Property developer

Property developer - a company that acquires land, constructs buildings on it or renovates existing buildings, and subsequently sells the completed units to end customers. The property developer thus acts simultaneously as both the landowner and the builder, and only transfers ownership to the buyer upon completion.

Legal Basis and Definition

The activities of a property developer are strictly regulated in Germany by the Real Estate Brokerage and Property Development Ordinance (MaBV). This ordinance protects buyers from financial risks by, among other things, specifying the installments in which the purchase price may be paid. The installment payments pursuant to § 3 MaBV are linked to the actual progress of construction and may only be requested once certain conditions have been met-such as a letter of release from the financing bank or a guarantee. The property developer may demand a total of up to 100 percent of the purchase price in installments, spread across up to seven legally defined milestones.

An important distinction exists between this and the general contractor (GC): While the property developer owns the land and sells it together with the building, the general contractor builds on a plot of land that already belongs to the client. In a property development contract, the buyer thus acquires both the land and the building from a single source-a significant difference that also influences the contractual structure and warranty claims. The warranty period for property developer services is five years from acceptance, pursuant to § 634a BGB.

Property development contracts are notarized because they involve the acquisition of real property. The notary reviews the contract and informs both parties of their rights and obligations. We nevertheless recommend that buyers have the draft contract reviewed in advance by a specialized attorney, as the standard notarial briefing does not replace individual legal advice. In particular, the provisions regarding special requests, addenda, handover dates, and contractual penalties for construction delays should be carefully reviewed.

Risks and Quality Characteristics of Reputable Developers

The greatest risk when buying from a developer is the developer’s insolvency during the construction phase. In this case, the buyer has already made down payments, but the building is not yet completed. To protect against this, buyers can demand a completion guarantee pursuant to § 7 MaBV. This guarantee from a bank or insurance company protects the buyer in the event that the developer fails to fulfill their contractual obligations. Alternatively, the developer can submit a release statement from a first-ranking mortgagee-the more common option in practice.

We recognize reputable developers by several quality characteristics: They have a verifiable list of references for completed projects, provide transparent building specifications in accordance with § 650j BGB, accommodate special requests and schedule sample selection appointments, allow for independent construction supervision (e.g., by TÜV, Dekra, or independent experts), and provide a completion guarantee without being asked. Financial creditworthiness-verifiable through Creditreform or a bank reference-is also an important indicator. Another characteristic: Reputable developers do not provide non-binding completion dates, but adhere to contractual handover dates with contractual penalties in case of delays.

Developers and Warranties

Upon completion and handover, the five-year warranty period under Section 634a of the German Civil Code (BGB) begins for all building components. The developer must remedy any hidden defects that arise only after acceptance upon request. We recommend having an expert inspection conducted shortly before the five-year period expires to document all still-identifiable defects-because many claims are forfeited once the period expires. The cost of such an inspection typically ranges from 500 to 1,500 euros and is a sound investment given the potential cost of remedying defects.

Practical Tip for the Nuremberg and Franconia Region

In the Nuremberg metropolitan region, the new-construction market is heavily influenced by developers. Whether in the districts of Langwasser, Thon, or Röthenbach, or in the surrounding municipalities of Fürth, Erlangen, or Schwabach-numerous projects, ranging from apartment buildings to townhouse developments, are being realized by developers. We advise prospective buyers to visit at least two of the developer’s already completed projects on-site and speak with local owners before signing. It is also worth checking with the Chamber of Crafts of Middle Franconia to see if there are any complaints against the company. Independent construction supervision from the start of construction typically costs between 3,000 and 5,000 euros-an investment that quickly pays off when the purchase price is several hundred thousand euros.

Frequently Asked Questions

What is the difference between a property developer and a general contractor?

The property developer purchases the land, builds on it, and sells the land and building as a complete package to the end customer. The general contractor, on the other hand, builds on the client’s land and provides only the construction services. In a property development contract, the purchase price is paid in legally regulated installments according to the MaBV; in a general contractor contract, the provisions of the VOB/B or the BGB’s law on contracts for work and services apply. Another difference: Under a property development contract, the buyer is not the landowner until ownership is transferred-this poses particular risks in the event of the developer’s insolvency, against which a completion guarantee provides protection.

How can I protect myself against a developer’s insolvency?

We recommend requesting a completion guarantee pursuant to § 7 MaBV. This secures the installment payments made. Alternatively-and more commonly in practice-the developer submits a release statement from their financing bank confirming that the property will be transferred free of encumbrances upon full payment of the purchase price. In addition, buyers should check the developer’s creditworthiness (Creditreform, commercial register) before signing the contract and hire an independent construction supervisor to document the progress of the project. This allows quality defects to be identified early on and claims for rectification to be asserted in a timely manner.

What should I look for in the building specifications?

The building specifications are the key document for the quality of the property being purchased. They should list all trades in detail-from the foundation slab to the roof covering. Look for specific product and manufacturer details rather than vague phrases like “high-quality finishes” or “state-of-the-art.” Verify whether the stated energy standard (e.g., KfW 40) is supported by technical specifications. Since 2018, construction contract law (§ 650j BGB) has required a binding building specifications document prior to contract conclusion-use the time before the notary appointment to have a building expert conduct a professional inspection.

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