Property Developer Contracts
The property developer contract is a purchase contract of a property including the special feature that the seller, as a so-called property developer, additionally first has to build the building (house or apartment), included in the contract, themselves or have it erected. As a result, the property developer plays a double role: He sells the property, and also at the same time, he acts as a building contractor or general contractor. For this reason, the property development contract is a combination of a purchase agreement and a contract of work and labor.
When buying from a property developer, there are many more demands on the buyer in the run-up to the notarization, than when buying a completed object. When buying a completed object, the buyer may be indifferent to the seller’s person, but the property developer’s person comes with regard to their technical know-how, experience, organizational skills, and above all their creditworthiness is of the utmost importance. In this case, without the help of the notary, the buyer will have to make inquiries before the purchasing negotiations begin, for example, through information and inspection of reference objects, talks with real-estate agents and building experts.
The – if possible very detailed – building description and the construction plans require the buyer to have a special capacity for spatial sense and good judgement. Particularly with these documents, the buyer must carefully examine and study them and also have them explained by the property developer, and if necessary, also seek advice from third parties, before the notarization.
The draft of the property developer contract, the construction description and the building plans as well as the partition deed with community rules, will be sent by the notary to the buyer before the notarization. Change requests can certainly also be made to the developer’s contract in consultation with the builder, even if this is usually a standard contract, which is contrary to a completely individual solution, and the property developer must be granted the principle of equal treatment of his customers. A deadline of two weeks is to be observed between the date on which the aforementioned documents are handed over by the notary and the notarization of the contract occurs.
The property developer contract is much more extensive than the standard property purchasing contract, not only because it contains both the elements of a purchase contract and contract of work and labor, but also because the notary must be extremely careful in the formulation so that he ensures that the decisive consumer protection regulations are observed for this type of contract, namely the regulations of the real-estate agent’s commission and property developer’s regulation, as well as the provisions of the civil legal code on general business terms and conditions (§§ 305 ff. BGB).
The Real Estate Agent and Property Developer Ordinance ensures, above all, that the property developer must first perform his construction work, step-by-step in advance, before the corresponding purchase price installment is be paid by the buyer. According to the law, the property developer can request a maximum of seven payment installments, which he may select from the following construction progress rates:
- 30,0 % after the commencement of the excavation work
- 28,0 % after completion of bare brickwork construction, including carpentry
- 5,6 % for the manufacturing of roof surfaces and gutter
- 2,1 % for the rough installation of the heating systems
- 2,1 % for the rough installation of the sanitary facilities
- 2,1 % for the rough installation of the electrical systems
- 7,0 % for the window installation, including glazing
- 4,2 % for interior plaster except for auxiliary plaster work
- 2,1 % for the floor screed
- 2,8 % for the tile work in the sanitary areas
- 8,4 % after readiness of occupation and step-by-step against transfer of ownership
- 2,1 % for the facade work
- 3,5 % after final completion of the contract object, including exterior installations
If some of the services do not apply, then the one hundred percent rate shall be distributed pro rata across the remaining installment payments in proportion to their shares.
Prior to the provision of these services, the buyer needs to convince himself at the building site that the construction status, shown to him by the building developer, has actually been achieved.
However, the Real Estate Agent and Property Developer Ordinance doesn’t protect the buyer from the fact that, under certain circumstances, long after the completion of the building, the municipality can later demand payment for development and residential contributions for the road and sewer, to which the newly built house has been connected. For this reason, just like with the property purchase contract, it is advisable to enquire at the municipality or city.
Generally, the property developer will finance the construction of the entire row of houses or apartment complex with the help of a bank, and he will register a global land charge on the whole property for the entire construction costs for this purpose. The notary helps the buyer with the examination of the deed of release provided to the buyer by the bank, and also with the determination of the other legal conditions, which determine the maturity of the purchase price (permits, purchase-option right certificate of the municipality, priority notice of conveyance). If the developer, as permitted by the Real Estate Agent and Construction Industry Ordinance, replaces the last-mentioned maturity requirements by transfer of a bank guarantee to the buyer, this will also be examined by the notary without special remuneration.
The buyer should ensure that the deadline for the occupancy readiness is defined as precisely to the day as possible, in the building contract. As far as it is possible, special wishes should be registered before the notarization and drafted into the property developer contract.
Since the property developer generally builds completely new things, he is liable, different than with a seller of a used property, for any material defects. The notary will ensure that this is clearly formulated in the contract, according to legal rules and regulations, including the rules governing the limitation of these claims (five years after inspection and approval).
However, the inspection and approval of individual subsections is the sole responsibility of the buyer; he can certainly be supported in this by a building expert.
For the appointment with the notary, it is helpful if the property developer and the buyer have already clarified the same points, as with the property purchase contract and furthermore the details of the construction project.
Before the notarization, the buyer should have been provided, by the property developer, with the documents mentioned below, and they should have been carefully studied:
- Building specifications (detailed!)
- Building plans (site plan with notations of the building placement and of the vehicle and other special-usage areas, floor plans for the individual stories, including attic and cellar stories and, if applicable, underground garage, object views and cross-sectional views
Notary fees cannot be levied or negotiated at the will of the notary; they are strictly regulated by law. Decisive is the Court and Notary Fees Act that applies throughout federal territory. Therefore, the same fees are always charged by each notary for the same notarial activity.
The notarization fees are based on the so-called commercial value, and in the case of a property developer contract, according to the purchase price. In the above-mentioned fees, the costs for consultation and draft creation as well as changes to them, are included. Ancillary fees are incurred for the monitoring of the purchase price maturity and the transfer of ownership. In addition, there are usually some additional small fees for copies, postage and telephone as well as the statutory value-added tax.
Rule of thumb: The transaction costs for a property developer contract for the acquisition of property in Bavaria are approximately 5.5% of the purchase price (excluding real estate agent commission): of this, 3.5% is property acquisition tax, 2.0% is notary and court fees. In most other federal states, a higher property acquisition tax is levied. The exact notary fees can only be determined on a specific case-by-case basis, since particularly the amount of ancillary fees depends on which permits and additional notifications must be sought out by the notary, which deletions he has to make, etc. Therefore, make inquiries to the notary regarding the exact fees before the acquisition.