Developers professionally and independently carry out construction work on their own property and in their own name on their own or third-party account. As the land is owned by the developer, the developer is also the principal and bears the builder’s risk.1 Construction work can comprise both the construction of new buildings and the conversion or modernization of existing ones.2 Under a property development contract, the developer sells the property including the land to the customer. If construction work has not yet begun at the time of the sale or work is still ongoing, the developer undertakes to complete the building in accordance with the building specification and drawings.3 This is due to the features of the property development contract. This is a mixed form of contract, containing elements of both sales contract law and work contract law. Property development contracts must be notarised. In addition to the contract itself, the building specification and any other annexes are also notarised.4

In return for carrying out the construction, the developer usually receives assets (money) from the consumer at a pre-determined amount. The purchaser therefore takes a general risk as, in the event of construction defects, he no longer has any leverage over the developer. He also bears the risk of insolvency of the developer. The law therefore provides for comprehensive regulations to protect the creditor (purchaser). In order to operate as a developer, a license is first required in accordance with section 34 c of the Gewerbeordnung (GewO – German Industrial Code).5 Section 3 of the Makler- und Bauträgerverordnung (MaBV – German Property Broker and Developer Ordinance) stipulates a specific sequence for the transfer of assets. Accordingly, certain basic requirements (e.g. a legally valid contract and the necessary permits) must be in place for a payment obligation to arise. Once these are met, the purchaser pays in instalments in line with construction progress (section 3(2) MaBV). The final payment is due after all notified defects have been eliminated. In addition to these provisions, different regulations under the German Civil Code (e.g. notarisation obligation as per section 311 b BGB) also apply.6

In practice, different companies act as developers. In particular, housing companies, construction companies, project developers, construction managers, property companies and brokers operate as property developers. But entrepreneurs with unrelated skills are also increasingly offering developer services. In such cases the developer often only handles the coordination of the overall construction project and delegates the individual duties to companies such as architects, construction companies, etc.7

Like a developer, a general contractor (GU) also handles the overall coordination of a construction project. The two variants differ, however. In order to engage a general contractor the principal must provide the land. Thus, the notarisation of the contract is also not required to engage a general contractor. Rather, it is a private law work contract between the client and the contractor. Furthermore, the legal basis is formed not by the German Property Broker and Developer Ordinance but by the Verdingungsordnung für Bauleistungen (VOB – German Construction Contract Procedures).
Swiss Life Asset Managers
: 7/13/2020