Installment payment

Progress payment - a partial payment due once a contractually agreed stage of construction has been reached. In the real estate sector, the Real Estate Brokerage and Development Ordinance (MaBV) governs the permissible payment schedule and protects buyers from unreasonable advance payments.

What exactly is a progress payment?

When purchasing a newly built property or in the case of large-scale construction projects, the purchase price is generally not paid as a lump sum, but rather in several installment payments corresponding to the progress of construction. The legal basis is the Real Estate Brokerage and Developer Ordinance (MaBV), which provides in § 3 for a binding payment schedule with up to seven installments. This mechanism ensures that buyers pay only for construction work that has actually been performed.

The seven installments under the MaBV are based on clearly defined construction phases. The typical sequence of installments and maximum percentages are as follows:

Construction Phase	Max. Percentage of Purchase Price
Start of earthwork	30%
Completion of shell construction, including carpentry	28%
Construction of roof surfaces and gutters	5.6%
Rough installation of the heating system	2.1%
Rough installation of the plumbing system	2.1%
Rough installation of the electrical system	2.1%
Window installation with glazing	2.8%
Interior plastering	4.2%
Screed work	2.1%
Tiling in sanitary areas	2.8%
Readiness for occupancy and handover	12.6%
Full completion	3.5%

Each installment may only be invoiced after the respective construction phase has been completed.

For an installment payment to be due at all, certain conditions must be met. The developer must be able to present a building permit, the purchase agreement must be notarized, and a priority notice of conveyance must be entered in the land register in favor of the buyer. Without these safeguards, there is no obligation to pay. We recommend carefully reviewing each payment request and, if necessary, having the actual construction progress confirmed by an independent expert.

Progress Payment vs. Advance Payment

In common parlance, progress payments and advance payments are often confused, but the difference is significant. An advance payment is made before the agreed-upon service is rendered-meaning the buyer pays in advance. With a progress payment, however, payment is made only for partial services already rendered. The MaBV prohibits pure advance payments in real estate development contracts to protect buyers from the risk of a developer’s bankruptcy.

In addition, the law governing contracts for work and services provides for a so-called retention of security. Buyers are generally permitted to withhold five percent of the total amount until all defects have been fully remedied. This mechanism gives the purchaser an effective means of pressure to enforce the rectification of identified defects.

Insolvency Protection for Progress Payments

A key purpose of the MaBV regulation is to protect the buyer in the event of a developer’s insolvency. Since progress payments are tied to the actual construction progress, the buyer can rely on a property that is already largely completed in the event of the developer’s insolvency. The priority notice of conveyance entered in the land register secures the buyer’s ownership rights against the creditors of the insolvent developer.

We also recommend that buyers inform themselves about completion protection: Some developers offer their own completion guarantees, which ensure that the construction project is completed by a third party in the event of insolvency.

Practical Tip for Buyers in Nuremberg and Franconia

In the Nuremberg metropolitan region, we are seeing a flurry of new construction activity-from urban development projects in Nuremberg-Südstadt to residential neighborhoods in Fürth and Erlangen, and single-family homes in the Nuremberg countryside. Especially when dealing with regional developers, buyers should be thoroughly familiar with the MaBV payment schedule and have each construction phase inspected personally or by an appraiser before making a payment. We support our clients in new construction projects in the region and help verify the validity of each installment payment before a transfer is made. In cases of uncertainty, it is advisable to consult a lawyer in Nuremberg or Fürth who specializes in construction law.

Frequently Asked Questions

How many installment payments are typical in a real estate development contract?

The MaBV provides for a maximum of thirteen installments, which are based on the progress of construction. The exact breakdown of the percentages may vary, but must not exceed the statutory maximum limits per installment. The first installment at the start of earthwork is generally a maximum of 30 percent of the total price. Many developers combine individual installments to reduce administrative effort-this is permissible as long as the maximum percentages are not exceeded.

Can a developer demand installment payments before construction begins?

No. No installment payment may be demanded before construction begins. In addition to the actual start of construction, the prerequisites include the entry of a priority notice of conveyance in the land register and the existence of a building permit. If any of these prerequisites is missing, the payment is not due-even if agreed upon in the contract, a clause to the contrary would be invalid.

Can a buyer withhold a partial payment if defects are present?

In principle, yes. In the case of identifiable construction defects, the buyer may withhold a reasonable portion of the installment payment until the defects are remedied. The amount of the permissible withholding depends on the estimated costs of remedying the defects-typically two to three times the amount of those costs. In addition, the buyer is entitled to the statutory retention of five percent, which may be withheld until the work is fully completed and free of defects.

Progress Payments in Craftsman Contracts

Progress payments play an important role not only in real estate development contracts but also in craftsman contracts. Under Section 632a of the German Civil Code (BGB), the contractor (tradesperson, builder) has the right, in a contract for work and services, to demand progress payments for partial services rendered. In contrast to the MaBV payment schedule for real estate development contracts, there are no statutory maximum rates for private trades contracts-the due date is determined by the services actually rendered. The client has a right of retention if defects are present.

For private building owners in Nuremberg who have commissioned renovation or remodeling work, we recommend linking progress payments to clearly defined stages of work and never paying more than the value of the work performed. Disputes over progress payments often lead to protracted conflicts-careful contract drafting with a specialist construction law attorney or with the support of a project-managing architect protects against unpleasant situations.

What should be considered regarding progress payments to architects or planners?

Architects and planners may also request progress payments for completed service phases under the HOAI (Fee Schedule for Architects and Engineers). The HOAI divides planning services into nine service phases (from preliminary planning to project supervision), and upon completion of each phase, a progress payment equal to the fee portion for that phase may be invoiced. Builders in Nuremberg should agree on the payment schedule with the architect in writing as part of the architectural contract and clarify that progress payments are only due after written confirmation of the progress of the work.

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