard to the final instalment, the court held that the focus was on the contract of work component. It thus ruled that the three-year standard limitation period laid down in section 195 of the BGB applies, rather than the special provision of section 196 of the BGB, according to which claims to the transfer of ownership of land and entitlements to consideration are statute-barred after ten years. Karlsruhe Higher Regional Court granted leave to appeal.
Federal Court of Justice: property developer’s payment claims are subject to the limitation period stipulated in section 196 of the BGB
In its recent judgment, the BGH noted that a legal splitting of the claim could only be considered if the parties to the development contract expressly agree this. Furthermore, the court was of the opinion that section 196 of the BGB, as the more specific statutory rule, supersedes section 195 of the BGB. The court went on to say that it was of key importance for the purchaser that they are able to acquire ownership of the property. If the property developer’s payment claim were to become statute-barred before ownership is transferred, the property developer could refuse to transfer title. The BGH considered it important to avoid a situation in which it was thereby not possible to complete performance of a contract aimed at transfer of ownership of a property. The BGH referred in this respect to the legislative texts relating to section 196 of the BGB.
Legal certainty for property developers
The ruling provides legal certainty for property developers and could also reduce the workload on courts. Up to now, in order to act with legal certainty a property developer needed to take steps within three years to prevent the purchaser claiming that the limitation period had expired, even if the purchaser was still entitled to a right of retention due to defects in the property.
The BGH’s case reference is VII ZR 231/22.
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