The great adventure begins with a small signature. Often there is not a single wall when the construction contract for your own house or apartment is signed. You embark on a project that can drag on for months, if not years, with many uncertainties and a huge impact on your bank balance.
After all, the principle of advance payment does not yet apply to construction: payment is made in installments, and only when the respective construction phase is completed. “The construction company has an obligation to pay in advance. The amount of the installment should correspond to the increase in value,” says Wendelin Monz, a specialist lawyer for construction and architect law in Potsdam and board member of the builders’ protection association, a non-profit consumer organization that advocates for the interests of private builders. The procedure sounds logical and understandable in theory – and raises a few questions in practice: How does the layman know whether the agreed rate actually corresponds to the value of the walls, windows and floors around which the house has grown in the past few weeks is? What happens if construction stalls? Or lines were laid incorrectly? Do you still have to pay?
The payment plan is agreed together with the construction contract. “Agreed” doesn’t really describe the process correctly: “As a private builder, you can’t usually determine the payment plan yourself, but are given it by the construction company and at most have the opportunity to renegotiate individual points,” says Monz.
No payment dates are specified, but construction progress and the proportion of the total amount that must be paid after completion of the work. If things go slower than planned, you don’t have to pay yet.
Expensive services such as bathroom equipment should be mentioned separately in the payment plan
Nevertheless, there are some points in the payment plan that builders should look at carefully before signing or, even better, have them checked by people with expertise. Because whether it is actually balanced, i.e. whether more money is being asked for than the property has just gained in value – that is difficult for a layperson to assess, but it is a very decisive factor: “If builders pay too much, the money is in usually lost in the event of insolvency of the construction company,” says Monz. It is then missing for the completion of the house or apartment.
A point of reference: The shell including the roof should not account for more than 50 percent of the total costs. And the building law expert has another tip: If possible, expensive services such as heating, floors or bathroom fittings should also be explicitly mentioned somewhere in the payment plan. “Otherwise you pay and pay, but the work doesn’t get done. If the company then goes bankrupt shortly before completion and the heating is still not installed, then you often face high additional costs.”
Otherwise, there are no templates that the layman can use as a guide: Depending on the project, payment plans look very different. In the case of a prefabricated house, for example, which can be erected in a short time, the rates are lower, but higher than for a single-family house, in which many different craftsmen are involved.
But there are some legal requirements. The first installment can only be requested if work has actually already been carried out. “Sometimes it’s due when you sign the construction contract,” says Monz. “That’s not allowed.” The first installment does not have to be transferred in full either: the builder may withhold five percent of the construction sum in the case of a consumer construction contract – this is a contract for the construction of a new building or for significant conversion work – as so-called completion security. Alternatively, the company can offer a guarantee. “For the consumer, money is always the safer alternative. However, the construction company can decide in what form this security deposit is granted.”
It is often difficult for builders to estimate the amount by which they should reduce the advance payments
The advance payments may be reduced if defects occur during construction, “up to twice the cost of remedying the defects,” says the construction law expert. Whereby builders – at least if they are building laymen – are again faced with the problem of being difficult to estimate such costs. “If you don’t have someone who can accompany the entire construction process, then you often need an expert for that,” says Monz.
The last installment must be at least ten percent of the total cost for consumer construction contracts. It will only be paid when the building has been approved – “that is, together with the five percent already set aside at the start of construction, the sum that the consumer can use to offset his own claims, for example due to defects,” says Monz.
Not only a construction company can get into financial difficulties on the long way to the dream house, but also the client. However, the payment plan does not provide for a postponement of the installment payments. The consequences can be serious, Monz warns: “If the consumer doesn’t pay, the contractor can stop the work, possibly even withdraw from the contract and demand compensation.”
The author has great respect for everyone who dares to embark on the adventure of building a house. She prefers to build with Lego instead.
(Photo: Schifferdecker (Illustration))