Real estate is highly valuable. All the more frustrating, then, when defects appear after a purchase. The problem is that, particularly in older apartments or houses, damage, pest or mold infestations, and other problems are not always immediately apparent. In some cases, they are only discovered months later.
What is the legal situation: Who is liable for defects? Can sellers exclude liability in the purchase agreement? For how long can the buyer hold them liable, and can they subsequently reduce the price? In this article, you will find answers to the most important questions concerning liability for defects when purchasing real estate.
Differences in Detail: The Different Types of Defects
There are generally two different types of defects, each of which can be divided into three different groups. A distinction is made between defects in quality and defects in title.
- Defects in quality under Section 434 BGB: In this section, the German Civil Code describes valuable objects that are free from defects in quality. This makes it possible to determine when a defect exists. Accordingly, this is the case if an item does not have the agreed quality, is not suitable for the intended or agreed use, or does not have the quality that items of the same kind ordinarily have. Such defects could include, for example, a lack of infrastructure connections in new buildings, a front door that cannot be locked, or contamination with hazardous substances.
- Defects in title under Section 435 BGB: Such a defect exists when third parties have a right to an item that goes beyond the description recorded in the purchase agreement. A defect in title also exists if third parties can assert such rights against the buyer. In the case of real estate, these often involve undisclosed rights of way, rights of residence, or similar details.
Both types, especially defects in quality, are divided into three further groups. These groups differ in particular in their legal relevance and in questions concerning possible warranty coverage.
- Obvious defects: These are details that are apparent and easy to recognize. In real estate, these could include, for example, water stains on the ceiling indicating a defective roof, mold stains, or missing radiators in some rooms.
- Hidden defects: These are damages or other impairments that are not immediately apparent to the buyer, the seller, or third parties. These are problems that only become obvious upon close inspection or during use. Examples include mold behind wallpaper or an undetectable pest infestation, as well as pipe damage beneath plaster.
- Fraudulently concealed defects: There are defects that the seller knows about but does not disclose to the buyer. In such a case, the property owner deliberately conceals details that may affect the purchase price or use of the property.
The Seller Is Obligated
As a general rule, the seller is liable for defects when concluding a purchase agreement. This follows from § 433 paragraph 1 sentence 2 BGB:
“The seller must provide the buyer with the item free from material and legal defects.”
The property owner must therefore inform the buyer in detail about all known defects in the apartment or house. If the seller fails to do so, they may, under certain circumstances, be liable for damages. This liability can be reduced through contractual clauses.
If the seller deliberately conceals matters, this generally constitutes fraudulently concealed defects. However, as is so often the case with legal matters, the devil is in the details. The burden of proof again rests with the buyer. The buyer must prove that the seller knew about the problem before the purchase agreement was concluded.
Selling an Apartment or House: Warranty and Limitation Period
The legal provisions show that the seller of a property guarantees that the property is in an expected condition. This may be based on the condition of typical comparable properties or on a description in the purchase agreement.
The warranty covers material defects, legal defects, and all agreements made. This liability becomes time-barred five years after the property is handed over.
Listing Defects and Clauses on Liability for Defects
The seller can protect themselves against liability risks by meticulously listing all known defects in the purchase agreement. These points are therefore known to the buyer, who can no longer claim a warranty later. Alternatively, the seller can generally exclude liability through clauses. Wording transferring the house or apartment in its current condition is sufficient for this purpose. Typical clauses include “the “Seller is not liable for defects” or “purchased as is”.
Important: Liability for defects of title cannot be excluded. Such wording is only possible for material defects. Defects fraudulently concealed likewise cannot be excluded.
Typical construction defects
As a rule, defects that were unknown to the seller when the purchase agreement was concluded are excluded from the warranty. This applies particularly to typical construction defects associated with the type of property or its year of construction. The buyer must expect some deficiencies in view of the respective standard and age of the property.
Liability for defects
If a defect is discovered after the sale, the buyer may demand that it be remedied at the seller’s expense. If this is not possible, the buyer may even remedy the damage himself or have it remedied at the seller’s expense.
However, there is one limitation. The costs of remedying the defect may not exceed the reduction in the property’s value caused by this damage. The Federal Court of Justice established this in a judgment dated 4 April 2014 (Case no.: V ZR 275/12).
If it is not possible to remedy a defect, the buyer has several options:
- He can withdraw from the purchase.
- He can subsequently reduce the purchase price.
- He can additionally claim damages.
As a rule, such claims lead to a dispute. Depending on the deficiency and its consequences, the amount in dispute can quickly reach a significant sum of money. Both parties should therefore agree to involve an expert. The expert assesses the damage or deficiency and estimates its financial relevance. This procedure also establishes how long the defect has existed and whether it was already present when the purchase agreement was concluded. Based on an expert opinion, both parties may reach an out-of-court settlement. If this is not possible, the buyer may take legal action.
Liability for fraudulent concealment
The seller is generally not liable for hidden defects. However, this only applies if he was unaware of them when the purchase agreement was concluded.
If the buyer later discovers damage to the property within the warranty period, he can pursue a liability claim. The problem, however, is that he bears the burden of proof. He must prove that the seller has concealed details relevant to the contract from him.
In practice, it is hardly possible to prove such misconduct, even with an expert. This also applies if a building expert determines that the relevant disputed issue arose during a period before the conclusion of the contract. The seller must have known about this defect and deliberately concealed it. However, precisely this proof is rarely possible to provide with sufficient evidentiary force.
Practical tip: Keep a record and a list of defects
In practice, disputes repeatedly arise when the buyer discovers defects after conclusion of the purchase contract that they were previously unaware of. Malicious concealment does not always have to be involved. Often, both parties argue solely about whether certain details were discussed during the joint viewing of the property.
To protect themselves and have the greatest possible legal certainty, both parties should keep a list of defects and include all discussed details in an addendum to the contract. Similar to a property handover report, this allows both parties to confirm which defects they jointly identified and which relevant points they discussed. Renovation work that has already been scheduled or completed can also be listed. Ideally, an independent expert should be consulted for this list of defects. Such an approach further reduces disputes over liability for defects.