Service Agreement

Service Contract - A service contract (Sections 611 et seq. of the German Civil Code (BGB)) is a contract in which one party undertakes to perform a specific activity without being obligated to achieve a specific result. In the real estate sector, service contracts are frequently used for property management, brokerage services, property maintenance, and consulting services. The distinction from a contract for work and materials (Section 631 BGB), in which a specific result is owed, is crucial for liability issues and warranty claims.

Distinction: Service Contract vs. Contract for Work and Materials

Feature	Service Contract (Section 611 BGB)	Contract for Work and Materials (Section 631 BGB)
Obligation to perform	Performance of the activity	Achievement of a specific result
Remuneration	For the activity itself	For the result
Warranty	No rights regarding defects	Rights regarding defects (Sections 634 et seq. BGB)
Termination	Terminable at any time (Section 621 BGB)	Termination until completion (Section 648 BGB)

In the real estate sector, classification is often disputed: A property management contract is predominantly a service contract (ongoing administrative activities), but may contain elements of a contract for work and services (e.g., preparation of the annual statement of accounts).

Typical Service Contracts in the Real Estate Industry

• Property Management Contract: Ongoing management of condominium or rental properties - rent collection, operating cost billing, maintenance management
• Brokerage Contract: Brokerage services for the purchase or rental of property - the obligation is to make an effort, not to secure a deal (exception: qualified exclusive agency agreement)
• Facility management contract: Technical and infrastructural building management - maintenance, cleaning, security services
• Consulting contract: Real estate consulting, financing consulting, or energy consulting - the obligation is to provide expert consulting services

Liability in service contracts

In a service contract, the service provider is not liable for the failure to achieve a specific result, but is liable for breach of duty. If the service provider acts negligently, they breach a contractual duty (Section 241 BGB) and are liable for damages under Section 280 BGB. The client must prove the error and the resulting damage-in a contract for work, the contractor bears the burden of proof for the absence of defects. This means: Anyone wishing to hold a property management company liable for poor performance must demonstrate and prove specific breaches of duty (e.g., missed deadlines, incorrect billing, failure to perform maintenance) and the resulting damage.

Qualified service providers (lawyers, tax advisors, architects) also have professional liability insurance, which serves as a safety net in the event of damage. For property management firms, such mandatory insurance is not required by law-we therefore recommend asking about the property management firm’s insurance coverage before signing a contract. Managers who are members of the DDIV (German Association of Real Estate Managers) or the IVD (German Real Estate Association) typically maintain financial loss liability insurance that covers damages resulting from management errors. This feature should be explicitly inquired about when selecting a property management company in Nuremberg or the Franconia metropolitan region and, ideally, verified by presenting the insurance policy.

Practical Tip for Property Owners in Nuremberg and Franconia

We recommend that property owners in the Nuremberg metropolitan region review every service contract-especially property management contracts-for the following points before signing: Scope of services (which specific activities are included and which are not?), compensation structure (flat fee vs. itemized billing, additional fees), term and notice periods, as well as liability provisions and insurance coverage. For WEG property management contracts, the 2020 WEG reform (effective October 2020) stipulates that the property manager can be dismissed at any time by a simple majority-regardless of the contractual term-but the contract under the law of obligations does not terminate until at least six months have passed.

Frequently Asked Questions

Can I terminate a service contract with my property management company at any time?

In principle, yes-a service contract is terminable under § 621 BGB provided the statutory notice periods are observed. However, most property management contracts include contractual terms (typically two to five years) with notice periods of three to six months prior to the end of the term. Since the 2020 WEG reform, the dismissal of the property manager by the owners’ meeting can take place at any time by a simple majority vote-the contract under the law of obligations then continues for up to six months. In the case of extraordinary termination for good cause (e.g., proven embezzlement of funds or repeated serious breaches of duty), immediate termination is possible. However, the threshold for good cause is high-mere dissatisfaction with the quality of management is generally not sufficient.

What happens if my service provider performs poorly-do I have warranty claims?

In the case of a pure service contract, there is no warranty in the sense of a contract for work and materials-no right to rectification, no reduction in payment, no right to rescind due to defects. However, you are entitled to proper performance in accordance with the contract and the requirements of the respective professional field. In the event of poor performance, you may: issue a warning to the service provider and demand improvement, reduce the remuneration proportionally due to poor performance (Section 326 BGB by analogy), claim damages (Section 280 BGB), or terminate the contract for cause (Section 626 BGB).

Does a service contract in the real estate industry have to be concluded in writing?

Generally, no-service contracts are not subject to any formal requirements and can also be concluded orally or impliedly (through conclusive conduct). However, we strongly recommend the written form, as it provides clarity regarding the scope of services, remuneration, and notice periods, and serves as the most important evidence in the event of a dispute. An important exception: Since December 23, 2020, brokerage contracts for the purchase of apartments and single-family homes must be in written form (Section 656a BGB)-verbal or implied brokerage contracts are therefore invalid.

Clear contractual provisions in a service agreement are indispensable in the real estate industry-especially in property management, where a long-standing, poorly structured contract can lead to significant disputes regarding the scope of services, liability, and termination. We recommend that property owners in the Nuremberg metropolitan area regularly review their property management contracts and adjust them in the event of significant changes to the management services or the condition of the building.

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